Returning to the Importance of Due Diligence

While due diligence is paramount for success in any business endeavor, few industries in the world need the level of due diligence required in the mining and minerals sector. Years before any precious metals or gems are extracted from the earth, a rigorous research, vetting and exploration process is held to establish the viability of the project.

The comprehensive examination serves not only as a risk assessment, it also covers a variety of areas aimed at providing the company, shareholders and likely investors information regarding the potential investment quality. Preliminary Economic Assessment (PEA) reports, technical reports and environmental studies are only a few of the steps involved in the actual exploration of a given site.

The process may also include a number of protocols, such as thorough geologic studies, mineral resource reports, mining and geotechnical engineering analysis, hydrogeology/hydrology, mineral/metallurgical processing, zoning for tailings, refining and smelting facilities, infrastructure and capital projects reports, human resource management, occupational health and safety, operation and capital expenditure reports, engineering, procurement and construction management projections, and mineral economics.

Off-site due diligence comes in the form of knowing all the legal requirements and obligations related to the area of the prospective mine. As many new mining opportunities are based in foreign jurisdictions, knowing the laws that pertain to the specific country and jurisdiction can mean the difference between keeping on schedule or spending additional years in court battling over land rights.

“Complying with and fulfilling the requirements of local corporate and mining law is essential, but it can be extremely difficult to do so when these may be subject to wholesale and unexpected change. This as explained in a 2010 due diligence report from the Institute for Materials, Minerals and Mining. “Even some of the most experienced and respected British, Canadian and Australian lawyers have found themselves caught out and their clients severely disadvantaged when legislation has been implemented, removed or given a different interpretation by an unstable political regime.”

I have heard stories from colleagues about political unrest hindering their extraction schedules by months and even years, and I am occasionally asked, “Richard Warke, what is your number one tip for those interested in succeeding in the resource sector?”

I cannot be more emphatic when I say that practicing due diligence in every aspect of a given mining prospect is crucial. It is easy to get excited and carried away with an optimistic economic assessment report; but, if the resources are located in a politically unstable area, extraction will be the least of your worries.

This has been evidenced in the case of Myanmar, where resources are abundant, but legal and government regulations have kept international investors out.  Recent changes to Myanmar’s Mining Law aim to promote foreign investment and introduce cutting edge mining resource tools, which the country desperately needs.

“Myanmar’s first Extractive Industries Transparency Initiative (EITI) Report, issued late in 2015, is a promising baby-step towards openness,” says Marius Toime, an attorney specializing in resource law.   “There is a long road ahead, but with new political leaders taking the stage, Myanmar has the opportunity to focus on reform and reconciliation with renewed vigour.

The revitalized interest in Myanmar’s resource industry will also highlight the way mining industry due diligence can benefit a variety of sectors. 

In fact, remembering the true importance of proper due diligence is crucial in every industry, not just the mining industry.  Do we really know the risk involved in a given financial investment?  Do we really have a comprehensive and clear understanding of all the facts that influence a given business decision?  Have we taken a step back and tried to look at our business and investment choices from a different and fresh perspective?  These are all points along the road of doing true due diligence, and for the benefit of one’s business and/or investments, these are all due diligence steps that should be taken.