Discussion on investment risk of geological prospecting units

(Second Geological Brigade of Henan Nonferrous Metals Bureau of Geology and Mineral Resources)

The practice since the reform and opening up shows that with the transformation from the original planned economy to the new market economy, the geological prospecting industry has gradually developed from "one industry as the main diversified economy" to a new force in today's socialist market economy, which ultimately depends on the development of productive forces. The development of productive forces is inseparable from risk management. Especially in the process of market economy in Socialism with Chinese characteristics, every enterprise has the possibility of risk in its operation. For our geological prospecting units, the turbulent economic environment and the increasingly fierce competition in the domestic market have brought various risks to the survival and development of geological prospecting units. The large-scale adjustment of the organizational structure of geological prospecting industry and the deepening of the transformation of enterprises into modern enterprise system have made the investment risk of geological prospecting units more serious. Under the current preferential policies, in order to strengthen the team and enrich the people and establish a sustainable economic model, we must speed up the pace of progress, make full use of our own technical conditions and existing resource advantages, and strive to expand the scope of economic business including investment; And all kinds of investment, especially the investment in mining rights (mining rights and exploration rights), are almost unprecedented for us, and investment risks are inevitable. Therefore, how to resolve and reduce the risk of geological prospecting investment is an important topic that geological prospecting units must study at present, which requires investment risk management. In order to manage investment risks, geological prospecting units must first make clear what investment risks they have in market operation, and then take targeted measures to eliminate or resolve them. Only by strengthening the awareness of investment risk, improving the ability to resist investment risk, making systematic management and scientific decision, and establishing corresponding investment supervision mechanism can we prevent and avoid the occurrence of investment risk, thus ensuring that geological prospecting units can win the initiative in the rapidly changing market environment.

In the market economy, the expected benefits and risks of any investment project exist at the same time, and geological prospecting investment is no exception. With the gradual establishment and improvement of the socialist market economic system, especially the split operation of public welfare (basic) geological work and commercial geological prospecting work, the localized management and enterprise reform of geological prospecting units, and the formation of diversified investment subjects and market exchange mechanism of geological prospecting results, geological prospecting units (enterprises or companies or groups) will inevitably establish risk and interest mechanisms conducive to their own survival and development in the future to prevent investment mistakes and failures. Therefore, it is of great practical significance to study the investment risk of geological prospecting units.

First, the investment risk of geological prospecting units

1. The concept of investment risk of geological prospecting units

The investment risk of geological prospecting units is the possibility that geological prospecting units fail to invest in geological exploration projects, that is, the uncertainty or difference between the results of geological exploration projects and the unit income.

2. Key factors affecting the investment risk of geological prospecting units

(1) human resources. At the end of the 20th century, due to the depression of the geological prospecting industry, the vast majority of professional geological talents lost, which greatly affected the development of China's geological and mineral industry. Therefore, it is urgent to attach importance to and develop human resources, establish and improve a reasonable talent management system, and provide a high-level talent reserve for various business activities of geological prospecting units.

(2) System and diversification mechanism. Institutional risks often restrict the business activities of geological prospecting units. At present, the mixed system of enterprises and institutions in geological prospecting units is a potential risk. There is still a certain gap between the management mechanism and management mode of geological prospecting units based on the mixed system of enterprises and institutions and the modern enterprise system, and the support of geological prospecting fees still dominates. Diversified management is a major feature of geological prospecting units in recent years, which has opened up new development space for geological prospecting units. But there are also many cases in which investment projects have failed due to economic diversification.

(3) Market changes. The existing economic strength of geological prospecting units is difficult to adapt to the great changes and reforms of the economic market, and the ability to grasp the risks of the economic market is weak due to the constraints of the geological prospecting units system.

(4) Policy risks. At the present stage, the adjustment of some national policies will be beneficial to the better development of geological prospecting units, but on the whole, geological prospecting units themselves are likely to be difficult to adapt to and bear the changes and pressures brought about by this adjustment.

Second, the investment system and mechanism of geological prospecting units

1. Understanding the investment system and mechanism of geological prospecting units from the essence of investment

At present, the vast majority of geological prospecting units do not really have the carrier-mineral deposits (points) (mineral rights) that can make them turn into enterprises. Therefore, if the geological prospecting units are really "no harvest" at this stage, the possibility of "existence" of geological prospecting units is slim, let alone becoming real enterprises or group companies. In view of this, some geological prospecting units have started a new round of exploration and practice for their own survival and development under the current favorable policy environment, the most important of which is the production and management of mining rights. Of course, there are winners, but more are "limited achievements" or even complete failure. The root cause is self-evident.

