Mining Mindset Clips: Guidance for Project Financing Amid Price Swings – Myroslav Chwaluk

Myroslav Chwaluk:
Ultimately, mining projects are judged on whether they make money. If you develop an asset, the key question is whether the price you can sell your material for exceeds the cost of producing it.

When raising capital, it’s important to use reasonable assumptions for commodity price projections. Using overly aggressive assumptions can lead to issues later. This is where advisors and qualified persons play a crucial role. They ensure that the assumptions used are reasonable and align with market expectations, reducing the risk of regulatory scrutiny or shareholder backlash.

We have extensive experience in this area. Companies often want to present their projects in the best light, but it’s vital to ensure compliance with regulatory standards and avoid future claims of misleading investors. Regulators frequently scrutinize commodity price assumptions, relying on market metrics and expert commentary. Qualified persons are expected to ensure these assumptions are realistic. However, in some cases, economic studies or pricing expertise may be outsourced because a geologist, for example, might not be the best person to predict the price of cobalt in five years.

For operators, the focus shifts to managing costs in a low commodity price environment. If prices drop significantly between the time investment decisions are made and operations begin, they must find ways to lower costs. This could involve putting the mine on care and maintenance, which has further implications, such as on debt and other financial aspects. These are operational decisions aimed at maintaining viability during challenging market conditions.

Managing costs effectively and ensuring realistic assumptions are critical concerns for both early-stage and operating mining companies.