Every mining services deal I have looked at in the past five years has carried the same balance-sheet ghost: a closure and decommissioning liability sized for an accounting horizon that has nothing to do with the operating one. Buyers find it. Boards are surprised by it. CFOs defend a number they did not actually build. And the deal either retraded or sat.
01 The discount-rate problem
The accounting closure liability is a present value calculation. That sentence sounds neutral. It is not. The discount rate inside it does most of the work, and management almost always inherits the rate from a prior auditor sign-off rather than re-deriving it against the current cost of capital and the actual expected timing of the obligations.
The result is that closure reserves built five or six years ago, when the risk-free curve sat at one place and inflation expectations sat at another, are still on the books at the same rate today. The accounting answer can be defended. The economic answer cannot.
The closure number is right. It is also, almost always, wrong for the thing the buyer is about to price.
02 What quietly gets left out
The other side of the problem is scope. The IFRS provision captures the legally enforceable closure obligation — the bond, the plan filed with the regulator, the rehabilitation schedule. It does not capture the operating runway costs that an acquirer will treat as part of total wind-down: the equipment moves, the residual workforce, the long-tail environmental monitoring past statutory minimums, the corporate G&A that does not switch off the day the site does.
These are not contingent — they happen — but they live outside the provision. A clean way to think about it: the accounting number is the floor, not the figure.
03 The IFRS vs. management gap
There is a productive version of this disconnect, and an unproductive version. The productive version is two separate schedules: one for the provision under IFRS, one for the management view of total wind-down cost — same units, same site list, transparent reconciliation between them. Diligence teams love it because they can verify the bridge in an afternoon. Boards understand it because the gap stops being a mystery.
The unproductive version is a single number defended in two voices depending on who is asking. That is the version that surfaces at the wrong time, with the wrong audience.
04 Where deals stall in diligence
Three places, in our experience, in this order:
- 01 The QofE retrade. A quality-of-earnings provider flags the closure timing assumption. Suddenly EBITDA gets re-cut and the multiple-on-EBITDA conversation restarts. This is the loudest version, but it is the most fixable.
- 02 The reps & warranties insurance underwrite. The R&W carrier independently models the provision. If their number diverges from the audited number, the policy gets carved out at the worst place — and the carve-out, not the dollar, is what kills confidence.
- 03 The buyer’s integration plan. Quietest. The buyer accepts the accounting number, signs, and then their integration team rebuilds the wind-down schedule six months in. By the time it surfaces, the management team that defended the original is half gone.
05 A working framework
Three workstreams, run in parallel over roughly eight weeks. They are not novel — most of this is what a careful finance team should be doing anyway — but it is rare to see them sequenced this way:
Re-rate the provision against today’s curve.
Pull the existing provision file. Re-derive the discount rate from first principles — risk-free plus credit spread plus a long-tail risk adder calibrated to your actual closure horizon. Document the sensitivity. Audit-ready, but written for an operator.
Build the operating wind-down schedule.
Separate document. Site by site, cost line by cost line, the things that are not in the provision but that you will actually spend. Tie it to the same timeline. This is the document a buyer’s integration team will eventually build whether you give it to them or not.
Reconcile, and rehearse.
One reconciliation page. Provision plus delta equals total expected wind-down. Walk it once with the audit partner. Walk it again with your sponsor. By the time a buyer asks, the answer is muscle memory.
06 Three questions for this quarter
If a process is not on the immediate horizon, the same exercise still pays for itself in board conversation alone. The three questions to put on this quarter’s finance review:
- What discount rate is the closure provision using, and when was it last re-derived?
- What does the total operating wind-down cost look like — not the provision, the total — and where does that document live?
- If a buyer ran their own model tomorrow, where would they land versus our number, and can we walk them through the bridge in fifteen minutes?
None of this is complicated. It is, however, the kind of work that does not get done unless someone with the seniority to push back on the audit answer also has the bandwidth to build the operating one. Which is what we tend to be hired to do.
Sample drawn from 14 mining-services sell-side engagements across Canada, Australia, and Chile, 2021–2026. Revenues $40M–$320M. Names and identifying details omitted.
Filed under the Resources practice. Industry-specific work; do not generalize the multipliers to oil & gas or industrial services without rebuilding them.