conducting-resource-asset-due-diligence

name	conducting-resource-asset-due-diligence
description	Structures technical and commercial DD for resource assets with geological review, operational assessment, and regulatory evaluation. Use when conducting resource DD, evaluating technical reports, or assessing operational risk.
tags	["process","real-assets-and-natural-resources","regulatory","risk"]
metadata	{"author":"casemark","practice_areas":["Natural Resources","Energy Capital","Commodity Investment"],"document_types":["Process Documentation"],"skill_modes":["Process Management"]}

Conducting Resource Asset Due Diligence

When To Use

• Evaluating an acquisition or investment in mining, oil & gas, timber, water, or other extractive/natural resource assets
• Reviewing a Competent Person's Report (CPR), National Instrument 43-101 technical report, or SEC S-K 1300 disclosure for accuracy and completeness
• Assessing operational viability of a producing or development-stage resource property
• Conducting pre-bid technical screening for resource-focused fund deployment
• Performing ongoing portfolio asset review where geological or regulatory conditions have materially changed

Inputs To Gather

• Reserve/resource reports: Most recent CPR, 43-101, JORC, or SPE-PRMS compliant reserve estimates with effective dates
• Geological and geophysical data: Drill logs, assay results, seismic surveys, core sample analyses, stratigraphic models
• Production history: Monthly/quarterly production data, decline curves, recovery rates, water-cut trends (for O&G), grade reconciliation (for mining)
• Operating cost data: Cash costs per unit (e.g., $/boe, $/oz), AISC breakdowns, OPEX budgets, and contractor agreements
• Title and mineral rights: Lease agreements, concession terms, surface rights, royalty obligations, working interest / net revenue interest schedules
• Permits and regulatory filings: Environmental permits, mine plans, reclamation/closure bonds, water discharge permits, air quality permits [VERIFY jurisdiction-specific requirements]
• Environmental and social: Phase I/II ESA reports, tailings management plans, community benefit agreements, ESG disclosure history
• Capital expenditure plans: CapEx budgets for development, sustaining capital, and expansion scenarios
• Commodity price assumptions: Forward curves, hedging contracts, offtake or marketing agreements

Workflow

1. Define DD scope and materiality thresholds

   • Confirm asset type (producing, development, exploration) and commodity
   • Set materiality thresholds for reserve classification discrepancies, cost variances, and environmental liabilities
   • Identify reporting standard applicable to reserve estimates (JORC, NI 43-101, SPE-PRMS, SEC S-K 1300) [VERIFY which standard governs]

2. Geological and reserve assessment

   • Verify reserve/resource classification (Proved/Probable/Possible or Measured/Indicated/Inferred) against supporting data
   • Cross-check drill spacing, sampling methodology, and QA/QC protocols against applicable reporting code requirements
   • Evaluate geological model assumptions: continuity, grade/thickness interpolation method (kriging, IDW), cut-off grades
   • Assess exploration upside and conversion potential from Inferred to Indicated/Measured categories
   • Flag any reserve estimates relying on unverified historical data or non-compliant methodologies

3. Operational and production review

   • Analyze production history against type curves or mine plan projections
   • Review key operational metrics: recovery rates, availability/utilization, strip ratios (mining), or decline rates and EUR (O&G)
   • Evaluate processing/refining infrastructure: plant throughput capacity, metallurgical recovery, or gas processing capacity
   • Assess workforce, contractor dependencies, and key-person risk at the operational level
   • Identify deferred maintenance, equipment age, and sustaining CapEx adequacy

4. Regulatory and permitting review

   • Confirm all material permits are current, transferable, and not subject to pending challenges [VERIFY transferability on change of control]
   • Review compliance history: NOVs, consent orders, regulatory fines, or pending enforcement actions
   • Assess reclamation/closure obligations and adequacy of bonding or financial assurance
   • Evaluate royalty and tax regimes, including government participation interests or production-sharing terms [VERIFY fiscal terms by jurisdiction]
   • Check for indigenous land claims, heritage site overlaps, or pending litigation affecting title

5. Environmental and ESG liability assessment

   • Review existing environmental liabilities: contaminated sites, ARD/AMD potential, tailings dam risk classification
   • Assess water rights adequacy and competing demands in the basin [VERIFY water law framework]
   • Evaluate carbon exposure: emissions intensity, carbon tax/ETS applicability, methane reduction commitments

Output

Produce a Resource Asset DD Report containing:

• Executive summary: Asset overview, investment thesis validation, key risks, and go/no-go recommendation
• Reserve/resource summary table: Classification, volumes/grades, effective date, reporting standard, and any reclassification adjustments
• Operational assessment: Production performance vs. plan, infrastructure condition, cost benchmarking against peers
• Regulatory and permitting matrix: Permit inventory with status, expiry, transferability, and compliance flags
• Environmental liability register: Identified liabilities with estimated remediation costs and timing
• Risk register: Ranked technical, operational, regulatory, and commercial risks with mitigation recommendations
• Purchase price adjustment schedule: Quantified adjustments for reserve reclassifications, deferred CapEx, and contingent liabilities

Quality Checks

• Reserve estimates reconcile to underlying geological data and comply with the applicable reporting standard
• All cost figures are sourced from audited financials or operator-provided schedules (not analyst estimates)
• Permit inventory is complete and reflects current status — no expired or pending permits omitted
• Environmental liabilities include asset retirement obligations (ARO) consistent with current accounting standards
• Commodity price assumptions are explicitly stated with source (forward curve date, broker consensus, or management case)
• Every jurisdiction-dependent conclusion (fiscal terms, water rights, permitting regime) is tagged [VERIFY]
• Report distinguishes clearly between facts confirmed during DD and management representations not independently verified