Every investor has a different risk profile. Some are high risk, high reward; others are risk averse and take the time to research the right mining project, company and management team in which to invest.

Companies know that investors often look for high returns on small investments, and in order to attract and retain investors, miners will “de-risk” a project.

De-risking includes conducting extensive exploration work, appropriately financing the project in the short to medium term and working to lower production costs. De-risking holds great value to junior resource companies, while it can also be profitable for risk-averse investors who know what to look for.

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How a company de-risks a project

Risk lessens as a company moves a project through its various stages. These stages can include financing, drilling, resource definition, economic and feasibility studies, construction permitting and production.

Financing

Potential investors must consider a company’s financial position, market capitalization and ability to fund a project. Companies can strengthen their position as a low-risk investment by securing the right financing package needed for each stage of their project. But they should also develop a detailed and accurate budget with timelines on how they will use their funds.

Investors should look for a company with its share structure and financial details laid out, and a strong plan on how it will use its funds. This information should be highlighted in a presentation or press release.

Confirming resources

Miners and investors both want to profit, but neither will without a resource. Miners can de-risk a project by showing maps, trenches, samples, drill locations and past results from previous projects. Investors should be mindful of a project that has been recycled from an older project and simply renamed.

A company should outline the technical aspects of a project by providing investors with information like a NI 43-101 or JORC resource, which ensures that misleading or erroneous information is not promoted or published. Companies should also detail any previous site visits, geological studies and plans that outline how the resource can be mined and processed profitably.

“Although grade is often touted as king, it is actually the profit margin that counts and the ability to payback the original capital investment,” stated Joe Mazumdar and Brent Cook of Exploration Insights.

Decreasing costs

Large projects can be attractive to investors, but they often carry extensive costs. Miners can lower costs by improving efficiency with technology like production visibility tools; these allow an automated view of operations results and can help companies adjust in certain areas. Companies can also invest in analytics to assess the costs of their processes and identify strengths and weaknesses.

As a strategy, decreasing costs is often tied to planning. A company that is serious about tightening its processes and actively seeking out low-cost solutions will stand a greater chance of providing investors with a high return on investment.