Mining feasibility studies are prone to exaggerate project values without any rebuke from regulators by failing to take proper account of the cost of capital
John Robertson
PortfolioDirect
Mining feasibility studies are prone to exaggerate project values without any rebuke from regulators by failing to take proper account of the cost of capital. Here is a clear-cut example to illustrate the point. On 18 February 2014, Pilbara Minerals published a study valuing the Tabba Tabba tantalum mine using a 10% discount rate. On 26 March 2014, the company raised capital via a package of convertible notes and options over shares specifically to fund a stake in the mine. The actual cost of capital was, according to my analysis, 46%, more than enough to make a material impact on any valuation. In gaining approval for the capital raising, the company never referred to the true cost of capital perhaps out of embarrassment or perhaps reflecting an unfortunately widespread failure in the sector to understand that equity comes at a cost.
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John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business strategist and investment market professional for over 30 years after starting his career as a Commonwealth Treasury economist in Canberra. Since being Australia's top-rated commodities analyst and chief economist at one of Australia' leading stockbroking firms, he has advised companies across the mining, consumer products, IT and biotech sectors on their equity market relations. He leads the firm's investment evaluation and security structuring activities on behalf of the Australian Small Scale Offerings Board (ASSOB), the world's first equity 'crowdfunding' investment platform. John Robertson discusses the interaction of mining and investment markets in his weekly 'From the Capital' column in Mining Journal.
John Robertson
PortfolioDirect
John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...
Expertise
No areas of expertise
John Robertson
PortfolioDirect
John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...
Expertise
No areas of expertise
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