If governments all around the world can print money, then why not the mining sector too? This week your scribe will be doing his own version of money-printing at the University of New South Wales – and, in the process – a little bit of mineral economics teaching along the way.
For several years now, a version of “Building Your Own BHP Billiton*” using a customised set of playing cards has become an effective way to communicate many key concepts to mineral economics classes in double-quick time.
Groups of budding Andrew MacKenzie’s are dealt a random hand of playing cards (read mineral assets) – from exploration stage through development projects to operating mines – and then asked to trade the assets with each other to mutual advantage.
Asset portfolios are compared at the game’s end to see which group wins.
Formidable mining companies appear faster than Andrew Forrest built up Fortescue Metals Group.
Winning strategies can include a focus upon large-scale open pits, specific customer-related commodity groups, a specialist mineral processing company and a diversified energy company. Even a global gold miner has won in the past – provided that the (gold) price is right, that is.
The twist this time around is that the stacked deck of mining asset cards will be joined by a further deck of cards – the latter representing what the junior and mid-tier end of the sector lacks at the moment – money.
The rest is logically straightforward. High cards represent “loads of money” whereas low cards are worth little more than trade financing.
The colour of the cards is important too. Black cards, whether spades or clubs, represent equity-side financing. Red cards, hearts and diamonds on the other hand represent the multitude of debt-side structures.
The face value of the deck is as follows:
- cards with values from two to five represent $20 million through to $50 million respectively
- cards with values six to ten represent $600 million to $1 billion respectively.
The face cards are where it gets even more interesting. Forget playing for sheep stations, we are now talking really serious money – which, given the mineral assets include the likes of LNG projects will come in very handy:
- each Jack or Knave represents $2 billion each
- each Queen $3 billion
- each King $4 billion.
Finally in the Strictly Boardroom mine financing game aces are deemed to be high – so each ace is worth a cool $5 billion.
Now to the joker: Here if a joker is drawn, it takes on a value equal to the average card – with the team able to denominate whether the joker represents equity or debt.
Trading of assets in past games has always been accompanied by tough negotiations between teams.
With the new pack of cards representing a massive stimulus package into the ‘Build Your Own BHPB’ game, your scribe expects some interesting trading outcomes this time around – and a far more liquid market too.
Good hunting.
Allan Trench is a Professor of Mineral Economics at Curtin Graduate School of Business and Professor (Value & Risk) at the Centre for Exploration Targeting, University of Western Australia, a Non-Executive Director of several resource sector companies and the Perth representative for CRU Strategies, a division of independent metals & mining advisory CRU Group (allan.trench@crugroup.com).
*Building Your Own BHPB – Strictly Boardroom 19th December 2011 http://www.miningnewspremium.net//storyview.asp?storyID=2493467§ion=Search§ionsource=s88&Highlight=building
