Lifecycle of a mine, recovery of investment, profitability and taxes, taxes, taxes…

I wanted to share a very interesting graphic that we developed for a client. Exploration and mining are risky business, commodities prices rise and fall, but one thing remains constant… you guessed it – taxes.

While the tax revenue generated by a project grows during development and ultimately peaks during full production certain tax streams are present for the entire life cycle. At all stages, the payments to suppliers and contractors are subject to sales tax or import duty. From exploration to reclamation, income tax is being generated by hundreds of employees. Every company the project does business with at each stage pay their own taxes as do their employees.

When you add in the royalties on production volumes and the corporate income tax paid on the eventual profit, not to mention the corporate social responsibility commitments to local stakeholders it’s no surprise most governments welcome new mining projects. A permit for exploration has the potential to turn into a 20 to 30 year source of tax revenue.

So the mining business must really seem like investing on a geological time scale. Sure an investor can see a return as the share price increases but from the company’s perspective it takes a long time to see that investment recovered and earn a profit. Then some of that profit must be held to cover the costs of decommissioning the mine and reclamation of the site.

Critics of the mining sector focus on profits and the extraction processes, leading to poor public perception. It is valuable to see the entire story in order to help develop social license for future projects.

EXPLORATION

No profit

Operating and capital expenditure

Value added through taxes

• Sales taxes and import duties on supplies, equipment and subcontractors
• Suppliers and contractors will also, in turn, pay their own taxes

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DEVELOPMENT

No profit

Operating and significant capital expenditure

Value added through taxes

• Sales taxes and import duties on supplies, equipment and subcontractors
• Suppliers and contractors will also, in turn, pay their own taxes
• Employee income tax

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EARLY PRODUCTION

No profit

Recovery of investment

Value add through taxes

• Sales taxes and import duties on supplies, equipment and subcontractors
• Suppliers and contractors will also, in turn, pay their own taxes
• Employee income tax
• Royalties based on production volumes or values

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FULL PRODUCTION

Profitability

Net profit

Value add through taxes

• Sales taxes and import duties on supplies, equipment and subcontractors
• Suppliers and contractors will also, in turn, pay their own taxes
• Employee income tax
• Royalties based on production volumes or values
• Corporate income tax paid on profits

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RECLAMATION

No profit

Closure and rehabilitation costs

Value add through taxes

• Sales taxes and import duties on supplies, equipment and subcontractors
• Suppliers and contractors will also, in turn, pay their own taxes
• Employee income tax
• Royalties based on production volumes or values
• Corporate income tax paid on profits

What’s a map progression and why does an exploration stage company need one?

A very common service we provide is auditing maps and designing an investor friendly map progression for exploration and development stage companies. Maps edited specifically for investor presentations or news releases, are powerful communication tools for mining or oil companies.

So how does an exploration stage resource company develop an attention grabbing investor presentation that showcases its assets?

It is important to show all the maps and cross-sections as a clear logical progression, usually starting with the project’s location globally, followed by an area play map, local geology, project boundary, historical context and finishing with detailed plans and sections showing work either planned or completed by the company. All these images are edited to only show the most important elements that are relevant to the company’s story and use color, iconography and typesetting consistent with the company branding.

Global location map of a mining project

The map progression will usually begin with a country or a continent map, quickly explaining the project’s location. This may be a stand alone graphic if used to introduce the investor to a region or an inset to the area play map.

An area play and infastructure map for a mining project

An area play map will usually contain all available data about the area a project is in, such as infrastructure, any major players with projects in the area, population centers, railways and airports. A mining area play map will usually include a major mineralized trend or belt. An oil area play map will contain oil and gas fields and any existing or proposed pipelines.

General geology map for a mining project

Next we will usually follow with the local geology map where only relevant geology is shown, plus past and present projects and processing facilities. The infrastructure is usually left off this map.

Mining project map and drill plan edited to show emerging mineralized trends 

The zoom-in flow of progression is leading to the map of the project boundary that will normally show drilling targets, completed drilling, resource outline or any other details of interest to the investor such as historical or proposed workings or location of processing equipment outlined in a feasibility study.

Mining project and drill plan edited to show areas of exploration potential 

Following this there could be a further zoomed in map of the project or various cross-sections showing specific drill results and highlighted intercepts.

Simplified cross section of a mining project with a key showing the location of the cross section

A resource map progression is a powerful tool to engage the investor’s imagination and show them the answers to the questions they are about to ask. A clear and concise story increases investor confidence in the project.

To see the Piedmont Lithium presentation with our maps click here.

To see the IsoEnergy presentation with our maps click here.

Would you like your maps audited? Give us a call!