CURRENT TRENDS IN MINING FINANCE
BASE, PRECIOUS AND INDUSTRIAL MINERALS:
PROPERTY AND PROJECT
VALUATIONS
John B. Gustavson
Certified Minerals Appraiser #1992-1
Boulder, Colorado
About the Panelist:
John B. Gustavson, MS Geology, MS Chem. Eng.
Forty years in minerals, after …
Early days in aerospace industry …
Turning “rocket science” into an exploration tool …
Focusing first on geo-science …
Then adding engineering and economics …
Rounding off with appraisal of mineral assets
Competence in market appraisal since 1980’s
Certified Minerals Appraiser
PROPERTY AND PROJECT VALUATIONS
• Introduction, Mineral Property = The underlying asset in the ground,
• Basics
•
Exploration property valuation
•
Development property valuation, (most important financing stage)
•
Operating property valuation
• Benchmarks and Trends in Marketplace
•
•
“Battery limits” for property
Reserve and resource standards
• Recent Changes
•
International Harmonization
• Conclusions
PROPERTY AND PROJECT VALUATIONS
• Introduction, Mineral Property = The underlying asset in the ground,
• Basics
•
Exploration property valuation
•
Development property valuation, (most important financing stage)
•
Operating property valuation
• Benchmarks and Trends in Marketplace
•
•
“Battery limits” for property
Reserve and resource standards
• Recent Changes
•
International Harmonization
• Conclusions
MINERAL PROPERTY v. MINING PROJECT
A mineral property
is the underlying
asset in the ground
A mining project is the
business and technical
activities focused on
extracting the deposit
PROPERTY AND PROJECT VALUATIONS
• Introduction, Mineral Property = The underlying asset in the ground,
• Basics
•
Exploration property valuation
•
Development property valuation, (most important financing stage)
•
Operating property valuation
• Benchmarks and Trends in Marketplace
•
•
“Battery limits” for property
Reserve and resource standards
• Recent Changes
•
International Harmonization
• Conclusions
STAGES OF HIGHEST & BEST USE
“The highest and
most profitable
use for which the
property is
adaptable and
needed or likely
to be needed in
the reasonably
near future is to
be considered”
STAGES OF HIGHEST & BEST USE
1. Land position under control, but with unknown
geological potential
2. Land position under control and with favorable
exploration environment
3. Anomalies noted by geophysical, geochemical
surveys or grab sampling
4. Minerals identified with drilling intersections
5. Delineated prospect at Scoping phase
6. Deposit with positive Pre-Feasibility, but no
Preliminary Economic Assessment, yet
STAGES OF HIGHEST & BEST USE
7. Positive Pre-Feasibility and Preliminary Economic
Assessment with Mine Plan
8. Undeveloped deposit with full Feasibility and all
permits
9. Financed and engineered mine at time of construction
Go-Ahead
10.New producing mine
11.Producing mine with substantial history of production
BASIC APPROACHES
PROPERTY AND PROJECT VALUATIONS
• Introduction, Mineral Property = The underlying asset in the ground,
• Basics
•
Exploration property valuation
•
Development property valuation, (most important financing stage)
•
Operating property valuation
• Benchmarks and Trends in Marketplace
•
•
“Battery limits” for property
Reserve and resource standards
• Recent Changes
•
International Harmonization
• Conclusions
EXPLORATION PROPERTY VALUATION
Mostly equity financing (funded by private
placement & company cash). Value is
estimated by:
1. Comparable sales analyses
2. Cost prudently expended
3. Reality check by Discounted Cash Flow
COMPARABLE SALES ANALYSES
Comparable Sales transactions must meet these
Market Value criteria:
• Cash or cash-equivalent consideration
• Willing seller and buyer
• Knowledgeable seller and buyer
• Arm’s-length transaction
• Exposure to market forces
COMPARABLE SALES ANALYSES
COPPER EXAMPLE
Buyer
China Sci-Tech Holdings Ltd.
First Quantum Minerals Ltd.
OZ Minerals Ltd.
Glencore International
Cadillac Ventures
Lumina Copper
Guangxin Holdings
Minmetals Resources Ltd
Aura Minerals Inc
Eurasian Natural Resources
Corp.
KGHM,
Teck Resources
Jiangxi Copper Company
Limited
China Sci-Tech Holdings Ltd.
Teck Resources
Target Mine or Company
Cape Lambert Lady Annie Exploration Pty Ltd.
Antares Minerals Inc. (Haquira copper project)
Carrapateena Project
Mina Justa
Thierry Property
Taca Taca
Mineral Hill
Anvil Mining Ltd
Aranzazu copper project
, Frontier and Lonshi mines
Quadra FNX
Alicia
Aynak
Chariot Resources
Global Copper’s Relincho deposit
COMPARABLE SALES ANALYSES
COPPER EXAMPLE
Glencore
International
Jiangxi
Copper
Company
Limited
Mina Justa
Aynak
$102.92
$109.46
$156.02
2
2
0
Coro Mining
Corp.
China Sci-Tech
Holdings Ltd.
Mine or Company
Minera San
Jorge
Cape Lambert
Lady Annie
Carrapateena
Exploration Pty
Project
Ltd.
Damajianshan
Hypothetical Value
(in US$ million)
$79.90
$81.28
Weight assigned
based on
Confidence Level
2
1
Buyer
OZ Minerals
Ltd.
