Wardell Armstrong – Every Grunt, Roar and Snort, Not a Tale I Distort (Transcript)

Interview with Mark Kenwright, Associate Director of Wardell Armstrong – the International Mining Consultants.

This is a first conversation with a very well respected mining consultant, with a view to open up to Retail shareholders how institutions view risk when making investments. Due Diligence is everything. Kenwright is honest and gets straight to the ‘crux’ on a variety of topics investors may find interesting.

Wardell Armstrong, founded in 1837, is an international consultancy firm providing engineering, environmental and mining services in the mining & minerals, infrastructure & utilities, and property & development sectors. Kenwright himself is a chartered professional FAusIMM CP(Geo), with over 24 year’s experience as a geology/exploration Manager.

Wardell Armstrong doesn’t build mines, but they provide studies and reports at various stages to help companies get mines constructed. Companies generally hire Wardell Armstrong to obtain a competent person’s report, scoping studies and due diligence studies and similar before conducting an IPO listing or investing into them. These reports can cost anyway from £50,000 to £150,000. The “bread and butter” services that Wardell Armstrong provides are scoping studies, desktop studies and due diligence for mining companies at a development stage. They are providing a much more detailed version of what Family Offices and HNWIs should be doing themselves.

We were interested in asking about the transparency and integrity of Wardell Armstrong: do clients influence their reports? Kenwright insists that while Wardell Armstrong can treat certain subjects delicately, everything must be disclosed as part of their publications. Nothing is held back and they have a legal obligation to ensure this is the case. If Wardell Armstrong doesn’t talk about something at the request of one of their clients, they have to disclose why. There is a table that very few investors seem to look at towards the end of these studies, that will inform them of things they need to know, yet often don’t.

Kenwright then touches on the IMO3 conference in London. The title this year is ‘Mining and the Electric Vehicle.’ Mining companies, regulators and academics will meet on the 29th-30th January to discuss issues, ideas, and solutions to problems in the mining world. Kenwright then talks about the Western Africa security situation. The Sahel has been suffering from increasingly widespread instances of terrorist attacks, and mining companies, such as SEMAFO, have suffered heavily at the hands of ISGS, Ansar ul-Islam, Boko Haram and al Qaeda amongst others. How has this impacted other mining companies and what is the outlook? Wardell Armstrong is well aware of this issue, courtesy of their standard practice of performing a risk assessment. Kenwright describes the deterioration of the situation in Burkina Faso as “shocking.” Kenwright has discussed the situation with senior security operatives in the region and they have coined the phrase “Kabulisation,” in relation to the similarities with Afghanistan, where security forces only have control of a very small area around the capital. Everything else is “bandit country.” We wonder if this will expand into other territories.

Kenwright explains there have been 650,000 Burkina Faso residents displaced; this has not received any mainstream exposure. He does, however, claim it is still possible to mine economically in the region. Kenwright takes a “life goes on” view, but can investors afford to be so confident?

Kenwright also touches on the outlook for the struggling lithium market, and provides some general investment advice, such as considering avoiding a management team that changes frequently.

Interview highlights:

  • An Overview of Wardell Armstrong and Their Services
  • Competent Person’s Report: Components and What Gets Looked Into
  • Client Influence: Reliability of Reports, Duration of Production and Price
  • The Situation in Africa: Effect on Companies and Investors. Should You Still Invest?
  • Lithium: Opinion on the Market
  • Research and Resources

Watch the interview here.

Matthew Gordon: I’ve been wanting to help investors understand institutional diligence. Wardell Armstrong is well-known to most of us in the industry. Why don’t we kick off and help people to understand what is Wardell Armstrong and what is their place in the market in relation to mining?

Mark Kenwright: The Wardell Armstrong Group has been going since 1837. We’ve got 13 offices in the UK, one in Moscow, one in Almaty in Kazakhstan. The Wardell Armstrong International, which is what I am part of, we focus on the mining, exploration, metallurgy, geology, social side of mining. Most, 95% of our work is all offshore: so in Africa, in the Middle East, in Russia, CIS countries. We have, interestingly because of the whole Lithium space, we have started to do more work, both here locally, on our doorstep in Cornwall but also in places like Spain and in other markets that have perhaps been a bit more active recently as they have been in Eastern Europe. We are involved from desktop studies, all the way through to due diligence, scoping studies, feasibility closure. We don’t build mines.

