The 1/9th Rule - An assessment of the valuation and structure of Canadian exploration agreements 1988-1992

Abstract The file is a zipped PDF document.A survey of 281 mineral exploration agreements from 1988 to 1992 examines the ratios between the three ways to purchase an interest in a mineral property, viz. pay cash, pay shares, and make future expenditures on the property.The Northern Miner is used as the source to create a database for this study. Information about each agreement has been collected from volumes 74, 76, and 78 for the years 1988, 1990, and 1992, respectively. All agreements for which a complete set of data was available have been used.The three years covered by this survey represent very different economic conditions in the Canadian mineral exploration industry. The ‘boom’ year, 1988, benefited from flow-through share tax provisions, whereas 1992 was a ‘bust’ year that suffered from the removal of the Mineral Exploration Depletion Allowance (Income Tax Act of Canada) from flow-through shares. The transitional year of 1990 is located both in time and amount of expenditures halfway between the other two years.The 281 agreements were found to consist of 15 all cash, 7 all shares, 14 cash plus shares, 88 cash plus expenditure, 8 shares plus expenditure, 14 cash plus shares plus expenditure, and 135 all expenditure.Buyers and sellers would be expected to have opposing priorities for the way that they prefer to purchase a mineral property.  Buyers prefer expenditure on the property only, whereas sellers prefer payment of cash and/or shares. These opposing priorities must be negotiated to a perceived 50:50 balance between cash/share payment and expenditures to satisfy the idealized situation described by most definitions of fair market value.However, the results from this survey show that dollar value of expenditures exceeds that of cash or share payments by about nine times in most of 110 agreements that contain cash-expenditure or share-expenditure components (see diagram). In addition, cash and shares seem to be treated at face value in agreements that contain cash and shares only.This imbalance between cash/share payments and expenditures appears to be rationalized by negotiations to a fair market value where face value of expenditures are nine times greater than those of cash and/or payments.On the basis of this apparent rationalization, it is proposed that the fair market value of a property may be determined by aggregating the dollar amount of the cash/share payments and one-ninth of the dollar value of expenditures, as set forth in the respective purchase agreement, and proportionally applying such aggregates to full property value.  The value of an interest in a property is valued by multiplying the interest proportion by the full property value as determined by the 1/9th Rule. For example, if an agreement provides for purchase of 75% interest in a property, then:
FMV of the property = [cash payment + share payment + (1/9 of expenditure)] / 0.75
This application of one-ninth of the dollar value of expenditures for property valuation is called the 1/9th Rule of mineral exploration agreements. Examples are presented which show the determination of value for three properties from the survey.
Keywords: Mineral exploration, Option agreements, Property valuation, Canadian, 1/9th Rule, Fair market value
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Summary: The file is a zipped PDF document.The combination of a predictive reliability assessment model and discrete-event simulation can be an effective methodology to study the impact of equipment failures on the capacity of production systems in mines. In this study, a predictive reliability assessment model using genetic algorithms is combined with a discrete-event simulation model to analyze mine equipment systems.Discrete-event simulation studies the evolution of a system as variables change...
Publication: CIM Bulletin
Author(s): N. Vayenas, G. Yuriy
Keywords: Simulation, Underground, Hard rock, Load haul dump (LHD), Mean time between failures (MTBF)
Issue: 1090
Volume: 98
Year: 2005
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Summary: The file is a zipped PDF document.Thirty per cent of the electrical energy in Turkey is provided by coal-fired thermoelectric power plants. Five per cent of the demand is met by the Soma power plant’s six 165 MW generators. The plant is fed by lignite from open pit and underground mines in the Soma region that are operated by the government. With a nationalized mining policy in place, recently no investment has been made at these mines, as mining activity is generally considered by the...
Publication: CIM Bulletin
Author(s): C.O. Aksoy, H. Kose, T. Malli, K. Ozfirat, A. Gonen, S. Gurgen
Keywords: Optimization, Cost, Drilling, Blasting, Load-haul
Issue: 1090
Volume: 98
Year: 2005
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Summary: The file is a zipped PDF document.Experience shows that energy management is successful when the energy is managed like a resource, i.e. continuously, systematically, and in an organized manner, not like an expense (e.g. worrying about and paying the bills once a month). This requires the development and implementation of an energy management program (EMP).Following is a summary of guidelines for setting up a successful EMP, plant- or corporation-wide. The main driving forces of a successful...
Publication: CIM Bulletin
Author(s): D. Berkley
Keywords: Energy, Management, Efficiency
Issue: 1090
Volume: 98
Year: 2005
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Summary: The file is a zipped PDF document.No person can properly work without sufficient lighting and this is especially so in mines where conditions are difficult. Artificial lighting is very important for the night shift to provide a safe and efficient working environment. Haul roads within the pit are one of the critical areas in surface mines where lighting installations are not permanent due to regular advancement of the working face. The illumination design should fulfil the minimum lighting...
Publication: CIM Bulletin
Author(s): M. Aruna, Y.V. Rao, N.C. Karmakar
Keywords: Illumination, Lamp, Roadways, Lantern, Contour
Issue: 1090
Volume: 98
Year: 2005
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