2. Investment system reform and mechanism innovation of geological prospecting units

(1) Because the geological prospecting units under the institution system are not real enterprises, the state is still the main investor, and the basic operating expenses are still playing a supplementary role. Under such a system, geological prospecting units can't appear as real investors, and investment operation can't be smooth sailing. To establish a new investor, we must reform the management mode of geological prospecting units and realize the complete transformation of enterprise system.

(2) Build a business model with geological prospecting companies as the main body. Generally speaking, the establishment of geological prospecting companies with bureaus as units is a joint-stock company that is reorganized from a public institution with a single national investment entity into a multi-investment entity. According to the principle of "authorized operation of state-owned assets", the state authorizes the head office to be responsible for maintaining and increasing the value of state-owned assets, and geological prospecting enterprises exercise legal person rights under the authorization of the head office. Geological prospecting enterprises should formulate their own enterprise development strategies, as major investors, raise funds independently, make decisions on projects, implement the project owner responsibility system and the project capital system, and fully enjoy legal person property rights.

(3) Establish a diversified investment balance structure. Diversification of investment subjects, full absorption of employees' shares, and mutual participation of geological prospecting enterprises. Only when the investors are diversified can we establish a balanced governance structure, give full play to the role of the interest mechanism and ensure the capital demand of project investment.

Third, the investment decision of geological prospecting units.

At present, Chinese and western countries have different evaluation methods and standards for investment decisions of geological prospecting units. The selection and decision-making of geological exploration projects by mining (or exploration) companies in western countries are based on certain economic concepts. In addition to input-output analysis, risk analysis and evaluation must also be carried out. Therefore, the economic concept of geological prospecting units' decision-making can be considered as a combination of cost, risk and income, which can be expressed by C, P and R. C is the general or average input cost of geological prospecting units for discovering mineral deposits (points) or owning mining rights, which mainly includes the initial input of geological prospecting projects, the input price of mining rights and the use fee, and also mainly reflects the total cost before the project is successful (or transferred). R is the average income of geological projects, the reward of economic discovery and the driving force of geological investment; P is the probability of finding mineral deposits (points) (or related geological resources reserves, or mining rights transfer income), and it is the connection point between costs and benefits. Only when the expected return is greater than the related costs and risks can we make a positive investment decision, and when the costs and risks are far greater than the expected return, we should adopt a veto investment decision; When the above gap is too small to make a quick decision, it is often uncertain for the time being and will be discussed later. But no matter what decision is made, its investment criterion is to meet the minimum acceptable scale (or reserves) and profitability at the same time.

Under the long-term planned economy system, China's geological project investment decision-making mode is based on the needs of China's national economic construction and social development, as well as the possible arrangements made by the state budget, and the competent government departments uniformly plan, deploy and organize the implementation of geological exploration projects.

At present, the starting point and foothold, decision-making procedures and methods of geological project investment decision-making in China are very different from those in western countries. Our investment decision has a strong administrative color, which is inconsistent with the inherent requirements of the economic behavior of project investment. With a few special exceptions, partial failure or even complete failure can be found everywhere. Therefore, we must fundamentally reform our investment decision-making mechanism.

Four, the investment standards of geological prospecting units

(A) the investment standards of western countries

The long-term integrated management mode of exploration, mining and metallurgy is the exploration investment standard adopted by geological prospecting units in western countries, which can be simply divided into long-term consideration and short-term consideration. In the long term, different expectations are considered, and in the short term, departmental risk standards are considered.

1. Expected value measurement

The expected value is the average value generated in the long-term exploration process. According to the time distribution of the average cash flow of geological project investment in the exploration environment, the expected value of exploration can be estimated. From its own point of view, costs and benefits should be calculated on the basis of after tax. For the sake of time value, it is necessary to decompose the average cost and income into various times (or periods) or allocate them to various periods in order to evaluate them correctly. Possible expectation metrics are as follows:

A. Expected value of each discovery (ev)=PR-C, where: C is the investment amount (mining right price and use fee) of each discovery; P is the formation of economic deposits (the economic value reserves owned by mineral rights investment); R is the average income from investment.

B expected value (ev) of each economic deposit (point) (mineral right) = r-e, where e is the average input cost (C/P) required to find and delineate economic deposits (mineral right).

These two expected values represent the same basic criteria, but they are expressed on two different bases: mineral deposits (points) (mineral rights) and economic mineral deposits (points) (mineral rights). The relationship between them is the probability that the deposit (point) (mineral right) will become an economic deposit (point) (mineral right), that is:

EV=ev/P

The higher the expectation, the more attractive it will be to the long-term exploration environment. Expectation greater than zero is usually a necessary condition for investment.

