Here's how a senior miner would usually do due diligence on the project:
A- Re-assay some of the drillcore. Freeport Mcmoran essentially did this when they wanted to buy out Bre-X... that is why they didn't get burned unlike the institutional investor community.
B- Check that the resource model is appropriate. You need a copy of their computer files and a competence resource modelling engineer.
Oftentimes, companies have overly aggressive resource models. The drillholes only sample a very tiny % of a resource body. Everything else is a guess. There is room to get pretty crazy with that guess. Peter George / Barkerville would be an extreme example. (Oh yeah... he is not in jail. The bar to actually end up in jail is extremely high so there is a lot of bad behaviour that you can get away with.)
C- Check the engineering assumptions. You need to a copy of all their work and a team of specialized engineers (metallurgy, infrastructure, mining, etc.).
There is a lot of room here to get overly optimistic. Remember that any errors in predicting the economics of a mine can be multiplicative (is that a real word???)... so you could throw out some crazy numbers without getting into legal trouble. Like what happened with Bloom Lake / Consolidated Thompson / BBA and the mythical <$40/ton opex.
D- Check that the title to the property is good. Which requires a lawyer.
Clearly... I am not doing this level of due diligence. I don't have a copy of all the technical data. In theory I could calculate esoteric stuff such as whether or not Alderon's pit slope angle is reasonable (this affects mine economics)... but to do that, you would need information on soil characteristics (how elastic it is, etc.).
And I do not have a team of specialized engineers.
Am I naive to think that a smart (I assume), sophisticated buyer like Hebrei would do a very thorough evaluation
In rare cases, companies don't actually do due diligence when buying a junior. There was some example in Pierre Lassonde's book on gold which I forget.
Crazy Eddie (the electronics retail mega-fraud) is an example of private equity not doing
enough due diligence.
Warren Buffett bought GenRe... got burned on their derivatives unit.
You can't always assume that the buyer did thorough due diligence.
Can you tell the board why IOC has costs in the range that Alderon is talking about? And go through the points from the conference call that describe the high cost structure at Bloom Lake.
I didn't listen to the conference call... hopefully there is a transcript.
Because I don't have access to technical data and a team of specialized engineers... I don't have a very good idea about what the Kami project's potential economics will look like.
Regarding Alderon versus Bloom Lake... you could always make claims about Alderon/Kami having better economics even if it were the other way around. Many of the economic assumptions are *subjective* and you won't end up in jail for being ridiculously optimistic.