Client’s need
A Private Equity group developed their own simplified, financial analysis of a diamond mining project which had just started production.
They required a third-party market expert evaluation of key parameters with impact on the IRR as their calculation included some significant assumptions.
Our role
DMM team members (diamond experts, geologists and financial experts) evaluated existing documentation on the OPEX and CAPEX. Through an iterative process with the mine’s management our team reevaluated these input factors, reviewed the realistic average US$/carat diamond price and developed a consensus model for the price forecast. In addition the team developed a multi-case financial model with different levels of equity/debt/mezzanine financing and different exit years.
Methodology
The methodology we used was based on benchmarking the OPEX and CAPEX of the specific mine with other similarly situated mines and comparing this with existing documentation and the management view of the mine. We also included secondary research and evaluated our assumptions with well-known experts.
Project development
Over a series of meeting, phone calls and evaluation research rounds our team crosschecked the assumptions of the PE group on different value and cost aspects of the mine to calculate the IRR for different production and financial scenarios. The results were summarized in a flexible excel-based financial model, which could simulate different scenarios and a sensitivity analysis which demonstrated the strongest influence factors on the IRR
Results
Our team demonstrated to the management of the PE group that the IRR of the mine in question might not be as attractive as it seemed at the beginning, and the cooperation with the mine’s management was also stress-tested. We managed to save significant time, effort and money for the PE group through undertaking our independent realistic evaluation.