Mining spreadsheets - spreadsheet control

Mining sector can avoid overstating reserves with Spreadsheet Professional
By Real Business Reporter

Mining consulting company Venmyn has bought Spreadsheet Professional from Miricle Solutions to reduce the risk of errors and save time and money in developing spreadsheets for its clients, or when evaluating those prepared by customers. Andy Clay, director of Venmyn, a specialist technical and financial advisor in mineral asset valuation and statutory compliance to the international minerals industry and its investors, says Spreadsheet Professional is an important additional tool for the business.

"Previously we used a manual process to analyze spreadsheets, with an independent analyst and expert accountant looking for errors. Spreadsheet Professional allows us to eliminate the need for that and also helps with methodology checks. While it does not eliminate the need for intellectual property, it is an important health check," says Clay. He says buying the product was a "no brainer", as Venmyn's own stringent internal compliance check process did not always catch all of the errors made by clients in their spreadsheets.

Venmyn acts as an independent evaluator to all parties involved in mergers, acquisitions or disputes. It is also involved in consulting on a number of economic empowerment deals. The company advises on the development and promulgation of professional codes, listing requirements and valuation standards for the minerals sector.

It also conducts tailored market studies on commodities. Venmyn offers executive training courses on mineral asset valuations, and compliance and reporting for local and international companies and tertiary education institutes. Clay says Venmyn differs from its competitors in that it is not primarily involved in core technical work, and can therefore be regarded as totally independent.

Justin Pit, a director of QuestCo, says it is important that mining companies use a spreadsheet auditing tool when dealing with life of mine valuations, as "a wrong number" could seriously harm their business.

QuestCo is a corporate finance company, which also deals with mergers and acquisitions. It uses Spreadsheet Professional in its valuation models, primarily to save time in checking figures.

Pit says: "Spreadsheet Professional is a systematic tool for checking a spreadsheet. It helps us focus on the risk areas inherent in spreadsheets and removes the chance of human error. It uses technology to help people do a better job than what they can achieve as an individual."

Clay adds: "Previously, mineral assets did not have to be valued. Now there are various codes, legislation and regulations worldwide that set the standard for reporting on the mineral reserves and resources of a mine. These codes will soon work in conjunction with the International Financial Reporting Standards (IFRS).

"This is primarily as a result of big corporate disasters that have taken place, such as the Bre-X scam in Borneo." The exploration company claimed it had found the richest gold deposit this century, caused when "a volcano had essentially collapsed back onto itself three million years ago, causing a massive build-up of heat and pressure, which created the miraculous treasure" of 400 million ounces of gold, according to an article by Time magazine's Richard Behar.

Behar says after the discovery, Bre-X's market value topped $4 billion - a growth rate of 100 000% in three years. Clay says: "Bre-X had salted the rocks with gold dust and lied about what was in the ground. That caused a massive loss of confidence in the ability of technical people to report on items of value.

"After that came Enron and Worldcom, both of which related to financial valuation problems from an accounting and auditing perspective. The resulting fallout shows that what the market wants is independent competent reporting of technical and financial values."

Adrian Miric, MD of Miricle Solutions, says there is a tendency in the mining sector to use spreadsheets when making major decisions.

"Unfortunately, many don't realize they stand to lose money if those decisions are based on erroneous figures due to something as simple as a spreadsheet error.

"Research shows over 80% of all spreadsheets contain mistakes. The type of spreadsheet horror stories being revealed on a monthly basis can affect and probably have affected South African companies."

In the US the Sarbanes-Oxley Act has forced companies to focus on corporate governance and highlighted the role of the independent auditor, says Clay.

Miric says: "Regulators will soon start addressing the risks inherent in spreadsheets. In the US, a PricewaterhouseCoopers report already highlights the risks of spreadsheets with regard to the Sarbanes-Oxley Act."

Shell was recently fined $150 million for inappropriate reporting of reserves. It overbooked proven reserves in its oil fields by 4,5 billion barrels, around 23% of its total, wiping billions of pounds off its market value. It subsequently downgraded its reserves a further three times, according to an article in The Guardian. These horror stories could all be reduced by validating spreadsheets.

Clay says some of the common errors in the mining sector include:

Mistakes in reserve and resource statements caused by incorrect addition or multiplication.
Errors in workbooks where mistakes are made in casting monthly figures to annual figures, meaning the final figure is actually a 12th of what it should be.
Incorrect discounting.
Calculations of share prices using the discounted cash value and dividing by the wrong number of shares.
Mistakes in annual reports, if the copy and paste function is incorrectly used, resulting in data being corrupted.

"There are not too many fatal flaws, but rather errors that could shed doubt on the confidence of a company's work. If this information gets into the public domain, shareholders will have incorrect data on which to base their decisions."

Clay suggests Venmyn's clients - and in fact, the whole mining sector - should use a spreadsheet auditing tool. "This is the only way the company can ensure it meets corporate governance and financial reporting requirements," he says.

Miric suggests companies should use Spreadsheet Professional in conjunction with procedures and training provided by Miricle Solutions, to ensure staff are equipped with the tools to address risk. "Even something as simple as learning to use Excel's in-built auditing features will have a big impact," he says.

About Miricle Solutions:
Miricle Solutions is a distributor of Spreadsheet Professional, an auditing tool that addresses the risks associated with and identifies errors generated by people working with spreadsheets. It also provides consulting and training to those involved in corporate finance, project finance, consulting, generating business plans or any other area that relies on spreadsheets.

Miricle Solutions lists among its clients Sasol, Iscor, Ernst & Young, KPMG, Deloitte & Touche, Rand Merchant Bank, Nedbank, DaimlerChrysler Services (debis), Venmyn, Rothschild, Airports Company of South Africa, QuestCo, Uthingo, South African Custodial Services and Exclusive Technical Services.

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