Matthew Gordon:  Mining is about risk mitigation, financing mining operations is about risk mitigation. You need to know what you are walking into. What is your typical brief from these companies when they hire you?

Mark Kenwright: Typically, we would get involved where a company would need a Competent Person’s report for listing, an IPO listing in London either on the main exchange or the AIM exchange, or in Australia, Canada or Hong Kong or wherever. So we do a fair bit of that CPR listing which involves all the disciplines, from geology and mining and everything else. But we also would go out and get involved in expert witness type work; so we would have to do a site visit. But then the bread and butter would be the scoping studies, desktop studies and due diligence where somebody, as an example, a few years ago, for a country, we had to do a due diligence on some mining assets because a company was going to give a loan to them, but they wanted an OFTEC agreement as part of that loan. So they want to ensure that the asset and the management and the plant and the mining and everything else can produce the metal that they want against that loan.

So we really bring a wide range of expertise. I personally have got 24 years’ experience. We have got a few youngsters but there’s a lot of grey-haired people here who have got 25, 30, 35+ years of experience. So I have worked all over the world: I’ve lived in Africa for 18 years, been back in the UK now for 7 years. So it is really bringing that depth of experience and that range of experience.

Matthew Gordon: When we’ve used companies like yourself in India, in South America, we were trying to protect our investment. We are trying to make sure we are not going to put money into a situation where we are going to lose it. And it’s a much more detailed analysis in diligence than perhaps most retail or family office or high net worths might go into, but when you are deploying USD$100m, you want to make sure that things are as they say they are. So, let’s talk about a Competent Person’s Report.

Mark Kenwright: Well, the basis for everything within a mining project is obviously the mineral resources so you would obviously have to check right from the start, and that means typically, having access to a data room. We would examine the drill hole data base and especially look at the overall mineral resource estimate and the quality assurance, quality control: the QAQC checks  which typically would involve standards, blanks and duplicates. And you would want to see a range of 5% to 10% insertion rates. If someone takes 100 samples from one drill hole, you would have an extra 5, 10 samples inserted at regular, or even irregular positions, to see if the lab is doing their job correctly. So you want to make sure that all those aspects are correct.

It starts with the mineral resource estimate. You would examine, briefly, the exploration history. You would examine all of their, typically, you would examine all of their standard operating procedures; so did they do what they say they would do? There’s nothing worse as a consultant, going on site and somebody says, ‘Yes, every tenth sample we insert a blank or a standard,’ and they don’t do that; they have just shot themselves in the foot there.  So, do what you say you are going to do. Me, as a consultant saying to our client, ‘Have you done what you said you were going to do?’

Now, I might disagree with what they have said they are going to do. I might say, no, you need to do every 10th sample, or 20th sample if they have done every 50th, or whatever their standard is, but their standard is their standard – so that’s the first thing you want to do.

The second thing is to obviously make sure that there is no fatal flaws. So yes, you could have a Gold project, obviously, but is the Gold wrapped up in arsenopyrite? Is it recoverable? When they did the mineral resource estimate, did they use the right search parameters? Did they do some basic geo-statistics? Did they log the core properly? They literally, physically log the core, or re-log the core and get a sample of those and make sure that what they are saying is, you know, a granite is a granite or whatever it is. And that is done in every department, as it were.

So, me as a geologist, my sort of expertise is in exploration and in project management, exploration in large programs, USD$30m exploration projects, large teams, so I know what to look for when someone says, yes, we have done X,Y and Z in geology. If we are getting called out and somebody is doing drilling, expanding the resource and they want someone to sign off on the mineral resources, I always want to be there within a day or two of them having started that drilling program. So again, to make sure when they are drilling, the drillers are doing what they are supposed to be doing and what the geologist at the drill site is doing what they are doing. So, it is really trying to make sure that, ideally, an excellent standard is met but at the very least, a good standard is met.

Matthew Gordon: What about all of the other things that you look at when you are trying to assess or diligence a project, in terms of the jurisdictional risk.

