Don’t discount geotechnical due diligenceSome sober second thoughts on geotechnical info as M&A activity heats up
Some sober second thoughts on geotechnical info as M&A activity heats up
By Will Pitman
August 31, 2016
Today the mergers and acquisitions (M&A) market is hot and an essential component of scooping up the best assets is the complete due diligence of mining properties. However, because geotechnical due diligence is considered by many to be a component of the mine engineering design process and therefore implicit in it, the geotechnical aspect of M&A, and indeed other due diligence exercises, is often overlooked or undervalued. Too often geotechnical practitioners are engaged to complete mere desktop studies or last-minute reviews following the findings of others without a site visit that would allow a full appraisal of the state of the property. This is simply bad practice. Geotechnical input into due diligence work is a key aspect of decision making when evaluating open pit and underground mining operations.
If geotechnical due diligence is inadequate, a company exposes itself to operational risk, cost overruns and reputational damage. By answering the following key questions during the due diligence process, you can turn the elephant in the room into your invisible friend.
For underground mining operations, is the adopted mining method compatible with the prevailing geological and geotechnical parameters in terms of rock strength, stresses, geological structure, mining geometry and sequencing? It is important to ask this question because the mining method generally gets locked into the mine design early on in the study process, at a time when the geotechnical knowledge of the deposit is not well understood. The answer may raise a red flag, or alternatively provide a basis for improvement and optimization.
For underground mining operations, is the life of mine plan based on sound geotechnical input and are there any ramifications of geotechnical recommendations on the ore reserve? This is a key question, as the inclusion of some of the reserves in geotechnical risk mitigation measures such as regional, sill, rib or shaft pillars can mean that mineralized material is sometimes accounted for in the reserve, when in fact it is unlikely that they will ever be mined.
Alternatively, for open pit operations, a key question to ask is what steps have been taken to validate the geotechnical assumptions used in the feasibility study? It is surprising how many open pit operations continue to operate well into the mine life accepting that the feasibility study design assumptions are optimal. As the study assumptions are invariably based on information obtained from drilled core, most feasibility study recommendations include a caveat that they should be re-visited once the rock mass has been exposed through stripping and mining. This aspect is critical to the open pit operation. Again, the answer may raise a red flag or alternatively provide a basis for optimization.
Another aspect to question is corporate engagement in the identification and mitigation of geotechnical risk. By investigating the extent of engagement of executives with their mining operations, one can provide a useful indicator of the corporate recognition of geotechnical risk. I have seen examples where geotechnical matters are handled on-site by geological personnel without the perceived need for dedicated geotechnical personnel. This is a red flag and demonstrates a number of issues:
• At a corporate level, geotechnical risk is not being identified or addressed adequately. It raises the point that the executives do not know what they do not know.
• At an operational level, geotechnical hazards are most likely not being identified or communicated adequately with the associated health and safety ramifications.
• It is likely that a cost will have to be built into the potential acquisition to address such issues.
• This has a clear and fundamental impact on any acquisition, as the purchasing company will have to address the culture of the target company in terms of risk recognition and mitigation.
The above examples are only a few of a number of key issues that should be addressed during due diligence work. Although it would be difficult to put precise monetary value on the outcome to the questions tabled, it is clear that the answers can have a significant economic impact, either positive or negative, on the transaction and should be recognised as a priority in the due diligence process.
Will Pitman M.Sc., is a director and principal geotechnical engineer at Adiuvare Geology and Engineering Ltd., Toronto.
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