Mining Valuations – As Much Art as Hard Science
A mining analyst tool kit consisting of earnings, cash flows, and net asset calculations are being severely tested in this post 43-101 view of the world. How is the analyst expected to adequately account for the extreme volatility in commodity prices, increased political and environmental risks, and unreliable cost estimates? In addition the accounting world will embrace the International Financial Reporting Standards (IFRS) in 2011 and the transition is not expected to be smooth for either the adopting company or the investment community. If all this appears to be a challenge for assessing the value of an average base metal or gold mine what is required to determine the value of a long life assets such as a coal, tar sand or potash mine which can exceed the normal discount period by many tens of years? Then there are the capital intensive projects that are so front-in loaded with capital expenditures that economic viability appears doomed until the next generation of exploration or technology extends the mine life. During the presentation we will explore an array of long life projects and techniques, such as terminal value analysis, that may better determine fair and full value.