1、AN OVERVIEW OF VALUATION OF MINERAL PROPERTIES,KEITH N. SPENCE Global Mining CorporationPDAC, Board of DirectorsCo - Chairman CIMVAL- Canadian Institute of Mining, Metallurgy & Petroleum,CHINA MINING, Beijing, November 14, 2007,2,Valuation vs. Evaluation,Valuation - estimation of the value or worth
2、of the mineral property. Question: How much is a property worth in dollars ? Evaluation - economic assessment of the mineral property generally for an investment decision, for example, a feasibility study. Question: Go or No go Decision ?,3,Items to be Discussed,The international Scene Reasons for a
3、 Valuation Definition of Value Valuation Tenets Types of Properties Valuation Approaches stage based valuation Primary Valuation Methods A word about Reserves and Resources Use of Mineral Resources in Income Approach Secondary Valuation Methods / Rules of Thumb Valuation Reports Some Issues with val
4、uations Conclusion,4,The International Scene,CIMVal Standards & Guidelines (TSX Toronto Stock Exchange Appendix G) - Canada Australian VALMIN CodeSouth African proposed SAMVal CodeUS Minerals Appraisals/Valuations- a patchwork of regulationsInternational Valuations Standards (IVS)- IVSC -Extractive
5、Industries Guidance Note nearing completion,5,Reasons for a Valuation,Mergers and acquisitions Non arms length transactions IPO pricing Stock exchange listing support Support of audited financial statements Fairness opinions for a sale or purchase of a mining property Litigation Government expropria
6、tion Insurance claims,6,Definition of Value,Fair Market Value (FMV) is the standard of value.Key elements of FMV are as follows: Both seller and buyer are willing and not under compulsion to actThe transaction is at arms lengthBoth seller and buyer are informed or have reasonable knowledge of the re
7、levant factsValuation should be based on a given point in time Other types of value include; replacement value, salvage value, book value, depreciated value, net asset value, assessed value, insured value, etc.,7,Valuation Tenets,Materiality - inclusion or omission of information that might result i
8、n different conclusion of value Transparency- information used (or excluded), the assumptions, methodology etc, must be set out clearly, along with the rationale Independence -the valuator must to be independent of the commissioning entity,8,Valuation Tenets Contd,Competence -the valuator must be ap
9、propriately qualified to conduct the required valuation” Reasonableness-other appropriately qualified and experienced valuators would value the property at approximately the same range,9,Types of Properties,Valuation depends on the stage of development of the propertyExploration Properties Early sta
10、ge exploration propertiesMineral resource properties Advanced stage exploration properties Properties with identified mineral resources Pre-feasibility stage projects Marginal development properties Past producing minesDevelopment properties Feasibility study completed Development planned or under c
11、onstruction Contain mineral reserves and mineral resourcesProduction properties,10,Valuation Approaches,Three generally accepted approaches:Income approach - based on principle of anticipation of benefits (usually DCF)Market approach based on principle of substitution ( Market Comparables) Cost appr
12、oach based on principle of contribution to valueValuation approach depends on the stage of exploration or development of the property,11,stage based valuation,12,Primary Valuation Methods,Income Approach Discounted Cash Flow Method - very widely used Option Pricing Method/Real Option Method not wide
13、ly used but gaining in acceptance. Utilizing Black Scholes seminal work, that mining projects can be valued based on a series of options/decisionsMarket Approach Comparable Transactions Method widely used Option Agreement Terms widely usedCost Approach Appraised Value Method widely used but not acce
14、pted by all regulators Geoscience Factor Method not widely used,13,A word about Reserves and Resources,CIM, JORC & SAMREC Reserve Classifications ReferencedMineral Resource - a mineral deposit for which quantity (tonnes) and quality (grade) can be estimated. But not demonstrated to be economic. Meas
15、ured - highest confidence category Indicated Inferred - lowest confidence categoryMineral Reserve - that part of the mineral resource that can be extracted economically. Proven - higher confidence category Probable - lower confidence category,14,Use of Mineral Resources in Income Approach,Generally
16、Acceptable PracticesCIM, JORC & SAMREC Reserve Classifications ReferencedUse of all proven and probable mineral reservesUse of measured and indicated mineral resources in the following circumstances Mineral resources are current Mineral reserves are mined ahead of resources in DCF Confirmation that
17、the mineral resources in the DCF are likely to be economically viable in the future Recognize higher risk of using mineral resources by appropriate Adjustments,15,Use of Mineral Resources in Income Approach Contd,Use of inferred mineral resources With great care Not if they are the dominant resource
18、 category Any use must be justified in and treated appropriately for the substantially higher risk and uncertainty Reserves and other resource categories are mined ahead of inferred resources in the DCF model Inferred resources should not be used to make the property economically viableUse of potent
19、ial or hypothetical “resources” is not acceptable,16,Secondary Valuation Methods & Rules of thumb,Rules of thumb - A good cross-check on a Valuation to test its “reasonableness”$ per oz or lb in the groundValue per unit of property area used for large exploration propertiesMarket capitalization of c
20、ompany holding the mineral property more applicable to valuation of single property junior companies,17,Valuation Reports best practice,A Valuator is ultimately responsible for: preparation of the Valuation Report and its conclusions adhering to the principles of materiality, transparency and reason
21、ableness including technical inputAn approved technical report can be appended to the valuation reportAll mineral reserve and mineral resource estimates must be disclosed and discussed in the valuation report,18,Valuation Reports Best Practice Contd,List factors, critical issues, key risks and assum
22、ptions Discuss all valuations within the last 24 months Certificates of Qualifications of the valuator Statement that the valuation complies with the Standards and Guidelines which he or she is governed by, in their entirety Site visit should be undertaken or explain why not Use More than one Approa
23、ches/Methods Provides Checks & Balance Valuation is Best Reported as a Range of Values Effective date of the valuation,19,Some Issues with Valuations,Use of unacceptable or dubious methodsMisapplication of acceptable methodsNo explanation or justification for methods usedLack of transparency,20,Conc
24、lusion,Need for International Valuation Standards & ConsistencyValuation is Stage BasedMarket Comparables applicable for all stagesHow Reserves/Resources are used is the key Factor in ValuationThank You !,AN OVERVIEW OF VALUATION OF MINERAL PROPERTIES,KEITH N. SPENCE Global Mining CorporationPDAC, Board of DirectorsCo - Chairman CIMVAL- Canadian Institute of Mining, Metallurgy & Petroleum,CHINA MINING, Beijing, November 14, 2007,
