John Lizak
Mineral Valuation & Capital, Inc.
December 6, 2011
Northeast Office Mailing Address
1805 Evans St. – Suite 1
Northampton, PA 18067
Phone 610-262-9120
Fax 610-262-4212
Direct Email: LizakMVC@aol.com
•Weighted
Average Cost of Capital (WACC)
•Transactional
Data
© Mineral Valuation & Capital, Inc. 2011
WACC = (E/V x Ce) + (D/V x Cd) x (1 – Tc)
Where:
Ce = cost of equity
Cd = cost of debt
E = market value of the firm’s equity
D = market value of the firm’s debt
V =E+D
E/V= percentage of financing that is equity
D/V= percentage of financing that is debt
Tc = corporate tax rate
© Mineral Valuation & Capital, Inc. 2011
© Mineral Valuation & Capital, Inc. 2011
© Mineral Valuation & Capital, Inc. 2011
Data
from guideline publicly traded companies
Transaction
data from public & private companies
© Mineral Valuation & Capital, Inc. 2011
WACC =
(E/V x Ce)+ (D/V x Cd) x (1 – Tc)
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Cd = The average yield to
maturity on corporate
debt with similar maturity
and quality.
Ce = cost of equity
Cd = cost of debt
E = market value of the firm’s equity
D = market value of the firm’s debt
V =E+D
E/V= percentage of financing that is
equity
D/V= percentage of financing that is
debt
Tc = corporate ta
© Mineral Valuation & Capital, Inc. 2011
Capital Asset Pricing Model (CAPM)
Ce = Rf + ß(Rm – Rf)
Where:
Ce = cost of equity or expected/required return
Rf = risk free rate of return
Rm = expected market return
(Rm – Rf) = Equity Risk Premium, or the amount by which investors expect the future return on
equities to exceed that of the risk free rate
ß = beta, the volatility of the company or comparable guideline companies relative to the market
as a whole
© Mineral Valuation & Capital, Inc. 2011
INDUSTRY SEGMENT
2007
2008
2009
Building Materials, Cement, Aggregates
Companies
10.6
8.8
11.1
Coal Companies
15.0
12.5
14.2
Precious Metals Companies
11.8
11.6
12.2
Oil Producing Companies
10.4
9.7
11.4
© Mineral Valuation & Capital, Inc. 2011
© Mineral Valuation & Capital, Inc. 2011
© Mineral Valuation & Capital, Inc. 2011
INDUSTRY SEGMENT
INDUSTRY RISK PREMIUM
(from SBBI)
2007
2009
Coal Companies
7.0
3.8
Mining & Quarrying (Non-fuel, non-metal)
4.0
1.6
Oil & Gas Exploration Companies
-0.4
1.6
Gold & Silver Companies
-1.0
-1.5
© Mineral Valuation & Capital, Inc. (MVC) 2011
INDUSTRY SEGMENT
Industry Risk
Premium*
OIL & GAS
Royalty Trading Companies
-4.0
Exploration Companies
-1.0
Difference
-3.0
* SBBI-IA Methodology
© Mineral Valuation & Capital, Inc. 2011