Wk 5 - Applying Mineral Economics

Question 1

What is the relationship of price vs volume on the demand and supply curve

Answer 1

Demand curve - volume drops with increased price
Supply curve - volume increases with increased price

Price equilibrium is at the intersection

Question 2

What are the corporate objectives of valuation and evaluation

Answer 2

buy
sell
hold
improve
partner

Question 3

What is project evaluation

Answer 3

the process to decide the future of a mineral project
it determines the monetary value of the mineral assets at a set valuation date

Question 4

What is the purpose of valuation

Answer 4

*determine sale or purchase price
*compare alternative investments
*advise shareholders and stakeholders
*determine the base value related impost or taxes
*quantify asset levels in company balance sheets
*determine entry or participation levels in joint ventures
*assess the potential for adding value by exploration or development

Question 5

What is evaluation and valuations relationship

Answer 5

Evaluation is the starting point for valuation

Question 6

What are some evaluation tools

Answer 6

Exploration results
Mineral Resources and Ore Reserves Statements
Scoping Studies
Preliminary Economic Assessments
(Canadian terminology)
Pre-feasibility studies
Feasibility studies
Detailed engineering
Operational budgets
Historical operational data

Question 7

What is included in evaluation reports

Answer 7

*project location
*project ownership
*project history
*geology
*mineral resources and ore reserves
*mining
*processing
*infrastructure
*environmental
*capital and operating costs
*product marketing
*political/regulatory
*cash flow schedules
*sensitivity analyses
*risk and opportunities

Question 8

What are the stages of an evaluation report

Answer 8

Exploration
Pre-development
Development
Production

Question 9

What is highest and best use of the asset

Answer 9

it is inherent and when there is a conflicting issue it is that requires the highest net return

Question 10

What are market considerations

Answer 10

Location
Commodity
Percentage ownership
Management control
Perceived risk
Markey volatility

Question 11

What are the common valuation approaches

Answer 11

Market based
Income based
Cost based

Question 12

What are market based approaches

Answer 12

exploration projects
pre-development projects
development projects
production projects

Question 13

What are income based approaches

Answer 13

pre-development projects
development projects
production projects

Question 14

What are cost based approaches

Answer 14

exploration projects
pre-development projects

Question 15

What are common valuation methods for each valuation approach

Answer 15

income - discounted cash flow; real options
cost - appraised value; geoscience factor
market - comparable transactions; option agreement terms

Question 16

What is the reporting regulatory framework

Answer 16

• National law, in reporting jurisdiction
• Stock exchange rules, in reporting jurisdiction
• Professional codes, in home jurisdiction

Question 17

What are the Australian codes of practice

Answer 17

JORC code
VALMIN code

Question 18

What is the cascade of regulatory framework

Answer 18

each of the above components taking precedence over the one below in the event of conflicting rules or advice

Question 19

What is the overarching authority

Answer 19

national law

Question 20

What are the commonly used methods for producing assets

Answer 20

*discounted cash flow to give NPV
*real options
*comparable transaction
*option agreement terms

Question 21

What is comparable transaction analysis

Answer 21

commonly used in valuations for assets in any stage of development
there are no true comparables can obtain a large range of values from similar properties

Question 22

Why do non producing assets have value

Answer 22

*they represent potential for eventual mineral production through exploration, enhancement of mineral resource, new ownership
*market exists with of without defined mineral resources

Question 23

What are the commonly used valuation methods for non producing assets

Answer 23

*actual transaction
*comparable transaction
*geoscience factor
*yardstick
*past effective expenditure
*joint venture terms
*bespoke methods