Mark Kenwright: Ordinarily, a company like Wardell wouldn’t do a legal due diligence but we would examine the mineral title documents. We would briefly look at the mining law within that jurisdiction to make sure that they are in compliance when they, if it’s an exploration project or a mining project, when the license terminates, is an example. Because one of the things that we discovered, in say, Russia, people had a mining ore reserve, past the date of their mineral license. So all those ore reserves had to in fact be discounted to zero because you don’t have the right, legally, to mine them. So you would do those sort of sense checks but you would also, obviously, examine the mining plan, the mine design, and a fairly detailed level, what parameters went into the pit optimisation of the underground ops? What was the Gold or commodity price?  What are the recovery factors, what are the mining costs? What are the G&A costs? What were the royalties? The taxes? So you do get quite granular in those things. You want to examine their financial model but typically, you also create your own financial model.  And you can, everybody is fighting to make the project as attractive as possible. You can get into some robust discussions about commodity prices or recoveries but as a consultant, we always have to err on the side of caution, as you said right at the start about the questions of the risk.

Matthew Gordon: Are you ever influenced by the company in the terms of the way that you write your reports?  Is there any reason to doubt the veracity of what you are saying?

Mark Kenwright: You can get into a situation where, as an example, a company says, we’ve got this one test that shows 80% recovery, but the overall test might show 65%. So you can disclose both of those figures but clearly, you have to, as a consultant and somebody who, remember, we have to take professional indemnity insurance as well as our brand, our name risk as well. So we as a company, again, always have to err on the side of caution. Now, there are ways and means you can skin a cat. There are ways and means you can write something perhaps more positive or less positive but we have to disclose the issues at hand.

With the JORC code 2012, the most recent version of that came out, there’s the Table 1 at the very end that very few people look at that within that, there’s the principle of; if not, why not? If you are not talking about something or if you didn’t do something, you have to disclose why. So that’s actually a very useful table for investors to look at. For any irregularity basically.

Matthew Gordon: Do companies have to disclose the Competent Person’s Report details as part of the exchange of regulations?

Mark Kenwright: Yes, whenever you list on the Stock Exchange, the CPR, the Competent Person’s Report is within those listing documents. In full detail, typically with appendices etc. Now, just one other point, and it’s a very valid point and I’d like to make a couple of points about the Competent Person’s Report, or even a feasibility report. There’s always a Competent Person in their field. I’m a competent person as a geologist, I’m not as a metallurgist or a mining engineer, you will typically have 6 or 7 or 10 competent persons, having compiled a competent person’s or a feasibility study. But you will typically have, and in our case, it is Doctor Phil Newall, who is the MD of Wardell, he would typically review all of those reports and be the overall lead person. But we personally have to take that responsibility. I am a fellow of the AusIMM, I am also a profession geologist. I am also on the list of registered consultants.

You will obviously get some requests for; don’t put this in, or do put that in. But at the end of the day, it’s taken me 24 years to get to the position I am at. I’m not going to lose my reputation or be disciplined by AusIMM or any other body to then lose that accreditation because it is quite difficult to get, you know. You have your own internal professionalism as well as the company. Now, having said all that, people can make mistakes.

There was a very interesting report done by the Ontario Stock Exchange or the Securities Commission, sorry, in 2013 where they examined 50 feasibility studies or reports, and I think 40% of them had fatal flaws. What they would consider to be fatal flaws.

Matthew Gordon: What’s a fatal flaw?

Mark Kenwright: Things that hadn’t been done. Now, they didn’t disclose who they were or what they were but the point is that even if it has the words NI 43-101 written on the report, written on it, or on the feasibility report, you still have to read it yourself and take a judgement, number one. The other point is about feasibility studies; you can get a negative result with a feasibility study. People think that, oh, it’s got a feasibility study – it’s a great project – it’s not always the case so you do have to take the time to read those. At the very least, I would say, if you’ve got limited time and you have got 15 reports to read, read the executive summary, read the conclusions and recommendations and skim through theJORC Table 1. Obviously, you should read all of them but –

Matthew Gordon: So that says to me, people, the information is there; do your homework. People like you have spent a lot of time, effort and experience in putting these reports together. The conclusions are quite easy to find if you want to find them. How much money do companies pay for a Competent Person’s report and how long do they take to put together?

