Renewable Energy Financial innovation on renewables

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Editor’s letter President’s notes

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The best in new technology

tools of the trade compiled by Kelsey Rolfe and Chris Balcom

news 14 28 32

Industry at a glance Alternative energy sources are playing a larger role in miners’ strategies By Kelsey Rolfe

The Quebec government moves forward with its revamped northern development program By Antoine Dion-Ortega

columns 38 40 42

Where did all the gold money go? By Doug Pollitt

Financial innovation on renewables By Arnoldus Mateo van den Hurk

The safety to speak out By Esther Ewing

upfront: metallurgy 44 46 50

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A new chloride segregation process could open up oolitic iron reserves globally Will technological step change or operational excellence make mines more profitable? By Ian Ewing

Terry McNulty is a metallurgical mastermind with a keen sense of what makes projects succeed

travel

Polkowice, Poland

cim community 82

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CIM news from Canada and beyond Obituaries 2015 Calendar of CIM events

The Elsa silver heist: a daring mining theft in a small Yukon town By Alicia Priest

129 Professional directory

2015 : pleins feux sur les marchandises Nous examinons 30 métaux et minéraux différents, vous offrons une rétrospective de ce qui a marqué l’année qui vient de s’écouler, notamment les tendances de plus en plus répandues et les événements imprévus, et explorons ce qui se profile à l’horizon.

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Mot du président

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Par Antoine Dion-Ortega

By Chris Balcom

mining lore 130

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By Chris Balcom

By Correy Baldwin

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article de fond

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Le gouvernement provincial relance son plan de développement nordique Calendrier des événements de l’ICM Répertoire des membres corporatifs de l’ICM

La version française intégrale du CIM Magazine est disponible en ligne : magazine.CIM.org/fr-CA

6 | CIM Magazine | Vol. 9, No. 9

RENEWABLE ENERGY

Financial innovation on renewables BY ARNOLDUS M. VAN DEN HURK

uring the commodity boom, mining companies were focused on ramping up production and investing in new capital projects to expand supply. It was a time when the income statement was the key management paradigm in mining economics. Now, however, the global mining industry has refocused on cost control and capital discipline. Investors today value firms based less on how much they mine and more on how efficiently they do so, and how well they mitigate risk. In this new scenario, nonconventional renewable energy (NCRE) sources such as biomass crops, small-hydro, geothermal plants, concentrated solar power mirrors, wind turbines or solar panels can lower energy risks in mining. Why? Because renewable facilities act as mining assets whereas business as usual (BAU) energy options such as coal, diesel and gas, and even conventional hydro, become mining liabilities. Proponents of NCRE projects need to develop new financial intelligence (i.e. knowledge of finance and

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accounting principles) to better comprehend the real value of NCREs for the mining industry. This new vision shifts accounting priorities away from analyzing the value of NCREs using the income statement (and the focus on profits and losses) and instead toward the balance sheet. Similarly, the focus should shift towards “cumulative savings” by viewing BAU energy as a long-term liability and NCRE as a long-term asset. Therefore I propose the industry adopt new energy metrics and key performance indicators (KPIs) linked to balance sheets and mining business valuation. If you propose an NCRE project to many experienced mining managers or NCRE developers, often the first thing they will turn to is the income statement. Most operational managers know the income statement is where their performance is ultimately recorded in profits and losses. Here they look for any potential savings from an NCRE project and may argue that the large upfront capital investment will negatively affect the company’s credit rating.

ON BUDGET. AHEAD OF SCHEDULE. WORLD-CLASS SAFETY. Together with our partners, SNC-Lavalin is the proud recipient of the Project Management Institute’s 2014 Project of the Year Award.

