Due diligence on a gold mining company is not a single task. It is a process with multiple distinct components, each designed to test a different aspect of the company’s claims. Investors who treat it as a checklist to be completed quickly and conveniently miss the point entirely. The fraudster has designed their presentation to satisfy a superficial review. Gate 4 due diligence is designed to go deeper than the fraudster’s preparation.
Before examining any technical document or financial projection, investigate the principals behind the company. Who are the directors and senior managers. What are their professional backgrounds. Where have they worked before and what were the outcomes of those ventures.
Search for each named individual in court records, regulatory databases, and news archives. Many jurisdictions maintain public records of civil judgments, bankruptcy filings, and regulatory sanctions. The Canadian Securities Administrators maintain a database of enforcement actions. The United States Securities and Exchange Commission maintains a similar database. The Financial Conduct Authority in the United Kingdom publishes records of individuals who have been banned from financial services. A principal who appears in any of these databases should immediately raise the level of scrutiny applied to the entire deal.
Search for the company itself in the same databases. A company with a history of regulatory action, failed projects, or investor complaints should be treated with extreme caution regardless of how different the current project looks from previous ones.
Check the professional qualifications of anyone described as a technical expert. Geologists, mining engineers, and metallurgists who are central to the technical claims should be verifiable through their professional associations.
Request the most recent NI 43-101 compliant technical report or equivalent. Identify the Qualified Person who certified it and verify their credentials and independence as described elsewhere in this gate.
Read the technical report carefully, paying particular attention to the data verification section, the mineral resource estimate, and the cautionary language. Every legitimate technical report contains explicit statements about the uncertainties and assumptions underlying the estimates. If the cautionary language is absent or minimal, the report does not meet the standards required.
Cross-reference the drill results reported in the technical report against any drill results released to the market. If the company is publicly listed, their drill results will have been announced to the stock exchange. Discrepancies between the announced results and those incorporated in the technical report require explanation.
Request the underlying data. Drill hole collar locations, survey data, and assay certificates should all be available from a legitimate company with a genuine resource. If they are not forthcoming, understand why before proceeding.
As discussed in detail elsewhere in this gate, every permit presented must be verified directly with the issuing authority. Compile a complete list of all permits and licences that the company claims to hold. Contact each issuing authority independently. Confirm the permit number, the issue date, the expiry date, the current status, and the scope of activities covered.
Pay particular attention to environmental permits, which are often the most difficult to obtain and are therefore the most frequently forged or overstated. A company that claims to have all environmental approvals in place for a major mining operation should be able to provide evidence of a full environmental impact assessment process, including community consultation records.
No amount of document review substitutes for a physical visit to the property. The site visit should be conducted independently, meaning you should arrange your own travel and engage your own technical advisor to accompany you, rather than accepting a tour arranged and managed by the company.
On the site visit, assess whether the infrastructure described in the technical report and the company’s promotional materials actually exists. Is there a road of the quality described. Is the processing plant present and in the condition claimed. Are the drill holes at the locations shown on the maps. Is there evidence of the recent activity the company describes.
If the company claims that exploration or development work has been conducted recently, look for physical evidence of that work. Fresh drill pads, recent core storage, active equipment, and a workforce engaged in productive activity are all things you can observe and assess. Their absence when recent activity has been claimed is significant.
Understand how the company is financed and how the capital raised from investors or lenders has been used. Request audited financial statements. If the company cannot produce audited accounts, understand why. A company that has raised significant capital and cannot produce audited accounts has a transparency problem that no other positive attribute can compensate for.
Examine the use of proceeds from previous capital raises. If the company raised capital twelve months ago to fund a drilling programme and the drilling programme has not been conducted, where did the money go. Discrepancies between stated use of proceeds and actual expenditure are a serious red flag.
Understand the ownership structure. Who owns the company and in what proportions. Are there related party transactions that create conflicts of interest. Is the company structured through multiple entities in different jurisdictions in a way that creates opacity around where assets are held and who controls them.
If you are evaluating a specific transaction rather than a general investment, assess the commercial terms against market benchmarks. What royalty or streaming rate is being offered and how does it compare to comparable transactions in similar jurisdictions and project stages. What security is being offered and how does it compare to what a prudent lender would require.
Terms that are unusually generous to the investor or lender at the outset are sometimes a signal that the fraudster is optimising for closing the deal rather than for the viability of the ongoing relationship. If the terms seem too good, understand why they are being offered.
Engage a lawyer with experience in mining transactions in the relevant jurisdiction before committing any capital. The lawyer should review all transaction documents, advise on the adequacy of the security arrangements, and confirm the enforceability of your rights under the laws of the relevant jurisdiction.
Do not use a lawyer recommended by the company or its principals. Independence is essential.
Throughout the due diligence process, maintain a written record of every check performed, every document reviewed, every phone call made to verify information, and every response received. This record serves two purposes. It forces discipline in the process, ensuring that checks are actually completed rather than assumed. And it provides evidence if you later need to demonstrate the basis on which you made your investment decision.
Due diligence on a gold mining company takes time. It costs money. It requires expertise across multiple disciplines. These are not arguments against doing it. They are the reasons why the fraudster is counting on you not to bother.
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