KCM needs the kiss of life

[miningmx.com] — There are two kind of CPRs in the world. One is cardiopulmonary resuscitation, also known as the ‘kiss of life’.

The other CPR has a more specialised usefulness some of which are slightly unorthodox. This kind of CPR can be used as a heavy jamb for keeping troublesome doors ajar; or a blunt weapon in the event of a sudden attack; or if you have a few of them, stacked CPRs can perform the function of an improvised stepladder.

Confused? Well, in the world of mining, ‘CPRs’ or ‘Competent Persons Reports as they are properly known, contain the tiddly bits of information that could deliver imprudent shareholders from almost certain investment death. But you have to read them properly first.

The problem with giving a CPR a proper reading is that it usually amounts to hundreds of pages; and yes, they are forbidding documents, hence the unintended uses I accord them. Sometimes, they are published as part of a company prospectus, or a prelisting statement. In its truly grandest state, the CPR is a standalone publication.

In any event, investors gloss over them even though, as Andy Clay, head of mining consulting firm Venmyn Rand asserts, they are written for the intelligent but non-specialised investor. He believes the CPR should be kept as the technical touchstone, a benchmark that allows investors to truly rate how a mining company has been performing relative to its promises.

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He’s right, of course. A well-penned CPR will detail what’s prospective about a certain mining asset and how its profitability is affected by market changes. It also provides asset valuations from which investors can help assess whether the mining company share price is inflated or offering value.

Venmyn produces a stack of CPRs every year, many of them voluminous. But Clay is now rethinking the approach, partly because the value of the reports are now heavily in question.

Firstly, it’s not easy to call a bad CPR to account even though the newly created Samval (South African Minerals Valuation Code) and Samrec, which is the mineral resources equivalent, allow for claims against authors. Secondly, the southward movement in the market is so drastic that many CPRs could be forgiven for claiming force majeure over their prognostications.

The diamond market, for instance, is in a terrible state with a number of South Africa’s junior diamond miners, such as BRC DiamondCore, DiamondCorp (a separate company) and Rockwell Resources having to scale down or close entirely their operations. Who could have been so prescient as to describe the extent of the meltdown in a CPR?

But there’s a sidelight to this cautionary tale as well.

Clay says he’s currently fighting a stealth attack from another diamond junior mining company, Kimberly Consolidated Mining (KCM), a company for which Venmyn produced a CPR in 2008. It blames Venmyn for misguiding investors on the true value of KCM’s key diamond prospect Bo-Karoo, a digging in the Middle Orange River.

As already outlined in a story on Miningmx by Marc Hasenfuss http://www.miningmx.com/juniors/907928.htm, Venmyn put a net present value (NPV) of R75m on Bo-Karoo, equal to 17c/share. KCM says Bo-Karoo was worth way more than that but after listing at R1/share, investors have applied a market value that tells a story of its own. At its current share price of 15c/share, KCM as a whole is worth only R63m, let alone an NPV R75m for a single asset.

KCM has, Clay asserts, led investors astray all on its own; in fact, he charges it with frittering away IPO money. “The company is just not doing what it was supposed to do,” he says.

For instance, one of KCM’s other assets, known as Carter’s Block, is a well known kimberlite, a term used to describe diamonds found in a vertically descending pipe. The kimberlite had been well drilled but, according to Clay, the ore had never been bulk tested even though Theo Boutoulas, when he was still CEO of BRC DiamondCore, offered the services of his company’s Paardeberg East mill.

For more on KCM’s ills, you can still find a huge amount of information that’s current in Marc’s story.

In the meantime, Clay is keen on writing more ‘short form’ CPRs. Take a look at the Buildmax prospectus and you’ll see what he means. Everything the reasonable investor would like to know is studiously jotted down in less than ten, colourful pages.