A confirmed BFS (Bankable Feasibility Study) is required to attract the capital investment necessary to realise the full potential of the project on terms that are also favourable to the rights holders. Rights holders who do not have the expertise and/or the funds to undertake project development themselves up to a confirmed BFS will benefit from entering into a business partnership with IMDG.
When rights holders who are not well funded negotiate with large mining corporations, they may well be taken advantage of, even if unconsciously and unintentionally, because of the win-lose nature of the transaction and the weak negotiating position of the rights holders. Rights holders who partner with IMDG in terms of the entrepreneurial business model (as is described in the section on IMDG models for doing business) will maximise their equity value along with that of IMDG.
An SPV (Special Purpose Vehicle) company will be incorporated, and the rights and the assets of the project will be ceded to this company. IMDG will consult the rights holder on what share of the project SPV the rights holder should hold in consideration for ceding the rights to the SPV. The balance would be available for the new owner/co-owner who would have the capacity to fund the EPCM and initial operations phase. In consideration for IMDG producing a confirmed BFSs at its costs and risk, IMDG will require that same shareholding in the project SPV, albeit temporarily and conditionally, which will later be sold to the new owner/co-owner.
In the case of green field projects, that percentage will be 65% or more, depending on the geological and metallurgical information that is available and the confidence in the profitability of a project. In the case of brown field projects, where the existing mining rights owner may cede substantial assets to the SPV along with the rights, the share will depend on the financial situation of the current owner.
The shares in the project SPV held by IMDG will be sold to the new owners/co-owners who will fund the subsequent EPCM and initial-operations phases. (Eighty percent of the proceeds from the sale of shares will have been ceded by IMDG to the investor who funded the venture.) The selling price of the shares in the SPV will be maximised under competitive circumstances by having multiple potential buyers. The shares held by the rights holder will have the same price as those sold by IMDG. It will be up to the rights holder what portion of these shares, if any, is retained and what portion is also sold to the new owners/co-owners.
IMDG will also do bespoke project development. Owner type investors (equity funds and operators of operations) may wish to acquire assets producing minerals of certain types. When IMDG has access to appropriate project opportunities IMDG will offer prospective owners the opportunity to acquire ownership of a project in cumulative steps, in exchange for funding the project development through the consecutive phases of concept -, prefeasibility – and feasibility studies. This includes the funding of costly geological and metallurgical exploration and lab work that is required to inform the studies.
IMDG’s PROPOSITION TO RIGHTS HOLDERS
IMDG is ready to enter into mutually beneficial agreements with rights holders to promising project opportunities anywhere in Southern Africa that meet IMDG’s preconditions. In terms of such agreements, IMDG will undertake to secure funding to do (or complete partially completed) project development studies; conduct the geological and metallurgical exploration and lab work that is required to inform the studies; and, if required, IMDG could also secure funding for the project execution (EPCM) and initial operations phase upon independent confirmation of the BFS.
This proposition is directed at rights holders who hold prospecting or mining rights issued by the national government authorities; who have undertaken the necessary negotiations and organisation to be mandated to speak on behalf of all other interested parties, including surface rights holders, local communities, traditional leaders and local government; and who have reason to believe that the mineral deposits that they have rights to can be extracted profitably and who are ready to provide the relevant information by responding to IMDG’s questionnaire.
The following questions are to be answered by rights holders to the extent possible in order to inform IMDG on the extent of the available information on the mineral deposits/ore bodies and on the design, planning and economic assessment of the intended operation that has been done, if any.
1 Permitting and mandates. What is in place and available for review?
- Mining or prospecting licence
- Agreements with other interested parties, including surface rights holders, local communities, traditional leaders and local government
- Environmental Impact Assessment and Environmental Management Programme (EMP)
2 Have comprehensive studies been undertaken: Concept/Scoping, Prefeasibility and Feasibility? If so, by whom? Have the studies been independently confirmed? If so, by whom?
3 Geology – which of the following are completed and are the data/maps/reports available?
- Locality and geological maps
- Geophysical surveys – e.g. magnetics
- Geological mapping
- Soil sampling and geochemistry
- Drilling (Diamond drilling/ percussion / RC)
- Geotechnical studies
- Assay results (with QA/QC)
- Geological and assay data base
- Geological model (shape/extent/structure)
- Mineral resource estimates, models and statement – who did the estimate?
4 Mineralogical studies and reports – what is available?
5 Metallurgical studies and reports – what is available?
6 Infrastructure availability (roads, rail, electricity and water)
7 Mine design, planning and scheduling. Open pit and/or Underground with mine design criteria
8 Financial model and assumptions
The following conditions will generally apply, but could be agreed to differently:
- If not already so, an SPV (Special Purpose Vehicle) company will be incorporated, and the rights and the assets of the project will be ceded to this company.
- In the case of a green field project, sixty-five percent or more of the approved shares in the project SPV will be conditionally allocated to IMDG, depending on the geological and metallurgical information that is available and the confidence in the profitability of a project. In the case of a brown field project, this will depend on the financial situation of the owner.
- IMDG will undertake its work in phases with each phase concluding with a stage-gate review and go-no-go decision point.
- The results of all the work to be done by IMDG will belong to the project SPV. If at any point IMDG decides not to proceed with project development until completion and confirmation of the BFS, then the shares conditionally held by IMDG will revert to the rights holder(s).
- IMDG will begin by estimating the time and funds required to complete the concept phase. IMDG will also provide provisional estimates for the prefeasibility phase, the feasibility phase and the project execution and initial operations phase.
- IMDG will undertake the concept study and conduct such geological and metallurgical exploration and lab work that is required to inform the study. Upon completion of the concept phase and updated estimates going forward, and assuming a decision to proceed, the prefeasibility phase will follow. Similarly, the feasibility phase will follow on completion of the prefeasibility phase.
- Upon confirmation of the BFS, if so agreed, IMDG and the rights holder would offer all or some of their shares to a new owner that would fund the execution and initial operations phase.
- Alternatively, if IMDG had agreed to provide the funding for the project execution and initial operations phase, it will be in the form of an interest-bearing loan, which loan will have to be repaid in full before any earnings are distributable.
- The project SPV will then be ‘the owner’ during the project execution and initial operations phase when suitable contractors will be appointed. IMDG will be contracted to provide oversight.
- If so agreed, the rights holder could buy back all or some of IMDG’s shareholding.
- The buy-back could be done by the rights holder ceding his earnings to IMDG after the operation becomes cash flow positive until the shares are fully paid for using a Price-Earnings ratio of two.
The rights holder has a spectrum of options that could be negotiated: The rights holder could choose to end up as the sole owner of a high earning operation, after repaying the loan and duly rewarding IMDG for its services. At the other extreme, the original rights holder could choose to encash his stake in the project after confirmation of the BFS and the operation would be fully owned by a mining corporation.
Rights holders are invited to contact us. Third parties who know of promising project opportunities are also invited to contact us. It is IMDG policy to fairly reward those who make introductions that lead to business.