C. Expected average annual income

The attractiveness of exploration investment environment can be measured by the expected annual income of investment, and can also be obtained by the average cash flow distribution of economic deposits (points) (mineral rights). That is, all the costs and expenses invested are equally allocated to the investment period, and all the operating years (the sum of exploration, development and production cycles) of an economic deposit (point) (mineral right) are found. Expected revenue in the same year (ear) is the difference between revenue in the same year and input cost in the same year.

D. expected rate of return

The discounted rate of return (RR) of investment can be measured by the average time distribution of cash flow of an economic deposit (point) (mining right). By definition, RR is the discount rate that makes the present value of positive cash flow equal to the present value of investment. Economically speaking, the rate of return is the average percentage of the expected annual rate of return of an investment scheme during its investment operation period.

2. Departmental risk measurement

The "department" mentioned here is by no means equivalent to the government department or competent department that implements industry or system management of geological exploration industry in China, but refers to the direct investment unit that invests in mineral deposits (points) (mineral rights). As the only unit with investment profit, its investment risk must be considered when evaluating investment plans, making investment plans and making investment decisions.

(B) China's current investment standards for geological prospecting units

In China, the economic system, economic management system and enterprise management mechanism are all in the transition period from planned economy to market economy. At present, the economic operation system of geological prospecting industry and mining industry is still separate operation, and there is no group company with mining company as its main business. Exploration, mining (mineral processing) and metallurgy basically belong to three different stages of the industry. Therefore, the current investment standard of geological prospecting units in China is not the long-term expected calculation and short-term departmental risk calculation of western mining companies, but the standard of geological exploration cost (mining right price) in a specific economic environment, which is the comprehensive average cost calculated according to the historical data of geological exploration of different minerals in different regions, and adjusted according to the corresponding risk coefficient and regional geological adjustment coefficient.

Under the current system, with the existing economic strength of geological prospecting units, it is hard to imagine that a geological prospecting unit can independently explore a certain mineral in a certain area with a sum of money (or loan), usually after obtaining the mineral deposits (points) (mineral rights) with less money, or after carrying out basic geological work, and then exploring the possibility of further investment; Either use the mineral deposits (spots) (mineral rights) to cooperate with others in various ways, or invest the mineral deposits (spots) (mineral rights) in shares at a fixed price, and some funds will no longer be invested in development, or invest the mineral deposits (spots) (mineral rights) in shares at a fixed price and put them into the development process; Or cooperate with others to obtain mineral deposits (spots) (mineral rights), and then invest and develop according to the investment ratio when obtaining mineral deposits (spots) (mineral rights). In any way, geological prospecting units have investment, and the most basic investment is the price and use fee of mineral deposits (points) (mineral rights). If we carry out basic geological work or cooperate with others, the funds invested by geological prospecting units are also a lot of money and capital.

At the present stage in China, a remarkable feature of geological investment is that the probability of becoming a large-scale economic deposit (point) (mineral right) is very low. In this environment, it is impossible to fully guarantee the expected value by using the limited funds of the unit. Risk assessment is often carried out in the form of "gambler", which is common in most commercial-oriented geological prospecting units.

This is mainly because the economic operation system, economic management system and operation mechanism of geological prospecting units are still running separately. Under the current system and economic strength, most geological prospecting units sell their own geological and mineral resources (sometimes it may be blank land), and if the transfer is successful, the investment will be successful. If the transfer fails, they will cancel themselves. When investing in it, the risk principle is hardly included in the unit economic operation principle.

Verb (abbreviation of verb) Problems and shortcomings in investment risk management of geological prospecting units at present

(1) There is no special organization or personnel to carry out investment risk management activities. The concept and consciousness of investment risk and investment risk management in geological prospecting units are weak, and investment risk management is not actively, actively and systematically carried out. Investment risk management is absent beforehand, and management during and after the event is somewhat arbitrary.

(2) The investment risk management of geological prospecting units is basically a passive management. Due to the lack of awareness of investment risk prevention, geological prospecting units often do not take the initiative to identify, evaluate, manage and monitor their own investment behavior, and often think that everything will be fine as long as they invest.

(3) The investment risk management activities of geological prospecting units are often instantaneous or intermittent, and they are managed when they are aware of it, and "forget the pain when they are well" afterwards.

(4) Lack of regular review and evaluation of investment risks reduces the ability of the unit to adapt to environmental changes and avoid investment risks.

(5) Lack of systematic and scientific investment risk management theory and method guidance, and lack of systematic investment management supervision and restraint mechanism.

