Before investing in a mining company, you should understand the nature of the mining industry and the related risks.
The mining industry regularly experiences highs and lows. The returns can be substantial, but the risks are high.
As an investor, you could make money if the company operates its mine or if it is acquired by another company. Depending on economic conditions and how the project progresses, you could also lose some or all of your investment.
The research and activities to be carried out between discovering a deposit and starting up mining operations involve a lot of time and money. Even if the initial samples (the mineral occurrences) seem promising, a mining company has to conduct extensive assessment work to determine whether mining operations will be profitable.
Of the new deposits that are discovered, very few are actually mined. In many cases, the assessments show that mining would not be profitable.
In cases where profitability is demonstrated, more than 10 years can pass between the initial discovery and the start of mining operations.
Regulation and technical report
Regulation and technical report
In Canada, any company that publishes information of a scientific and technical nature on any of its mining projects is subject to strict regulations.
More specifically in Québec, mining companies must comply with the provisions of Regulation 43-101 respecting Standards of Disclosure for Mineral Projects. The purpose of such regulation is to ensure the quality, reliability and integrity of disclosure in the mining industry. The regulation defines the concepts of a technical report and a qualified person. The AMF is responsible for enforcing the regulation.
If a mining company issues shares to the public, it must also prepare a prospectusA prospectus is a detailed information document that a company must prepare to be able to sell securities (such as shares) to the public.
It must provide full, true and plain disclosure of all material facts likely to affect the value or market price of the security in question. . This document contains scientific and technical information about the mining project. It presents a full, true and clear account of all the important facts that can affect the value of the investment. The prospectus is an essential document when considering whether or not you should invest in a mining company.
A technical report is an important document, intended for investors. It provides a summary of the essential scientific and technical information about a mining project.
Generally, a technical report is required when a company decides to issue shares to the public.
The technical report is also required to validate any important information that may be published by a mining company. For example, a technical report will be required to disclose information on:
- The mineral resources (samples obtained through drilling);
- The preliminary economic assessment, which presents the initial results showing whether the project is potentially viable;
- The mineral reserves (the estimated quantity of ore that it will be possible to mine, as determined by a prefeasibility or feasibility study).
If a technical report is required, the mining company must make it available to investors on the SEDAR site This link will open in a new window .
The technical report must be prepared by one or more qualified persons who, in some cases, must be independent of the company.
The qualified person must meet several requirements, including:
- Hold a relevant university degree;
- Be a member of a recognized professional association;
- Have at least five years of related experience.
Feasibility stages of a mining project
Looking to invest in a mining company? You should first understand how a mining project unfolds. Here is an explanation of the various stages, from the discovery of mineral occurrences to mining operations. It covers all the work a mining company has to perform to assess the feasibility of its project.
Do the quantity and quality of mineralization meet requirements?
The mining company begins by estimating the quantity and quality of mineralization, i.e., the mineral resource. It carries out drilling to obtain soil samples. Once drilling has revealed the presence of a mineral resource, the next step is to determine whether the deposit can actually be mined.
Preliminary economic assessment and feasibility studies
The mining company will conduct the following assessments:
- Preliminary economic assessment: to tell investors whether a mining project has the potential to be viable.
- Prefeasibility and feasibility studies: to determine with more certainty whether the mining project is viable.
These studies analyze and evaluate economic, technical and geological factors.
Is the project profitable?
The company must evaluate the economic profitability of the project, including whether the price of the ore on world markets will justify the investment.
- Uncertainty about the future price of ore could make it more difficult to obtain funding for the project.
- The mining company must clearly evaluate the technical feasibility of the project. What infrastructure will be needed for extracting and grading of the ore? Is the deposit easily accessible? Have the technologies been proven?
- The company must take the project's environmental and social aspects into account. Is the project being accepted by the nearby communities? How far away is the nearest road?
Throughout the assessment process, the company's officers and experts must determine whether the project justifies the large sums of money that will be needed to operate the mine. At each stage, the officers may put the project on hold until optimal conditions materialize (such as increased demand for the ore). They may even decide to abandon it altogether.
Once it has determined that the project would be profitable, the mining company must obtain the funding required for the development, infrastructure and mining of the deposit. Such work can take a long time and cost a lot of money. For example, it can take 12 to 36 months for such work to be completed, and more than $500,000,000 in capital may be required.
The success of a mining project depends to a large extent on the quality, integrity and competence of the mining company's officers, but luck also plays a role. For example, an unexpected drop in the price of ore could compromise the mining operations, despite the sums of money already invested.
Before you invest, get informed.
Here are some questions to help you start your research:
- What are the stages involved in carrying the project to a successful conclusion?
- How much time and money will it take to complete these stages? How will these costs be funded?
- Do the promoters have experience and expertise in the mining industry? Have they previously carried out a mining development project successfully?
- Are the estimates (quality of the mineral reserves or resources, production volume, costs, timeframes) presented in detail in a technical report prepared by an independent, qualified person?
- What terms and conditions must be met in order for the company to keep its rights in the project? Are they difficult to meet?
- What risks might impede the execution of the project?
- Have other mining companies attempted to develop this deposit in the past, and abandoned it? Why did they abandon it? What will be different this time?
- How much money has been raised for, and spent on, this project?
- Is the project located in a politically stable country?