Valuation of Mineral Projects Based on Technical and Financial Modelling

Valuation of Mineral Projects Based on Technical and Financial Modelling

Areas of Study: Management

Qualifies for CMS

Short Course Short Course
  • Audience Level: Professional Tool Tip
  • Dates: 22 - 25 October 2019 Tool Tip
  • Early Bird: Tool Tip
  • Enrollment: Included Tool Tip
  • Registration Fee: Tool Tip
  • Location: Oulu, Finland Tool Tip
  • Duration: 4 days
  • CEUs: 3.2 (32 PDHs) Tool Tip

Course Summary

Course Aim and Structure

Market turbulence significantly affects the mining industry. While the intrinsic value of a mineral project is still a key consideration, understanding the interrelationship between technical and financial risk to truly understand the long term value of an asset, helps companies make better investment (or divestment) decisions. Companies that are able to secure debt finance for both development and acquisition of advanced projects have greater strategic flexibility. Understanding how debt impacts the valuation of projects allows for an objective approach to determining levels of gearing; this is relevant to both the investment banking and mining communities. The Valuation of Mineral Projects course is designed to address these issues.

This course is for professionals with a basic to intermediate understanding of the principles of the accounting cash flow model that wish to gain expertise in quantitative finance in the context of mining. Actual operating mine valuations are a central focus of the course. To gain the most out of the course, attendees should have had some exposure to the technical aspects of minerals and mining.

Attendees are expected to have their own laptop computers available for this course. Workshop sessions are an integral part of the course delivery. Use will be made of the IC-MinEval software, which automates the generation of Excel™-based spreadsheets to produce models for a wide range of mineral projects. These models can be used independently of the software once the course is completed.

At the end of the course, attendees will:

  • Know how to build a financial model using realistic assumptions and inputs such as a rate of production appropriate to the size of the resource, and associated capex and opex costs using CostMine data.
  • Understand the circumstances in which it is appropriate to set up models based on a straight discount rate basis vs a model that includes debt (in the latter case the approach to determining the appropriate level of debt will be explained).
  • Be able to analyse the financial performance indicators generated by the IC-MinEval software outputs and indicate the valuation that could be placed on the asset based on the output.
  • Be able to undertake a sensitivity analysis on key technical and financial variables. Particular attention will be given in the course to why sensitivity on variables such as mining dilution should not be considered.
  • Appreciate the role of financial models in identifying those technical variables that have the greatest impact on financial performance and then back-engineering that to the corresponding technical risk.
  • Have worked through a variety of case studies that are based on real projects.

This course is characterized by dynamic interaction between presenter and delegates that promotes inter-delegate professional dialogue.

Previous courses presented in Vancouver, London, Johannesburg and Stockholm have received wide participation from major finance and mining companies, providing an opportunity to bring together professionals with common concerns in this area.

In addition to the presentation slides, attendees will receive a copy of the book Metals and Energy Finance, authored by Prof. Buchanan.

Who Should Attend?

The course will be of particular interest to mining analysts, fund and asset managers, bankers, engineers responsible for development planning, exploration managers and other specialists in the valuation of mineral projects. It will also be of interest to government officials.

The course will be relevant to entrepreneurs needing to understand the qualifying framework that private equity funds use to evaluate projects.

Pre-Course e-Learning

Prior to the course, registered delegates have access to the online e-learning material consisting of an introductory course titled An Introduction to Modelling Metal Project Finance.

Certificate in Mining Studies

This course qualifies for four days of short course credit for the Certificate in Mining Studies (CMS), a continuing education program of accredited short courses, webcasts and online courses for lifelong learning in mining, supported by University of British Columbia, University of Arizona and University of Concepción.

Continuing Professional Development (CPD)

Registered participants who attend the entire short course and complete an evaluation at the end of the course will receive a Certificate of Attendance, confirming the Professional Development Hours (PDH)/Continuing Education Units (CEU) earned. Please confirm with your employer and/or professional association that this course qualifies for CPD.

Professor Dennis Buchanan

Professor Buchanan works jointly between the Department of Earth Science and Engineering and the Business School at Imperial College London. His current research interest lies in addressing the underlying technical principles applying to mineral projects and demonstrating how these influence financial modelling. He has almost 40 years’ experience teaching mining geology, mineral exploration and mineral project appraisal and is responsible for the MSc in Metals and Energy Finance. This is a joint degree between the Department of Earth Science and Engineering and the Business School at Imperial College. Professor Buchanan has worked as a Mining Geologist in both gold and platinum mines in South Africa and had wide experience as a consultant to the industry, as an expert witness and in designing and delivering short courses for the industry.

