casemark/conducting-resource-asset-due-diligence

Conducting Resource Asset Due Diligence

When To Use

• Evaluating an acquisition or investment in mining, oil & gas, timber, water, or other extractive/natural resource assets
• Reviewing a Competent Person's Report (CPR), National Instrument 43-101 technical report, or SEC S-K 1300 disclosure for accuracy and completeness
• Assessing operational viability of a producing or development-stage resource property
• Conducting pre-bid technical screening for resource-focused fund deployment
• Performing ongoing portfolio asset review where geological or regulatory conditions have materially changed

Inputs To Gather

• Reserve/resource reports: Most recent CPR, 43-101, JORC, or SPE-PRMS compliant reserve estimates with effective dates
• Geological and geophysical data: Drill logs, assay results, seismic surveys, core sample analyses, stratigraphic models
• Production history: Monthly/quarterly production data, decline curves, recovery rates, water-cut trends (for O&G), grade reconciliation (for mining)
• Operating cost data: Cash costs per unit (e.g., $/boe, $/oz), AISC breakdowns, OPEX budgets, and contractor agreements
• Title and mineral rights: Lease agreements, concession terms, surface rights, royalty obligations, working interest / net revenue interest schedules
• Permits and regulatory filings: Environmental permits, mine plans, reclamation/closure bonds, water discharge permits, air quality permits [VERIFY jurisdiction-specific requirements]
• Environmental and social: Phase I/II ESA reports, tailings management plans, community benefit agreements, ESG disclosure history
• Capital expenditure plans: CapEx budgets for development, sustaining capital, and expansion scenarios
• Commodity price assumptions: Forward curves, hedging contracts, offtake or marketing agreements

Workflow

1. Define DD scope and materiality thresholds

   • Confirm asset type (producing, development, exploration) and commodity
   • Set materiality thresholds for reserve classification discrepancies, cost variances, and environmental liabilities
   • Identify reporting standard applicable to reserve estimates (JORC, NI 43-101, SPE-PRMS, SEC S-K 1300) [VERIFY which standard governs]

2. Geological and reserve assessment

   • Verify reserve/resource classification (Proved/Probable/Possible or Measured/Indicated/Inferred) against supporting data
   • Cross-check drill spacing, sampling methodology, and QA/QC protocols against applicable reporting code requirements
   • Evaluate geological model assumptions: continuity, grade/thickness interpolation method (kriging, IDW), cut-off grades
   • Assess exploration upside and conversion potential from Inferred to Indicated/Measured categories
   • Flag any reserve estimates relying on unverified historical data or non-compliant methodologies

3. Operational and production review

   • Analyze production history against type curves or mine plan projections
   • Review key operational metrics: recovery rates, availability/utilization, strip ratios (mining), or decline rates and EUR (O&G)
   • Evaluate processing/refining infrastructure: plant throughput capacity, metallurgical recovery, or gas processing capacity
   • Assess workforce, contractor dependencies, and key-person risk at the operational level
   • Identify deferred maintenance, equipment age, and sustaining CapEx adequacy

4. Regulatory and permitting review

   • Confirm all material permits are current, transferable, and not subject to pending challenges [VERIFY transferability on change of control]
   • Review compliance history: NOVs, consent orders, regulatory fines, or pending enforcement actions
   • Assess reclamation/closure obligations and adequacy of bonding or financial assurance
   • Evaluate royalty and tax regimes, including government participation interests or production-sharing terms [VERIFY fiscal terms by jurisdiction]
   • Check for indigenous land claims, heritage site overlaps, or pending litigation affecting title

5. Environmental and ESG liability assessment

   • Review existing environmental liabilities: contaminated sites, ARD/AMD potential, tailings dam risk classification
   • Assess water rights adequacy and competing demands in the basin [VERIFY water law framework]
   • Evaluate carbon exposure: emissions intensity, carbon tax/ETS applicability, methane reduction commitments
   • Review social license status: community agreements, resettlement obligations, stakeholder opposition history

6. Commercial and valuation cross-check

   • Model asset NAV using verified reserve inputs, operating costs, and commodity price assumptions
   • Stress-test under downside commodity price and production scenarios
   • Identify value gaps between seller representations and DD findings
   • Quantify contingent liabilities (environmental remediation, ARO, pending litigation) for purchase price adjustment

Output

Produce a Resource Asset DD Report containing:

• Executive summary: Asset overview, investment thesis validation, key risks, and go/no-go recommendation
• Reserve/resource summary table: Classification, volumes/grades, effective date, reporting standard, and any reclassification adjustments
• Operational assessment: Production performance vs. plan, infrastructure condition, cost benchmarking against peers
• Regulatory and permitting matrix: Permit inventory with status, expiry, transferability, and compliance flags
• Environmental liability register: Identified liabilities with estimated remediation costs and timing
• Risk register: Ranked technical, operational, regulatory, and commercial risks with mitigation recommendations
• Purchase price adjustment schedule: Quantified adjustments for reserve reclassifications, deferred CapEx, and contingent liabilities

Quality Checks

• Reserve estimates reconcile to underlying geological data and comply with the applicable reporting standard
• All cost figures are sourced from audited financials or operator-provided schedules (not analyst estimates)
• Permit inventory is complete and reflects current status — no expired or pending permits omitted
• Environmental liabilities include asset retirement obligations (ARO) consistent with current accounting standards
• Commodity price assumptions are explicitly stated with source (forward curve date, broker consensus, or management case)
• Every jurisdiction-dependent conclusion (fiscal terms, water rights, permitting regime) is tagged [VERIFY]
• Report distinguishes clearly between facts confirmed during DD and management representations not independently verified