Mark Kenwright: A Competent Person’s report, if it’s a single asset like a single Gold mine or project, could cost anywhere from £50,000 to a £150,000. It really depends on how much information there is, how much information you have to do. If somebody says, here’s a database, and here are some reports, we bought it off a project, then we have to do everything, then it is going to cost a fair amount of time, and it will take 4 to 6 months, maybe even 8 months. If a company says, we’ve got all this information we’ve built up ourselves, we just need you to review it, sign off on the mineral resource estimate, ore reserves and make sure you are happy and come to some conclusions, recommendations with metallurgy, as well as obviously, the very important environmental, social and all of the rest of it, that can be a lot shorter. But you know, to do a Competent Person’s Report,      especially if it’s listing on the Stock Exchange, where it can go backwards and forwards with the authorities, it’s a good 2,3,4,5 months.

Matthew Gordon: I kind of like the reassuringly expensive ones, because it suggests that more work has gone into it. We’ve been offered reports for as low as USD$25,000 which makes me nervous because that seems like a tick-box exercise and a signature.

Matthew Gordon: What is going on in Western Africa? There’s a lot of information about terrorist incursions in some countries. If we look at some of the presentations from SRK which suggests that the problems are just getting worse. Some countries along that Western Coast of Africa which are suffering; people are being relocated, people are dying and businesses are obviously being impacted. 

I refer to Semafo, before Christmas, the attack there: 37 dead, 60 injured. Talking about attacks in Mali; 70 soldiers killed, and one last week; 86 soldiers killed by ISGS (Islamic State Great Sahara).  It’s been coming for a while. I have been talking to a few CEOs recently, with interest in the area. They are nervous, of course, about what may come. I think it is important that people understand this. Is that an area that you have looked at, that you are aware of or have discussed as part of your work?

Mark Kenwright: Whenever we as Wardell Armstrong, and I’m sure other companies like ESSO, or whoever, whenever we go to anywhere really, we actually, for our insurers, have to do what we call a risk assessment. And part of that, one of the very basic, standard things you have to do is, you go to the FCO website and look at their coloured maps. And it is shocking, unfortunately, how quickly things have deteriorated in Burkina Faso. I have been to Burkina Faso four or five times. Completed 6 feasibility studies for a Nordgold subsidiary there. Since I have been going there, since 2013 I think it is, and when you go back and look at those maps where you have the FCO saying don’t go there – the red area – don’t go unless, you know, and then you have the orange area and green area where it is sort of safe.

I spoke to Joe Fifield from SRK, who is head of security at the Arab and Africa Conference, where I also presented there last year, and in discussions with him, I sort of coined the phrase, ‘the Kabulisation’ of Burkina Faso; because I’m sure you know, in Afghanistan, the security forces hold Kabul and maybe 150kms to 100kms around it and everything else is bandit country. There’s an element of that at Burkina Faso. Now, having said all of that, absolutely terrible, shocking attacks, both last year and more recently.  And the displacement of people: I think there have been 650,000 Burkina Faso people displaced. I mean, it is…you hardly hear about that unless you go looking for it or you live in that country, or you are involved in that space. But you can still operate, believe it or not, in those countries. IAMGOLD have got Essakane Mine in the North. They are able to operate.

Matthew Gordon: Why can they operate? If you are talking about this relocation of people, of these incursions, you’ve got deaths, not just of security and police and army, but in churches and schools. It sounds horrific, and if you don’t go looking for this, it’s not much talked about here in European press. But if you read the African press; it’s everywhere. So how do companies continue to work?

