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Johan Bradley FGS CGeol, EurGeol, MSc

Managing Director

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MINING INSIGHTS

10 things you should know about Mineral Assets Valuation

01 | There are several valuation codesOver the past 20 years, several international jurisdictions have developed codes applicable to the public reporting of mineral asset valuations. The intent behind these is to develop a high standard of public disclosure and ultimately encourage long-term investment in the mining industry. The best known of these codes originate from Canada (CIMVAL), Australia (VALMIN) and South Africa (SAMVAL).

02 | The aim is to define a value rangeThe ultimate aim of any valuation exercise is to define a range of reasonable values which reflect the current worth of an asset in the marketplace. This may be defined as the “Fair Market Value”. The definition of Fair Market Value and the underlying “Technical Value” of the property differ slightly.

03 | The definition of “Value”Fair Market Value is the estimated amount of money for which the mineral asset should change hands on the valuation date and assumes a transaction in an open, unrestricted market between a willing buyer and a willing seller in an arm’s length transaction. It is usually comprised of two components, the underlying “Technical Value” and a premium (or discount), relating to market, strategic or other considerations (see VALMIN Code, Definition D43).

04 | Property development stage is keyThe quantity (tonnage) and quality (grade) of the commodity that might be extracted from a property is often not known with certainty at the date of valuation. As a consequence, the appropriate valuation approach and method is strongly governed by the extent to which the asset has been explored and developed.

An understanding of the intrinsic value of a mineral property is vital for effective management of an asset portfolio. From sale and purchase, to joint venture agreements, stock exchange listings and exploration prioritization, valuations are integral to the mining industry.

This overview provides an insight into some of the guidelines, terminology and basic techniques.

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05 | There are three main valuation approachesTypical valuation approaches can be spilt into three types; Cost Based, Market Based and Income Based approach. The objective of the valuator is to use a methodology that removes as much subjectivity as possible to establish a reasonable value. (A useful summary of development stage against approach is presented in the SAMVAL Code, Item 25).

06 | Cost Based ApproachA basic principle of this widely used method is that an exploration property is worth meaningful past exploration expenditures, plus warranted future costs to reach the next decision point. This method is typically applied to early stage exploration properties, along with the Geoscience Rating Method, which is considered a variant.

07 | Market Based ApproachThe market based approach relies on the assumption that the value of the mineral asset is similar to the value of other similar assets. An advantage of a market based approach is that it can be applied to mineral properties across the whole development spectrum. One of the challenges is to find suitable ‘comparable’ properties in what can be a relatively shallow market.

08 | Income Based ApproachThe income approach relies on the determination of forecast cash flows, typically discounted over the life of the mine to derive a valuation. This technique is normally applied to development properties at a minimum of Scoping Study level.

09 | Rubbish in equals rubbish outIf the reserve/resource statement is unsound or the exploration data does not truly reflect the potential of the property, the resulting valuation could be meaningless. As such, the quality of supporting technical data must be verified and factored into the valuation.

10 | Valuations are often subjectiveIn order for a reasonable and defendable range of values to be derived, the experience of the valuer should be sufficient to select appropriate valuation techniques, identify the key attributes of the mineral asset and ensure these are appropriately incorporated into the valuation.

THE QUALITY OF SUPPORTING EXPLORATION DATA MUST BE VERIFIED AND FACTORED INTO THE VALUATION.

FEM 2015

www.srknordic.com | +46 910 54590 © SRK Consulting

Contacts

Johan Bradley FGS CGeol, EurGeol, MSc

Managing Director & Principal Geologist

Tel: +46 (0) 910 54591;

Mobile: +46 (0) 70 342 4591;

Email: jbradley@srknordic.com;

Skype: johanbradley

If you would like further information, visit us at FEM, booth B20:

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10th FENNOSCANDIAN EXPLORATION AND MINING

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