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Risk and Value Analysis

The CET Risk and Value Analysis group produces dynamic, world-class research geared towards the vision of supporting financially optimal decision-making within exploration and mining.

Our mission is to influence and inform the strategic rationale through which senior decision-makers in the sector make their investment choices.


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  • 30 July 2016

    Sharing the benefits: enhancing Australia’s global leadership in the mining value chain

    This report examines the globalisation of the Australian mining industry, which is often not well understood amongst commentators and policy-makers. The authors find that Australian mining has grown well beyond Australia’s borders, powered by world-leading knowledge and t...

    Jim Redden, Ian Satchwell

  • 31 May 2014

    Australia vs the World

    Every year, Canadian based think-tank The Fraser Institute produces a survey of mining company executives to determine which jurisdictions around the world are most attractive to the mining sector. The survey is watched closely by industry insiders to see where respective juris...

    John Sykes, Allan Trench

  • 28 February 2014

    Class of 2013 ASX Minerals IPOs

    Last year, we picked 2012 as the bottom of the Australian minerals IPO cycle. We were wrong - with 2013 subsequently bringing the poorest performance of the sector in the past decade. This continued decline raises the very significant question of whether IPOs can sustain the lo...

    John Sykes, Allan Trench

  • 28 February 2014

    An economist, a scientist, and a geologist walk into a bar...

    There are two main paradigms of thought in resource depletion. Economists tend to subscribe to the 'opportunity cost' approach, seeing rising commodity prices as a sign of resource depletion. Scientists, in particular environmental scientists, look at resources as a 'fixed stoc...

    John Sykes, Daniel J. Packey, All...

  • 28 February 2014

    A Social License to Undertake Research

    Modern research science is a capital-intensive industry. Scientific resources and agencies are concentrated in wealthy developed nations with the economic and infrastructure base to support such fundamental endeavours. Nature, however, respects no such distinctions - and we com...

    Mark Jessell, Geoff Batt

  • 23 January 2014

    Applied Energy Power Investment

    Greenhouse gas (GHG) intensive fuels are currently a major input into the Australian electricity sector. Accordingly, climate change mitigation policies represent a systematic risk to investment in electricity generation assets. Although the Australian government introduced car...

    Mahdi Shahnazari, Jonathan Whale,...

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Related News

Exploration IPO performance: more ‘what you do’ than ‘who you are’

by User Not Found | Jun 16, 2015
This week Chris Gemell guests in to Strictly Boardroom to look for clues to share price performance among more than 100 exploration IPOs. The ultimate success for a mineral exploration company is to locate an exciting new discovery that quickly progresses from first drill intersection towards a low-cost operating mine. For all but very few exploration companies, however, such success does not occur immediately, if indeed at all.
This week Chris Gemell guests in to Strictly Boardroom to look for clues to share price performance among more than 100 exploration IPOs.

The ultimate success for a mineral exploration company is to locate an exciting new discovery that quickly progresses from first drill intersection towards a low-cost operating mine.

For all but very few exploration companies, however, such success does not occur immediately, if indeed at all.
Estimates of the time taken for a company to make a significant discovery vary – but all imply exploration should certainly be categorised as a long-term endeavour. Despite this, mineral exploration companies tend to hold only enough funds to allow less than two years of exploration and will likely need return to the capital markets.

In order to do this, they need to be able to demonstrate some form of interim success. A proxy for interim success is best evidenced through an appreciating company share price. ‘Something’ must be on-track in such cases.

At the most basic level, business success among mineral explorers must stem from one or both of two broad arenas; ‘who you are’ and ‘what you do’.

Firstly, success may originate from the organisational attributes of the company itself (‘who you are’).

Secondly, success may originate from the subsequent decisions made by the company to develop pathways to success (‘what you do’).

A study* of the 123 mineral exploration companies that listed as initial public offerings on the ASX in the period 2011 to 2013 was undertaken to investigate the potential factors affecting the total shareholder return (TSR) during the second calendar year since listing.
To investigate the ‘who you are’ aspect of the companies, six key factors were examined that covered the ‘physical’ attributes of the board and the background of the board leader. The physical attributes were the size of the board, the proportion of non-executive directors on the board, and the number of women directors on the board.
The attributes of the board leader encompassed their professional background, years of resource industry experience, and years of previous board experience.

The TSR of the IPOs being investigated did not follow general market trends, nor did they follow the price of the focus commodity that was listed at the IPO. The only relationship found was a weak negative correlation between TSR and the board leader’s previous resource industry experience.

Perhaps a long time in the industry results in a cognitive bias that prevents optimal decision-making? Experience may actually count against you.

The second phase of the study was an examination of what the companies did. Only 19 companies achieved a TSR threshold of 10%. Amongst these, it quickly became apparent that there is no single way for an exploration company to increase its TSR.
Only 11% of these companies achieved this TSR threshold through mineral intercepts in their drilling programs. 58% of the companies achieved TSR growth through involvement in corporate-level M&A. A further 11% of companies were involved in project acquisitions or agreements.

Examples of companies that achieved a positive TSR of at least 10% through corporate-level M&A include Spencer Resources (ASX:SPA, now Bulletproof Group ASX:BPF, TSR of 143%), Ridge Resources (ASX:RID, now Cardinal Resources ASX:CDV, TSR of 50%), and Volta Mining (ASX:VTM, TSR of 19%). Examples of those who surpassed the same TSR threshold through drilling intercepts include Core Exploration (ASX:CXO, TSR of 73%) and Potash West (ASX:PWN, TSR of 49%).

It appears that those companies that experienced the highest TSR were those that were maximising the opportunities and likelihood of moving to an eventual position of profitability. Capital raising activities seem to confirm this.

On average, companies in the top quartile of TSR raised more capital for the purpose of a specific project, rather than for general working capital and operations expenses. They also raised more funds from institutional and professional investors. These companies were able to communicate their strategy and progress effectively enough to raise capital for it.
Overall, and perhaps unsurprisingly, this study has found that there is no silver bullet in determining the likelihood of short-term success amongst mineral exploration companies. However, there are two conclusions that can be drawn.

Firstly, it appears that ‘who you are’ has only a minor effect on the short-term performance of the company and additional focus should be placed on “what you do”.

Secondly the companies that are most likely to experience short-term success are those that:
1. Have a growth strategy
2. Are undertaking activities that progress that strategy
3. Communicate the strategy and progress to the market well.
Admittedly, this study is not without limitations. The skill and professional background mix of the entire board, the capital structure of the companies, and a range of other potential success factors warrant further consideration.

It is hoped that these limitations promote discussion around the topic of business success in mineral exploration companies, and lead to more expansive studies in the future
Good hunting.

Chris Gemell is the principal of Red Onyx Consulting, focusing on project management, risk analysis and economic evaluation of feasibility studies in the mining sector (chris.gemell@redonyx.net.au). He is currently completing the Masters program in Mineral Economics and an MBA at Curtin University.
* Chris Gemell (2015) – A study of the attributes of short-term business success in mineral exploration companies’, Curtin Mineral Economics Masters’ Program Capstone Unit Research Project.

This story was originally published on Miningnews.net on Monday, 15 June 2015