Estimating Revenues Flashcards
This is calculated by multiplying the number of units produced and sold during the year by the sales price per unit.
Annual mine revenue
One of the key variables associated with annual production is
tonnage of ore produced
The second key variable associated with determining the annual production of salable units is
grade of the ore mined
After arriving at appropriate estimates for annual tonnage and grade of ore produced, the analyst must then calculate the number of
payable units produced annually.
basic variable which must be estimated to arrive at a final estimate of the annual production of salable units extracted from the mine
Percentage recovery
A component of the mine revenue calculation estimating future mineral prices
Unit Price
There is a fundamental uncertainty in demand of minerals surrounding the general level of economic activity that will exist in some future period, with the exception of
fuel
Many minerals are traded on world markets; therefore, in weighing supply and demand pressures the analyst must generally consider
production
consumption
trade restrictions
The most important exchanges of mineral commodities
London Metal Exchange (LME) and the New York Commodity Exchange (Comex)
These are formal free market auctions where buyers and sellers negotiate mutually acceptable sales prices.
Commodity Exchanges
Copper is traded today mostly in what form?
cathode
These are also traded on both the LME and the Comex that permit
the holder to buy or sell fixed quantities of mineral at a specified price at a particular time in the future.
contracts
Most industrial minerals and coal are priced in this manner, commodities are sold at prices determined in _____ negotiated between buyers and sellers.
Purchase Contracts
5-, 10-, and 15-year contracts
long-term contracts
Mining firms not having captive processing facilities may be able to market their products directly to custom mills or smelters through
Smelter Contracts
With a limited number of minerals oligopolies exist where a few producers are responsible for most of the production in the Western world. From time to time, these producers have attempted to be price setters rather than price takers by marketing their production under a Producers Price
Administered Prices
(Administered prices cover a small group of mineral commodities where the producers’ judgment of the appropriate price is substituted for a price derived in the marketplace, either collectively in a commodity exchange or singularly through a negotiation between a buyer and a seller)
Current and historical price information for mineral commodities is published in
Metals Week (most authoritative source of price information in the metals industry)
Engineering & Mining Journal
Industrial Minerals
Coal Week
Coal Outlook
The best single estimate of tomorrow’s price for any mineral commodity is today’s price
Naive Methods (unsatisfactory for most investment analyses in mining)
Quantitative model constructed for various minerals relating price, as the endogenous variable, to a variety of lagged and unlagged exogenous variables.
Econometric Modeling
This pricing approach is based upon the assumptions that (1) new productive capacity will be needed on a continuing basis to offset rising demand and/or depletion of present mines, and (2) rational investors will not invest in new mines unless the investment promises to deliver some minimum acceptable return.
Rational Pricing
Supply and Demand Shedules
Production Cost Schedules
Short-Run Supply Schedules
Long-Run Supply Curves
Demand Schedules
Summation of all producers having
marginal, or variable, costs of production below various price levels
Short-Run Supply Schedules
Capital investment and recovery in mining is a long-term process, and
investment analysis must consider the price trends affected by long-run supply
Long-Run Supply Curves
Price is determined by the interaction of supply and demand, so price can be estimated by imposing a demand schedule on a supply schedule
Demand Schedules
Estimates of revenue is not limited to the application of any one
or two techniques, rather, it is a
painstaking blend of
economic theory, industry analysis, market analysis, and competitor analysis, combined with sound, experienced judgment