James Buchanan

James has an MEng in Chemical Engineering with eight years of professional experience in the minerals industry and he, with close colleagues, have recently started their own company, Zenito. Details on: Zenito. This is a multidisciplinary engineering consultancy specialising in the design of mineral processing plants and associated infrastructure. James was a delegate on the 2016 delivery of the Valuation course and will be supporting the workshop sessions.

Provisional Schedule

This course is divided into four sessions with following topics:

Day 1: Cash Flow Modelling and Financial Accounting, 22 October, 2019
Time Session

8:15 – 8:45am

Registration

8:45 – 9:00am

Welcome and Profile of Participants

9:00 – 11:00am

1.1 Introduction

  • Principles of DCF Modelling
  • Discount rate
  • Net Present Value
  • Internal Rate of Return
  • Payback Period and Choice of Discount Rate
  • Impact of different discount rates over time
  • Cash flow for a mineral project
  • Scenarios illustrating the range of economic performance indicators

1.2 Building a Financial Model

  • Nominal versus real

1.3 Valuation of Mineral Projects Based on Technical and Financial Modelling

  • Alternative methods – DCF, comparable transactions and appraised value method
  • Treatment of sunk capital
  • Introduction to Workshop Session Gold Project
11:00 – 11:30am Break

11:30am – 1:00pm

1.4 Analysis of Risk and Uncertainty—Workshop Session

  • DCF exercise based on annuity tables
  • Review of spreadsheet-based solution
  • Sensitivity analysis
  • Application of Monte Carlo simulation techniques
  • Treatment of multivariant systems
1:00 – 2:00pm Lunch

2:00 – 3:30pm

1.5 Project Finance and the Cost of Equity—Workshop Session

  • Weighted average cost of capital (WACC)
  • Integrated economic and accounting model for a simple gold project demonstrating the interrelationship between DCFs and the financial accounts
  • Capital asset pricing model
  • Optimisation of gearing
3:30 – 3:45pm Break

3:45 – 5:00pm

1.6 Demonstration of IC-MinEval

Case history of gold operation. Setting up base case treatment in the financial model of:

  • Profit after tax before interest (ATBI)
  • Profit before interest and tax (PBIT)
  • Profit after interest before tax (PAIBT)
  • Profit after interest and tax (PAIT)

1.7 Petroleum Fiscal Regimes

  • Comparison with mineral projects
Day 2: Strategic Management, Resource Evaluation and Mineral Project Appraisal and Finance, 23 October, 2019
Time Session

9:00 – 11:00am

2.1 Value Creation in Mineral Projects

  • The cycle of value creation in mineral projects
  • Exploration Stage:
    • The pyramid reflecting the evolution of a gold mineral exploration and evaluation programme
    • Drivers – commodity prices
  • Resource Base and Asset Life—Mineral Resources:
    • Synergies and Portfolio Optimisation
    • Single project mining company stages of development and funding options
  • Funding Options for Mineral Projects:
    • Pre-initial public offering
    • Listing
    • Joint venture agreement and project finance
11:00 – 11:30am Break

11:30am – 1:00pm

2.2 Resource Evaluation

  • Sampling
  • Diamond drill rig, crowns, core and core storage
  • Process mineralogy
  • Concepts around geological continuity
  • Polygons of influence and inverse distance
  • Geostatistical methods
1:00 – 2:00pm Lunch

2:00 – 3:30pm

2.3 Resource Evaluation

  • Experimental semi-variogram
  • Variogram showing the relationship y(h) which relates the semi-variance of sample differences to distance between samples
  • Resource block model
  • Grade-tonnage relationships
  • Reserve and resource definitions
  • Drill spacing
  • Evaluation versus Production
3:30 – 3:45pm Break

3:45 – 5:00pm

2.4 Nomenclature of Documentation Generated in Mineral Project Development

  • Preliminary Feasibility Study (PFS):
    • Elements and characteristics
    • Cost estimation
    • Relationship cost to capacity
    • Asset optimisation
  • Full Technical Feasibility Study (FTFS):
    • Elements and characteristics
    • Engineering design stages
    • Feasibility studies and the information memorandum
  • Construction:
    • Construction monitoring
  • Production:
    • Production monitoring
  • Project Finance Parameters
Day 3: Mineral Project Appraisal and Finance, 24 October, 2019
Time Session