Six, geological prospecting units investment risk control measures

1. Improve investment risk awareness, predict and identify investment risks.

According to the actual rules and regulations formulated by the unit, strengthen the responsibility and power of investment, so that investment risk management can be followed. For every investment, an investment risk decision-making group should be set up to consult experts or investment institutions, and the decision-making steps should be scientifically arranged: ① find out the problems and determine the reasons for investment risks; (2) Clear investment risk objectives; (3) List feasible investment decision-making schemes; ④ Evaluate the advantages and disadvantages of investment schemes; ⑤ Select the optimal scheme and the suboptimal scheme.

2. Establish a correct investment concept and grasp the correct investment direction.

It is very important to analyze the risk factors of investment centered on investment projects. Only by doing a full risk assessment can the investment be better controlled within the risk control range.

3. Do a good job in the comparative evaluation of investment schemes and the overall evaluation of the project.

Doing a good job in economic evaluation is an important job to ensure the income of investment projects and reduce risks. Economic evaluation should mainly start from two aspects: one is the economic analysis and evaluation of various alternative technical schemes and investment environment, which can be called the pre-process evaluation of venture capital; (2) According to the results of preliminary process evaluation, select the best economic scheme to be included in the project evaluation report; Then make a final evaluation, make a comprehensive economic analysis and evaluation of the overall investment scheme of the project, get the best economic effect from the whole project, and select the overall investment scheme with the best investment benefit to be included in the overall evaluation report of the project, which can be called investment tracking evaluation.

4. Establish and improve investment risk management institutions and improve the construction of investment risk management system.

First of all, it is necessary to establish an investment risk management institution. The complexity and diversity of investment risk management require geological prospecting units to establish and improve corresponding organizations and implement timely and effective prevention and management of investment risks. Therefore, an investment risk management department should be set up separately in the organization of geological prospecting units or equipped with corresponding full-time personnel. According to the principle of simplicity, efficiency and practicality, a set of management systems and methods for investment risk prevention should be formulated, information communication between geological prospecting units and various risk units should be strengthened, key units and links of risk management should be delineated, investment risk information should be obtained quickly, information processing should be organized quickly, and corresponding measures should be taken in time to resolve them.

5. Establish an investment risk early warning system and reasonably determine the investment risk index system.

Establishing a responsive and timely investment risk early warning system is an important condition for preventing investment risks of geological prospecting units. Therefore, first of all, it is necessary to accurately prepare the rolling cash flow budget for weekly, monthly, quarterly, semi-annual and one year, and effectively control the budget implementation process; Second, it is necessary to establish a comprehensive budget management system for geological prospecting units, express the expected income, cash flow, financial situation and investment plan in quantitative form, and predict the future cash income and expenditure so that operators can take investment risk prevention measures as soon as possible; Third, it is necessary to establish an investment risk index system for geological prospecting units; Fourth, it is necessary to formulate scientific investment risk evaluation methods, calculate and evaluate relevant data and risk indicators according to the investment risk evaluation system, put forward measures and methods to prevent and resolve investment risks of geological prospecting units according to the calculation and evaluation results, and organize their implementation.

6. Strengthen the whole process management of investment and set up venture capital fund.

At present, the implementation of investment risk management evaluation mechanism in geological prospecting units is still blank. It is necessary to establish a risk assessment mechanism and an investment risk fund, so as to "do a feasibility study in advance and consider the time value of funds or capital, possible changes in future development, existing risks and emergency strategies;" Do a good job in supervision of all links; Do a summative economic benefit audit afterwards, and withdraw venture capital funds according to a certain proportion of investment every year to offset the losses when risks occur and improve the ability to resist investment risks.

With the continuous development and improvement of the socialist market economic system and its operating mechanism, it can be predicted that the risks of commercial geological investment will gradually shift and disperse from the national geological prospecting fees to various mining industries, geological prospecting units, exploration (group) companies, private enterprises and individual bosses. Since the principle of risk and return is one of the basic principles of market economy, it is impossible to continue to separate risk and return. For geological prospecting units at this stage, it is necessary to establish investment risk awareness, establish investment risk and income mechanism, do a good job in risk analysis and evaluation in investment decision-making, and improve risk control system.

refer to

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Zuo xiaode 1995. Project investment management. Jinan: Jinan University Press.

Liu manhong 1998. Venture capital. Beijing: Renmin University of China Press.

Zhou Huizhen. 1999. Evaluation of investment projects. Dalian: Dongbei University of Finance and Economics Press.

Liu Dongsheng. 2007. Analysis on financial risk management of geological prospecting units.

Kim. 1995. Talking about the transformation of geological prospecting units into modern companies. China coalfield geology.