Mining | Processing | Infrastructure | Environment

www.snclavalin.com Rio Tinto Alcan AP60 Phase 1 Aluminum Smelter Project, Quebec

40 | CIM Magazine | Vol. 9, No. 9

columns However, if you try giving the same set of NCRE project – transforms threats into opportunities and perceived liabilfinancials to an experienced Toronto fund investor or a vet- ities into mining assets. CIM eran board member of a mining company, the first statement they will turn to is usually the balance sheet. Here van den Hurk, PhD, is the founder and CEO of r4mining.com, an they look for figures that might prove the value of renew- Arnoldus independent blog about financial innovation on renewable energy in the mining able facilities as long-term assets (which in turn could and oil and gas industry. Van den Hurk has extensive professional experience in mining engineering, finance and renewable energies. He recently increase company value), how these numbers may lead to a geology, presented his r4mining methodology at the Renewables and Mining Summit fall in the weighted average cost of capital, and how the and Exhibition in Toronto. Info @r4mining.com, www.r4mining.com. projected value of the business shows an upwards trend to eventually improve a company’s credit rating. If the projections are promising, they will allocate the upfront capex due to the attractive return on investment and the building of long-term shareholder equity. Nevertheless, at present, many NCRE project promoters at mining companies do not analyze investment opportunities using a balance sheet. Therefore they see the large initial cost The number of applications for Canadian Industry and want to avoid financing the that are delivering cost savings. upfront investment counterbalance; consequently the projects end up being abandoned. In order to accurately communicate the value renewable facilities have, everyone must speak the same language. The first step toward accurately comparing BAU energy and NCRE is The number of dollars we have saved Canadian to keep other operational variables companies with our innovative solutions. affecting the profitability of the mine constant (e.g. commodity prices, mineral ore grade and any other expenses). The second is to account for the expected increase in price for the BAU model based on international standards set by the International The number of companies that can deliver this Energy Agency. These are the fundakind of industry performance. mentals of the methodology I employ for evaluating NCRE projects. These metrics are designed to help NCRE project proponents, mine managers, investors and directors of companies Trust the Tsubaki Advantage to solve your application challenges. understand the projects they are Track cost savings and performance. Stay informed and up-to-date working on from the same point of about planned maintenance. With over 500 unique and proven solutions, we’ll have the answer you’re looking for. view. Renewable energy options in mining will grow along with the volatility of diesel prices. Demand for space and capex are the main handi800.263.7088 caps for renewables in other industsubaki.ca tries. However, in mining, space is not an issue, and financial intelligence – by developing innovative financial models such as the one described here

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Renewable Energy

Dec '14/Jan '15 Renewable Energy Financial innovation on renewables By Arnoldus Mateo van den Hurk 0

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During the commodity boom, mining companies were focused on ramping up production and investing in new capital projects to expand supply. It was a time when the income statement was the key management paradigm in mining economics. Now, however, the global mining industry has refocused on cost control and capital discipline. Investors today value firms based less on how much they mine and more on how efficiently they do so, and how well they mitigate risk. In this new scenario, non­ conventional renewable energy (NCRE) sources such as biomass crops, small­hydro, geothermal plants, concentrated solar power mirrors, wind turbines or solar panels can lower energy risks in mining. Why? Because renewable facilities act as mining assets whereas business as usual (BAU) energy options such as coal, diesel and gas, and even conventional hydro, become mining liabilities. Proponents of NCRE projects need to develop new financial intelligence (i.e. knowledge of finance and accounting principles) to better comprehend the real value of NCREs for the mining industry. This new vision shifts accounting priorities away from analyzing the value of NCREs using the income statement (and the focus on profits and losses) and instead toward the balance sheet. Similarly, the focus should shift towards “cumulative savings” by viewing BAU energy as a long­term liability and NCRE as a long­term asset. Therefore I propose the industry adopt new energy metrics and key performance indicators (KPIs) linked to balance sheets and mining business valuation. If you propose an NCRE project to many experienced mining managers or NCRE developers, often the first thing they will turn to is the income statement. Most operational managers know the income statement is where their performance is ultimately recorded in profits and losses. Here they look for any potential savings from an NCRE project and may argue that the large upfront capital investment will negatively affect the company’s credit rating. However, if you try giving the same set of NCRE project financials to an experienced Toronto fund investor or a veteran board member of a mining company, the first statement they will turn to is usually the balance sheet. Here they look for figures that might prove the value of renewable facilities as long­term assets (which in turn could increase company value), how these numbers may lead to a fall in the weighted average cost of capital, and how the projected value of the business shows an upwards trend to eventually improve a company’s credit rating. If the projections are promising, they will allocate the upfront capex due to the attractive return on investment and the building of long­term shareholder equity. Nevertheless, at present, many NCRE project promoters at mining companies do not analyze investment opportunities using a balance sheet. Therefore they see the large initial cost and want to avoid financing the upfront investment counterbalance; consequently the projects end up being abandoned. In order to accurately communicate the value renewable facilities have, everyone must speak the same language. The first step toward accurately comparing BAU energy and NCRE is to keep other operational variables affecting the profitability of the mine constant (e.g. commodity prices, mineral ore grade and any other expenses). The second is to account for the expected increase in price for the BAU model based on international standards set by the International Energy Agency. These are the fundamentals of the methodology I employ for evaluating NCRE projects. These metrics are designed to help NCRE project proponents, mine managers, investors and directors of companies understand the projects they are working on from the same point of view. Renewable energy options in mining will grow along with the volatility of diesel prices. Demand for space and capex are the main handicaps for renewables in other industries. However, in mining, space is not an issue, and financial intelligence – by developing innovative financial models such as the one described here – transforms threats into opportunities and perceived liabilities into mining assets.

Arnoldus van den Hurk, PhD, is the founder and CEO of r4mining.com, an independent blog about http://magazine.cim.org/en/2014/December-January/columns/Renewable-Energy.aspx

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