Mauro Chiesa

Distinguished Lecturer 2015-16

Bill Steer

Full-costing in the selection of good mine projects

Mine projects are depleting assets that are very capital-intensive. As replacement assets are becoming increasingly difficult to find, finding the capital to finance these assets is also becoming difficult. Adding further complexity, the public sector is becoming increasingly hesitant to support such developments, insisting on all mining companies to form two queues: one for permits and one for co-financing; much like the institutional investor, the public sector also is faced with pension obligations, and deficits. The resulting issues, which can be seen with over $1 billion of asset provisions in but 30 months for the majors alone, has sent the institutional investor packing. The majors are shedding producing assets to raise cash, instead of purchasing promising assets from the juniors; the juniors in turn find themselves “crowded out” from the capital by the producing assets, and are faced with a difficult market.  Industry valuations have suffered as a result, paradoxically, in a buyer’s market.

The mining company must now better screen and select its existing and future projects and perform to pro forma expectations to regain the market’s confidence, and valuation. The mining company has the data and budget, but often not the timely information or patience to improve this risk matrix. The presentation focuses on the framework including a “full costing” approach to reduce the risk of a blunder, reduce the political risk and inflation risk of the project facing either public-sector “queue.” The presentation also focuses on the public sector and what it must undertake to remain current; it too faces scrutiny. For the mining company, a more timely performance in delivering projects and the lower resulting volatility in valuation will regain the market’s confidence. For the public sector, this will result in economic development and revenues.  

Biography

Mauro Chiesa is a semi-retired advisor with 36 years of financing and advisory services in the fields of extractive and infrastructure projects. This has included four years in Ottawa with Export Development Canada, 13 years in New York City with two international banks specialized in industrial finance, ten years with the World Bank Group, primarily with IFC, and ten years as an independent advisor and consultant in Vancouver. He has an MBA and a BA from the University of British Columbia.

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