13.3 Exploration Provenance, Technical Review & Legal Due Diligence
Key Takeaways
- Due diligence tests what is owned, what exists, what can be recovered, what may be permitted, what it costs, and which liabilities transfer with a transaction.
- Resource confidence begins with data provenance: collar and survey control, logging, recovery, sampling, preparation, assay, QA/QC, density, database security, and estimation history.
- A data room is not proof; reviewers reconcile documents to permits, government records, physical assets, site observations, models, contracts, and accountable people.
- Fatal flaws are distinguished from manageable risks by consequence, likelihood, legal curability, schedule, cost, and effect on the investment premise.
- A due-diligence report states scope, data cut-off, material assumptions, limitations, unresolved items, ownership of actions, and impact on value.
Valuing an operating mine requires more than applying a discount rate to a seller's forecast. Due diligence asks whether the asset, data, rights, obligations, schedule, and cash flows exist as represented. Technical and legal reviews interact: an attractive orebody has little transaction value if access rights cannot be maintained, while a valid agreement has little value if the geological model is unsupported.
Start With the Investment Thesis
Define why the asset is being considered: operating cash flow, expansion, exploration upside, strategic mineral supply, infrastructure, or consolidation. Convert that thesis into material questions. If value depends on a two-year expansion, processing testwork, construction permits, power, tailings capacity, and schedule become critical. If value depends on exploration upside, tenure, data quality, target evidence, and future access dominate.
Exploration and Resource Provenance
Trace data from field observation to final block model:
- collar location and downhole survey;
- drilling method, diameter, orientation, and recovery;
- geological, geotechnical, alteration, and structural logging;
- sample intervals, cutting, security, dispatch, preparation, and assay;
- certified standards, blanks, duplicates, umpire checks, and corrective action;
- density method, moisture basis, and representativeness;
- database validation, version control, and access;
- geological interpretation, compositing, domaining, top cuts, variography, estimation, and validation; and
- classification and reporting by a qualified Competent Person under the applicable code.
Check original certificates and dispatch records against database values. Review missing intervals, below-detection handling, overlapping samples, coordinate transformations, selective core loss, and late edits. A visually impressive model cannot compensate for biased assays or wrong collars.
Mine and Process Review
Reconcile the life-of-mine schedule with resources and reserves, mining widths, dilution, recovery, geotechnical design, development meters, fleet productivity, ventilation, dewatering, waste destinations, and capacity constraints. For the plant, review mineralogy, variability testwork, sample representativeness, flowsheet, throughput, recovery, reagent and energy consumption, deleterious elements, water balance, maintenance, and product terms.
Visit the site. Observe actual bottlenecks, stockpiles, wall conditions, ground support, pumps, tailings beach and pond, laboratory practice, maintenance backlog, and community setting. Compare operator interviews with reports and data historian records.
Legal, Environmental and Social Review
The legal team verifies the exact permit or agreement, registered holder, corporate qualification, area, coordinates, term, renewals, relinquishment, work and expenditure commitments, royalties, taxes, encumbrances, surface access, overlapping claims, litigation, and change-of-control consequences. Government records and cadastral coordinates should corroborate the data room.
Review environmental compliance certificates and conditions, EPEP/AEPEP and final rehabilitation/decommissioning commitments, water and discharge permissions, hazardous materials, safety orders, monitoring results, incidents, financial assurance, closure cost, and legacy contamination. For affected Indigenous Cultural Communities/Indigenous Peoples, verify the applicable NCIP process and agreement rather than accepting a generic claim of “community support.”
Contracts can shift value and risk: power purchase, offtake, streaming, royalty, joint venture, land access, contractor, employee, debt, equipment lease, and insurance terms all matter.
Risk Classification
| Finding | Example | Response |
|---|---|---|
| Fatal flaw | No viable access to essential land or a physically impossible production premise | Stop or fundamentally restructure transaction |
| Condition precedent | Transfer approval or permit required before closing | Make completion legally conditional |
| Valuation adjustment | Sustaining capital or closure cost understated | Correct cash flow and price |
| Remediation item | QA/QC gap can be tested by resampling | Budget, schedule, responsibility, holdback |
| Monitoring item | Commodity assumption within plausible range | Sensitivity and ongoing review |
Decision Discipline
Do not call every uncertainty fatal, and do not bury a fatal flaw in a long risk register. Quantify effect where possible. A 10% recovery shortfall affects payable metal every year; a six-month delay changes discounting and may breach financing covenants; an uncosted closure requirement affects liability and reputation.
The report should state information cut-off, sites visited, documents reviewed, people interviewed, reliance, assumptions, limitations, unresolved requests, and whether each issue changes resource confidence, schedule, cash flow, legal control, or transaction structure. A clean conclusion is earned by evidence, not by the size of the data room.
Data-Room Red Flags
Treat missing versions, broken links, unsigned approvals, identical file-creation dates, unexplained spreadsheet overrides, and reports that cite unavailable appendices as prompts for investigation. Request the native model and read-only export, then reproduce selected totals independently. A reviewer should preserve a request list showing when information was asked for, received, superseded, or never supplied; an unresolved request can be material evidence rather than an administrative inconvenience.
During acquisition due diligence, which action most directly tests whether the resource database is traceable to reliable exploration evidence?