Mark Kenwright: See, it’s a little bit like, and I lived in Northern Ireland when I did my first degree, it’s a little bit like Northern Ireland; life goes on in lots of these places, with the exception of the very North of these places where people are scared and running for their lives, but there are these terrorist attacks, but they are infrequent. It’s not, I’m sure there are some that are every day or whatever, but the very big attacks that make the news are sporadic and infrequent, and unfortunately have a high impact, both in the loss of life and all the rest of it.  As I said, there’s Essakane who are operating, there’s also Nordgold who have still got a couple of mines, Bissa and Taparko, are still operating. You’ve got to get the security right. You’ve got to get the risk analysis right. When I have been, we will typically travel in two Land Cruisers, an armed guard in both, and no fanfare, no big convoys, so people don’t know, unless someone does a phone call, which obviously, thank God, hasn’t happened so far. So you have got to get that security analysis, risk and mitigation in place. Perhaps the worst thing about that, looking from the outside, I’ve not worked with Semafo and I don’t want to bad mouth them or anyone else, they were attacked twice in effectively the same place, lessons weren’t learned. Of course, I’m sure they have learned those lessons now. Going forward, you might have to, as an exploration geologist, you might have to travel with a bullet-proof Landcruiser, literally, USD$150,000. And there’s other areas;  I know a project, it’s not too far from Essakane, there’s a Gold project sitting there, but you can’t go and explore or work there for the moment because of the issues. So until things settle down, the Burkina Faso –

Matthew Gordon: So you think the big guys with revenues enough to pay for adequate security should be fine, could be fine? We hope?

Mark Kenwright: All three of those, yes.

Matthew Gordon: Is it going to be tough for exploration companies with limited budgets, to develop projects?

Mark Kenwright: There’s also that Canadian Geologist who was killed last year. I think he was killed 20kms, 25kms from the Essakane Mine, in a national park?

Matthew Gordon: Yes.

Mark Kenwright: That’s what I heard. And again, I don’t want to talk but yes, you have got to be careful. We at Wardell Armstrong, we will go to these places if we know the company and if they can demonstrate that they’ve got a track record and obviously, we are happy with their security. We have a standing rule: the first thing the Managing Director says to you is, if you are not confident, you won’t go.

I think you’ve got to look at the management of people. It’s interesting. You have probably heard of a guy called Danny Callow who is an ex-Glencore guy. He is with a big attractive-looking mining project in Mali. They have ground, I think in Burkina Faso and he has publicly stated that they won’t be going there until things settle down. So you’ve got to have management with that maturity and wisdom to really understand what they can and can’t do. Another really interesting thing about the quite understandable reaction to the Semafo attack, and also other attacks in the future, is contracting companies, I think was it ALS? The just called force majeure and walked away. So, you can have an asset, are you going to have all these people to run all of these things for you? All of these things, I’m sure, are doable but it will come at an extra cost. It will come with extra studies. You know, it used to be…even now, perhaps, security is almost like a throw away – oh yes, security, it is operated in whatever it is. I suspect very soon, that’s going to be a full section on its own within some of these studies.

Matthew Gordon: People need to walk into this with their eyes open, because it is their money at   risk.

Mark Kenwright: If I can just add one last thing, and we have talked about Semafo quite a bit, in their defence, and I’ve never spoken with the guys, I don’t know anything, they wouldn’t have operated in a vacuum either; The Burkina Faso Government, the security forces that were with them would have done, I’m sure, their own assessments, if there are fingers to be pointed, I’m sure thatit’s not just in one place. Let me put it that way.

Matthew Gordon: Does it affect operating businesses? Hopefully it doesn’t. What measures and what cost will those measures take to ensure continued operational success?

Mark Kenwright: As you said, this is a large area. I measured it on Google and it is about 4,000  kilometres by 600 to 1200 kms, and that whole region has its own sort of independence, nationalistic, political overtures as well which are part of the whole mix so its going to take a holistic approach to solve that.

Matthew Gordon:  What most people don’t realise about Africa; you have got these country boundaries but most countries are tribal. The tribal component should not be ignored. The religious component is obviously making a huge impact too. Economic rationale, and the disenfranchised youth. There are a lot of moving parts here and one needs to understand that country risk is more than just the geological risk but it’s, as you said, legal, mining code is critical, the political environment is important.

Mark Kenwright: That’s right.

Matthew Gordon: Mark, thank you very much for your time. I do appreciate it. Like I say, I am really excited to be talking with Wardell Armstrong, and your International Team specifically. Because, I think, as I say, if you can help us to identify what are those red flags?

Mark Kenwright: My pleasure. Hopefully I will see you at the Mining and Electric Vehicle Convention next week?

Matthew Gordon: You will, Sir, for sure.

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

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