My own professional expertise covers one particular area of minerals and metals processing. Note, however, that I'm not a financial adviser.... do your own research.
The Alternative Investment Market (AIM) is a
market for shares in smaller, more risky companies. UK
You've spotted a start-up company that's reporting great things – they've recently floated on AIM to raise £100m and the financial press is full of its potential – and so you've also bought into the marketing spiel and you now own a fraction of this company – they either have a new production process that's going to revolutionise an industry sector or else they've specific oil, gas or mineral rights to a particular piece of land or sea and therefore everything looks rosy, yes ?
Why ? Read on....
So, this fantastic new company has, say, the oil or mineral rights to a particular piece of land or sea. What does this mean ?
Well, it means exactly what it says. The company has probably agreed to acquire the sole and exclusive rights to extract whatever mineral they specified from under this piece of land or sea, but usually only for a finite length of time to commence, i.e. some government or other has given them maybe five years to build a full-scale production operation, or at the very least to commence 'meaningful works' – if your company fails to meet this deadline, then this (very expensive) option lapses and is up for grabs again and anyone else can then bid for the future rights.
So, your AIM company with a market capitalisation of £100 million wants to develop, say, a mineral minesite.
Dead easy, yes ?
Wrong again !
Have you any idea of the sort of financial and regulatory frameworks with which it's required to comply, even in so-called third-world countries ?
Firstly, there's the initial cost of acquiring the option, let's say a lowly £20m, then they may need to confirm that the resource is exactly as rich as it's claimed to be, maybe £2m in further testing etc, then there's a series of feasibility studies required, eventually up to a level that would be acceptable to future equity partners or lenders. Let's say £1m in total as a ball-park figure. Then there's an Environmental, Social and Impact Assessment study (ESIA) into the proposed development, let's say £500k and which may well be on the low side. Then there's survey & planning fees, consultation with local residents, possible relocations, public relations etc, let's say another £1m just for starters, if you're very lucky.