PROPERTY AND PROJECT VALUATIONS
• Introduction, Mineral Property = The underlying asset in the ground,
• Basics
•
Exploration property valuation
•
Development property valuation, (most important financing stage)
•
Operating property valuation
• Benchmarks and Trends in Marketplace
•
•
“Battery limits” for property
Reserve and resource standards
• Recent Changes
•
International Harmonization
• Conclusions
DEVELOPMENT PROPERTY VALUATION
• Most important financing stage, so all
sources are needed.
• Examples: equity IPO’s, secondary issues,
commercial and export bank lending,
multilateral, project and royalty finance, other.
• All need estimate of value of Property.
1. Establish model and run DCF
2. Reality check from Comparable Sales
MARKET VALUE BY DCF
SUM [ NPV =
Q * Pr – C
]
n
(1 + r)
Where “r” is the discount rate and “n” is the years to have to wait
for the revenue.
DEVELOPMENT PROPERTY VALUATION
PROPERTY AND PROJECT VALUATIONS
• Introduction, Mineral Property = The underlying asset in the ground,
• Basics
•
Exploration property valuation
•
Development property valuation, (most important financing stage)
•
Operating property valuation
• Benchmarks and Trends in Marketplace
•
•
“Battery limits” for property
Reserve and resource standards
• Recent Changes
•
International Harmonization
• Conclusions
OPERATING PROPERTY VALUATION
• Occasional financing needed for expansion,
major mine overhaul, etc.
• Examples of sources: corporate debt,
balance sheet lending, trade finance.
• Most need estimate of value of Property.
• DCF based on past and current cash flow,
• Sensitivity analyses and
• Sales comparison as reality check
PROPERTY AND PROJECT VALUATIONS
• Introduction, Mineral Property = The underlying asset in the ground,
• Basics
•
Exploration property valuation
•
Development property valuation, (most important financing stage)
•
Operating property valuation
• Benchmarks and Trends in Marketplace
•
•
“Battery limits” for property
Reserve and resource standards
• Recent Changes
•
International Harmonization
• Conclusions
BATTERY LIMITS FOR PROPERTY VALUATION
Definition: A mineral property includes the mineral asset and all
workings up to the point of a marketable ore or commodity.
???
PROPERTY AND PROJECT VALUATIONS
• Introduction, Mineral Property = The underlying asset in the ground,
• Basics
•
Exploration property valuation
•
Development property valuation, (most important financing stage)
•
Operating property valuation
• Benchmarks and Trends in Marketplace
•
•
“Battery limits” for property
Reserve and resource standards
• Recent Changes
•
International Harmonization
• Conclusions
JORC
Concept courtesy: Ron Harrell
RESERVE AND RESOURCE STANDARDS
PROPERTY AND PROJECT VALUATIONS
• Introduction, Mineral Property = The underlying asset in the ground,
• Basics
•
Exploration property valuation
•
Development property valuation, (most important financing stage)
•
Operating property valuation
• Benchmarks and Trends in Marketplace
•
•
“Battery limits” for property
Reserve and resource standards
• Recent Changes
•
International Harmonization
• Conclusions
INTERNATIONAL HARMONIZATION
• IVS (INTERNATIONAL VALUATIONS STANDARDS)
• IVSC undertook preparation and circulation of a Discussion
Paper in 2012. Many comments were received from industry
(incl. mining and accounting sectors). Now being analyzed.
• Key discussion items included:
• What methods are used for allocating value to different assets
contributing to the cash flow? How is double counting avoided?
• Extent to which intangibles are reflected in valuations in extractive
industries. What types of intangible asset are typically identified?
INTERNATIONAL HARMONIZATION
• IMVAL (INTERNATIONAL MINERAL ASSET VALUATION COMMITTEE)
• Prepared draft template in January 2013 of an International
Mineral Asset Valuation Reporting Template (IRT) to serve as
future guidance.
• Draft was based on:
• VALMIN Code (Australasia),
• SAMVAL Code (South Africa),
• RICS Red Book (UK / Western Europe),
• CIMVAL (Canada), and
• SME Guide (USA) .
• It also draws from, and references to, the International
Valuations Standards (IVS) and the International Financial
Reporting Standards, where appropriate.
• Next step: circulation and review of industry comments.
PROPERTY AND PROJECT VALUATIONS
• Introduction, Mineral Property = The underlying asset in the ground,
• Basics
•
Exploration property valuation
•
Development property valuation, (most important financing stage)
•
Operating property valuation
• Benchmarks and Trends in Marketplace
•
•
“Battery limits” for property
Reserve and resource standards
• Recent Changes
•
International Harmonization
• Conclusions
CONCLUSIONS
THANK YOU!
John B. Gustavson
Mineral Appraiser, LLC
Boulder, Colorado
1-303-818-5992 – johngustavson1@aol.com
SUGGESTED QUESTIONS
1. How large percentage adjustments can an
appraiser make for various parameters when
using the sales comparison approach?
2. How do you handle inferred resources in
valuation?
3. What is the American Institute of Minerals
Appraisers and who can get certified?
AMERICAN INSTITUTE OF MINERALS APPRAISERS
(A Colorado Nonprofit Corporation)
5757 Central Avenue, Suite D, Boulder, Colorado 80301
Phone: 1-303-443-2209 Fax: 1-303-443-3156
Web site: www.mineralsappraisers.org