9:00 – 11:00am

3.1 Quantitative Finance and Financial Engineering

  • Decision tree at pre-feasibility stage after NPV optimisation
  • Real option valuation
  • Tax and company structure
  • Mineral taxation regimes
  • Gearing optimisation
11:00 – 11:30am Break

11:30am – 1:00pm

3.2 Case History—Base Metals

  • Open pit nickel mine
  • Sample of DCF model worksheet
  • Annual cover ratios
  • Scenario analysis
  • Optimisation of gearing
  • Cost estimates
  • Different stakeholders
  • Reserve tail
  • Convergence of technical and financial risk
1:00 – 2:00pm Lunch

2:00 – 3:30pm

3.3 Case History—Iron Ore

  • Iron ore minerals:
    • Hematite and Magnetite
    • Magnetite and Ilmenite
    • Magnetite, Vanadium and Ilmenite
  • Mine blocks
  • Product specifications
  • Yield optimisation curve
  • Infrastructure
3:30 – 3:45pm Break

3:45 – 5:00pm

3.4 Case History—Transition from Open Pit to Underground

  • Production profile in the transition from surface to underground mining
  • As the open-pit matures, the number of working faces becomes limited so production drops and this needs to be compensated for in the ramp-up of block caving
  • Copper projects case histories:
    • Palabora
    • Chuquicamata
    • Oyu Tolgoi
Day 4: Scenario Analysis, 25 October, 2019
Time Session

9:00 – 10:00am

4.1 Case History—Diamonds

  • Geological settings and pricing
  • Alluvial deposit case history
  • Evaluation of projects
  • Instability of DCF models
  • Primary kimberlitic projects

10:00am – 11:00am

4.2 Share Structures

  • Deal structure
  • Share price and stakeholder valuations associated with the progression from a private placement to undertake exploration through to an initial public offering to fund evaluation drilling
  • Treatment of options purchased for below an issue price and then distribution of shares held by stakeholders when exercised if this is below an IPO price
  • Consideration of monies added to the company treasury during corresponding funding stages
  • Spreadsheet-based workshop session
11:00 – 11:30am Break

11:30am – 1:00pm

4.3 Constraints on Mineral Resource Development

  • Environmental impact assessment
  • Sustainable development and the moral case for mining
  • Occupational health and safety
  • Cost of environmental compliance and closure provision
  • Site visits and due diligence
1:00 – 2:00pm Lunch

2:00 – 3:30pm

4.4 Net Smelter Returns

  • Off-take agreements and toll smelting
  • Treatment charge, refinery charge (TC/RC) and price participation (PP)
  • Case histories
    • Gold project
    • Lead, zinc silver project

4.5 Andean Skarn Silver, Lead Zinc

  • Workshop Session
    • Valuation of a 22 Mt silver-rich deposit with associated Zn and Pb mineralisation
    • Determination of the cost of equity as a function of the change in gearing
    • Optimisation of NPV
3:30 – 3:45pm Break

3:45 – 5:00pm

4.6 Metals Streaming

  • Comparison between different sources of funding for the development of a mining project
  • Case History: Aljustrel copper-zinc-lead-silver in Portugal
  • Metals streaming companies

4.7 Consolidation of Course Deliverables

How to Register

To register yourself, click the ‘Register Now’ button and complete the online registration form.
To register on behalf of someone else, or to register groups of 2 or more, please contact us; discounts may apply.

Questions? Please contact Edumine: +1 604 683 2037 or [email protected] and we will get back to you during regular business hours, Monday - Friday, 8:00am to 5:00pm Pacific Time.

Participants are expected to have their own laptop computers available for this course.

Fees

The fee covers the lecture, access to Pre-Course e-learning, access to IC-Mineval software, copy of Metals and Energy Finance book, a certificate of attendance, and catered breakfasts and lunches including light refreshments. The fee does not cover accommodation.

Early Bird: there is a 10% discount if you register at least 30 days prior to the course start date. A 10% discount is offered for groups of 5 or more OR if you provide your Annual Edumine subscription User ID at time of registration. The maximum discount that can be applied is 20%.

