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How to Avoid Common Mistakes With Mining Stocks (Part 4: Project Quality)

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Mining is a technical field and requires a comprehension of many complex factors.

This includes everything from the characteristics of an orebody to the actual extraction method envisioned and used—and the devil is often found in these technical details.

Part 4: Evaluating Technical Risks and Project Quality

We’ve partnered with Eclipse Gold Mining on an infographic series to show you how to avoid common mistakes when evaluating and investing in mining exploration stocks.

Here is a basic introduction to some technical and project quality characteristics to consider when looking at your next mining investment.

Mining Project Quality

View the three other parts of this series so far:

Part 4: Technical Risks and Project Quality

So what must investors evaluate when it comes to technical risks and project quality?

Let’s take a look at four different factors.

1. Grade: Reliable Hen Vs. Golden Goose

Once mining starts, studies have to be adapted to reality. A mine needs to have the flexibility and robustness to adjust pre-mine plans to the reality of execution.

A “Golden Goose” will just blunder ahead and result in failure after failure due to lack of flexibility and hoping it will one day produce a golden egg.

Many mining projects can come into operation quickly based on complex and detailed studies of a mineral deposit. However, it requires actual mining to prove these studies.

Some mining projects fail to achieve nameplate tonnes and grade once production begins. However, a team response to varying grades and conditions can still make a mine into a profitable mine or a “Reliable Hen.”

2. Money: Piggy Bank vs. Money Pit

The degree of insight into a mineral deposit and the appropriate density of data to support the understanding is what leads to a piggy bank or money pit.

Making a project decision on poor understanding of the geology and limited information leads to the money pit of just making things work.

Just like compound interest, success across many technical aspects increases revenue exponentially, but it can easily go the other way if not enough data is used to make a decision to put a project into production.

3. Environment: Responsible vs. Reckless

Not all projects are situated in an ideal landscape for mining. There are environmental and social factors to consider. A mining company that takes into account these facts has a higher chance of going into production.

Mineral deposits do not occur in convenient locations and require the disruption of the natural environment. Understanding how a mining project will impact its surroundings goes a long way to see whether the project is viable.

4. Team: Orchestra vs. One-Man Band

Mining is a complex and technical industry that relies on many skilled professionals with clear leadership, not just one person doing all the work.

Geologists, accountants, laborers, engineers, and investor relations officers are just some of the roles that a CEO or management team needs to deliver a profitable mine. A good leader will be the conductor of the varying technical teams allowing each to play their best at the right time.

Mining 101: Mining Valuation and Methods

In order to further consider a mining project’s quality, it is important to understand how the company is valued and how it plans to mine a mineral resource.

Valuation

There are two ways to look at the value of a mining project:

  1. The Discounted Cash Flow method estimates the present value of the cash that will come from a mining project over its life.
  2. In-situ Resource Value is a metric that values all the metal in the ground to give an estimate of the dollar value of those resources.

Mining Method

The location of the ore deposit and the quantity of its grade will determine what mining method a company will choose to extract the valuable ore.

  1. Open-pit mining removes valuable ore that is relatively near the surface of the Earth’s crust using power trucks and shovels to move large volumes of rock. Typically, it is a lower cost mining method, meaning lower grades of ore are economic to mine.
  2. Underground mining occurs when the ore body is too deep to mine profitably by open-pit. In other words, the quality of the orebody is high enough to cover the costs of complex engineering underneath the Earth’s crust.

When Technicals and Quality Align

This is a brief overview of where to begin a technical look at a mining project, but typically helps to form some questions for the average investor to consider.

Everything from the characteristics of an orebody to the actual extraction method will determine whether a project can deliver a healthy return to the investor.

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Visualizing the Global Education Gap

This graphic adds visual context to the global education gap, using data from 29 major economies.

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The following content is sponsored by The Hinrich Foundation

Visualizing the Global Education Gap

The global education gap refers to disparities in educational access that exist between higher- and lower-income countries. It exists for various reasons, including lack of resources, political instability, and outdated technology.

This graphic from The Hinrich Foundation provides visual context to the global education gap by ranking 29 major economies by two metrics: 1) average years of schooling, and 2) gross enrollment ratio. 

The analysis comes from the 2023 Sustainable Trade Index (STI), which the Hinrich Foundation produced in collaboration with the IMD World Competitiveness Center.

Data Overview

The data used to create this graphic is included in the table below. 

The gross enrollment ratio refers to the total number of students enrolled in post-secondary education, regardless of age, expressed as a percentage of the corresponding official age group. The gross enrollment ratio can sometimes exceed 100%, due to returning mature students.

EconomyGross Enrollment Ratio (Post-secondary) (%)Average Years of SchoolingGDP per Capita (USD)
🇦🇺 Australia114.212.765,526
🇧🇩 Bangladesh25.17.42,731
🇧🇳 Brunei32.09.237,667
🇰🇭 Cambodia13.05.11,785
🇨🇦 Canada79.513.855,085
🇨🇱 Chile91.710.915,095
🇨🇳 China63.67.612,814
🇪🇨 Ecuador52.68.86,462
🇭🇰 Hong Kong88.412.249,226
🇮🇳 India31.36.72,379
🇮🇩 Indonesia36.38.64,798
🇯🇵 Japan64.613.433,822
🇱🇦 Laos13.05.42,047
🇲🇾 Malaysia42.610.612,364
🇲🇽 Mexico44.89.210,868
🇲🇲 Myanmar18.86.41,053
🇳🇿 New Zealand79.912.947,208
🇵🇰 Pakistan12.24.51,658
🇵🇪 Peru70.79.97,094
🇵🇭 Philippines35.59.03,623
🇷🇺 Russia86.412.815,444
🇸🇬 Singapore93.111.982,808
🇰🇷 South Korea102.512.532,250
🇱🇰 Sri Lanka21.610.83,362
🇹🇼 Taiwan89.812.332,643
🇹🇭 Thailand43.88.77,651
🇬🇧 United Kingdom69.513.445,295
🇺🇸 United States87.613.776,348
🇻🇳 Vietnam35.48.44,087

In most cases, the higher a country’s per capita GDP, the higher its gross enrollment ratio. Higher-income countries typically have more resources to invest in education infrastructure, teacher training, and materials.

Outliers in this dataset include Russia and Chile, which have per capita GDPs of $15,400 and $15,100 respectively. This could be due to cultural values (e.g. placing emphasis on education), or government initiatives.

Explore the Sustainable Trade Index

This infographic is a preview of the Sustainable Trade Index, which evaluates 30 major economies using 71 economic, societal, and environmental indicators. Download the free report from The Hinrich Foundation.

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