The resource was verified but the operating rate was not
A private equity deal team was underwriting the purchase of a mine that was already producing. The resource statement, the independent estimate of how much ore is there and how good it is, had been confirmed, and nobody disputed it. That was not the open question. The model assumed something else: that the mine could hold that quality while running at the rate the plan called for.
That sits in how the mine is run week to week rather than in the geology, and nothing in the documents answered it. Due diligence on paper confirms what has been written down. Whether an asset can hold quality and output together is something you learn by going to look.
We visited the asset with people who have run one
We scoped a site visit against a protocol written with the deal team, so the visit recorded the things the model depended on rather than a general impression of the site. The visit was arranged to meet the access and compliance requirements of a live transaction. What was seen on site was then handed to former mine operators, people who have been accountable for holding output at a mine.
The operators interpreted what the visit recorded rather than leaving the deal team to read it alone, which is the difference between a set of observations and an answer. Both the visit and the reading were fitted to the deal timetable, so the answer arrived while it could still change the decision.
The plan held with the conditions for holding rate named
The visit and the operators’ reading of it supported the plan. More useful than the yes was what came with it: the conditions under which the mine can hold quality at that rate were named, rather than assumed. The fund proceeded, with the operating risk attached to specific conditions it could watch.
That turned a broad worry about operating performance into a short list of things the deal team could track after completion, and those conditions came from people who had run a mine themselves rather than from the documents.