Venue

The course will be held at POHTO, Vellamontie 12, 90510 Oulu, Finland. Detailed arrival instructions will be sent to all participants 10-14 days prior to the commencement of the course.

Hotel Accommodation

If you need to make hotel reservations, we recommend the following hotels. These hotels are within close proximity to the course venue.

  • Break Sokos Hotel Eden: Approximately 7 minites walk from the course venue. This hotel gives you the ultimate break - whether you are here on holiday or for business. Set by a beach on the Baltic Sea, this laid-back hotel is 4 km from the 16th-century Oulu Castle and 5 km from shopping at Oulu Market Square. Streamlined rooms with parquet floors have free Wi-Fi and flat-screen TVs. Some upgraded rooms add sitting areas, plus balconies with sea views. Suites feature separate living rooms and saunas. Parking and a breakfast buffet are complimentary. A dome-enclosed pool has water slides and a play area. There are also 2 informal restaurants and a beach bar, as well as a fitness center and a spa.
    The Break Sokos Hotel Eden's website is: https://www.sokoshotels.fi/fi/oulu/sokos-hotel-eden.

  • Radisson Blu Hotel, Oulu: Located on the banks of the Oulu River, which opens into the Gulf of Bothnia, the Radisson Blu Hotel, Oulu combines beautiful waterfront panoramas with city center convenience. Based in the middle of this vibrant northern city, it's close to popular bars, shopping and attractions, and just 14 kilometers from Oulu Airport. Choose from 222 comfortable rooms and suites, each offering the Blu Dreams® sleep experience. Wake refresh, then visit Restaurant Toivo for the Super Breakfast Buffet. Their other on-site restaurant, Sassi, serves classic Finnish cuisine with a special local touch. You can maintain your fitness routine in the hotel gym, or simply relax after a day of exploration with a visit to our swimming pool or Finnish sauna.
    Radisson Blu Hotel, Oulu's website is: https://www.radissonblu.com/en/hotel-oulu?facilitatorId=CSOSEO&csref=org_gmb_sk_en_sn_ho_OULZH.

  • Scandic Oulu City: A 5-minute walk from Market Square, this straightforward hotel is a 10-minute walk from 18th-century Oulu Cathedral and 1 km from Oulu train station. The casual rooms with wooden floors include free Wi-Fi, flat-screen TVs and sitting areas, plus minibars and tea and coffeemaking facilities. Upgraded rooms add balconies. Suites offer separate living areas and/or saunas. Room service is available. Breakfast is complimentary. Other amenities include an airy restaurant and a bar. There are also saunas and a 24-hour gym. Parking is available for a fee. Pets are welcome.
    Scandic Oulu City's website is: https://www.scandichotels.fi/hotellit/suomi/oulu/scandic-oulu-city.

  • Best Western Hotel Apollo: This hotel is a 2-minute walk from Oulu train station and 10-minutes drive to the course venue. The relaxed rooms provide minibars, satellite TV and free Wi-Fi. Upgraded rooms add private saunas. Parking and a breakfast buffet are included. Additional amenities include a Finnish sauna, a karaoke bar and a nightclub. Pets are welcome (fee).
    Best Western Hotel Apollo's website is: https://www.hotelapollo.fi/en/.

Terms and Conditions

By submitting a short course registration form, you agree to pay the associated fees in full before the course start date.

Cancellations

Notice of cancellation must be given in writing by letter, fax or email and action will be taken to recover, from the delegates or their employers, that portion of the fee owing at the time of cancellation.

A 10% administration fee will be levied for cancellations made 4 or more weeks prior to the first day of the course. Thereafter, the following cancellation refund schedule will apply.

  • Cancellation made more than 3 weeks prior to the first day of the short course: 70% of the registration fee is reimbursed.
  • Cancellation made more than 2 weeks prior to the first day of the short course: 50% of the registration fee is reimbursed.
  • Cancellation made less than 2 weeks prior to the first day of the short course: no reimbursement of registration fees.

Edumine reserves the right to cancel an advertised course on short notice. It will endeavour to provide participants with as much notice as possible, but will not accept liability for costs incurred by participants or their organisations as a result of the course being cancelled or postponed. If a course is cancelled, fees will be refunded in full. Edumine also reserves the right to postpone or make such alterations to the content of a course as may be necessary.

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