Client name: Undisclosed Joint Venture Partners

Duration: 2012/2013

Location: Western Australian - Pilbara Iron Ore Province

Coffey’s familiarity in mine developments with multi-mine blending operations ensured that JV partners had equal awareness of the risks, as well as the opportunities for investment.

Situation

Long established JV partners were presented the opportunity to buy into all facets a mine expansion in the Pilbara. On the surface, the terms were expected to be equivalent to existing partnership arrangements for other parts of the mine-rail-port system. The vendor business presented the case for project confidence on the basis of an advanced study and the case for value on the basis of mineral inventory expectations.

Concerns arose around risk and value complexity in commercial and legal ownership arrangements for which the partners had input. 

Solution

We were engaged in the technical aspects of due diligence including the technical study components of the proposed transaction. Our work soon highlighted similar levels of uncertainty in the technical proposition to the commercial and legal concerns that had been raised. While the main technical work shared was of high quality, it didn't align with the expansion scale which was critical to the partnership transaction. Our assessment identified challenges with the total system impact on the product specification (product price); local challenges to complete enough testwork to characterise material handling (operating cost); and considerable optimism in the unreportable part of the mineral inventory. These were all factors influencing the expected transaction price.

We worked with legal functions to map inter-relationships with proposed ownership structures and mine planning, and with the commercial functions to address inputs and alternative methodologies for the financial modelling.

Result

The JV partners asked for an extension of the timeframe for closure of the deal in order to apply a more clearly informed view of the transaction components. Months later, but equipped with the same negotiation awareness of risk and opportunity as the vendor, the partners proceeded to purchase. The transaction exceeded AUD$1 billion.