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Version 6.

1 - September 2012

Rio Tintos Project Evaluation Guidance (PEG)


Volume 3 Business Modelling Guidelines

The purpose of this volume is to outline a recommended approach for the design
and construction of financial models used to evaluate investment opportunities.

Introduction to the Project Evaluation Guidance


Document
The purpose of PEG
The purpose of PEG is to define Rio Tintos project evaluation methodology. It should be used when
valuing both new capital projects and existing businesses. While it aims to promote a consistent
approach to evaluating normal investments, the intent is to allow flexibility to address unique
situations.

The PEG documents


PEG 6 is based on PEG 5 and supporting documents (the Investment Committee Guidance Note
and the Business Modelling Guidance Note) and has attempted to bring them together into a more
focussed and accessible reference document.
The following diagram illustrates the structure of the PEG document. The two (light blue) sections
provide the over-arching guidance and rules that should be understood by all employees involved
in preparing, reviewing and making investment decisions. The dark blue sections are intended as
practitioners guides and, as such, provide a more detailed, step-by-step methodology of the
investment appraisal process:

Rio Tintos Investment Decision Making Process Provides an overview of the steps that must
be followed when submitting an investment for approval and the decision-making bodies that will
need to be engaged.
The Principles and Protocols for Project Evaluation Explains Rio Tintos high-level approach
that should be adopted when valuing an investment opportunity.
Developing an Investment Proposal Outlines the content that should be addressed for different
types of investment proposals.
A Practitioners Guide to Project Evaluation Augments the Principles and Protocols chapter in
volume 1. It is aimed at those who are directly involved in valuation and investment proposal
preparation. It includes practical guidance as well as finance theory.

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Business Modelling Guidance Outlines Rio Tintos financial modelling protocols including model
structure and model output.

Other documents complementing PEG


PEG 6 is complemented by a suite of other guidance documents that provide specific instruction
primarily on the technical components of project development. All can be found on the Prospect
portal and are cross-referenced in PEG 6 where relevant.

Further detailed guidance includes:


Commercial Standards and Guidance Notes include Marketing Evaluation Guidance Note and
other commercial, tax and accounting guidance.
Technical Standards and Guidance Notes include Capital Cost and Operating Cost Estimation
Working Practice, Methodology for Estimating Capital Cost Escalation, Contingency and Other
Allowances, Closure Standards and Guidance, and other guidance and standards from T&I (e.g.
HSEC, PDI).
Other Standards and Guidance Notes include Sustainable Development Decision Making
Criteria, Energy and Climate Strategy toolset, and other guidance and standards.

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Contents page
Introduction to the Project Evaluation Guidance Document

Glossary

1.

Overview

2.

Rio Tintos Business Modelling Philosophy

2.1

Introduction

2.2

Purpose of the business model

2.3

Business model content and functionality

3.

Guidance on Model Design

10

3.1

Software to be used

10

3.2

Model design and development

10

3.3

Model structure General

10

3.4

Individual sheet structure and input protocols

11

3.5

Selecting the data to input

13

3.6

Calculation Areas

17

3.7

Model Outputs

19

4.

Model Integrity, Testing and Checklists

21

5.

Model Ownership and Security

22

Change control

22

5.1

Appendix 3.1: Typical Business Model Structures - Overview

23

Appendix 3.2: Example of a Model Preface (Front Sheet)

24

Appendix 3.3: Examples from a Simple Multi-Sheet Model

26

Appendix 3.4: Examples of a Vertical Sheet Model

34

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Glossary
BED

means the Business Evaluation Department

BMG

means business modelling guidelines

BUs

means business units

CGU

means cash generating unit

HSEC

means Health, Safety, Environment and Communities

LME

means the London Metal Exchange

M&A

means mergers and acquisitions

NPV

means net present value

PDI

means Project Development and Implementation

PEG

means project evaluation guidance

T&I

means Technology and Innovation

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1.

Overview
The key principle is:

Simplicity is encouraged. A good model will be easy to follow, easy to audit and will tell the right
story to the user.

The key messages from this chapter include the following:

Models are key business tools that support both short and long-term planning in Rio Tinto. They
are essential for communicating to Business Unit and Headquarters management the value
chain through the business.

The Business Modelling Guidelines chapter (BMG) focuses on high level models used to
prepare business valuations and to support major projects put before the Investment Committee.
The aim is to improve the integrity and allow easier validation of such models.

Improved quality, consistency and transparency should permit the user to focus on the business
and the key value drivers, rather than how the model works.

Each Business Unit, or project team, should have a core valuation model which shows the
central estimate of future cash flows as defined in PEG. A well thought out model should then
allow focussed development of particular areas so as to suit individual project evaluation needs.

Excel remains the software of choice for high level models. Each model should have a Preface
sheet which describes the model structure and the protocols used, plus a summary of key
developments of the model. Planning the structure is critically important.

Protocols are recommended for file and sheet naming, clearly identifying sources of data,
formatting and colour coding, transparency (avoiding hidden inputs or calculation) etc. A well
documented and annotated model should be an accessible model.

Two levels of detail for input data and consequent calculation are discussed; a well structured
model has to draw a balance between complexity and functionality. Related models should be
identified and relationships mapped where appropriate.

Care must be taken in projecting physical or cost parameters into future periods. Assumed
performance improvements should be clearly and separately shown, with sources identified.

Extracts from a worked example using a typical structure are shown in the appendices and are
available in full as an Excel file. No single template is mandated; business needs should drive
the overall model design.

Model integrity checks should assist the user in validating the model. A BMG self audit checklist
has been prepared and is available from BED.

Models should have clearly defined ownership, be stored securely and have appropriately
controlled access.

The electronic version of the sample model is available on the BED portal.

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2.

Rio Tintos Business Modelling Philosophy

2.1

Introduction
Financial models are critical business tools that support both short and long-term planning in Rio
Tinto. Good models are essential for communicating to management the value chain through the
business and, inter alia, they aid operational decision making, capital investment and acquisition/
divestment studies. Their use for evaluating alternatives and providing timely and accurate output is
key to enabling value maximising decisions by management.
Business Evaluation (BED) and Technology and Innovation (T&I) are asked to review all major
investment proposals and must rely on being able to access and review the logic that supports the
business case. This requires an ability to run sensitivity analyses and understand the key value
drivers.
Decision makers need to understand the overall business and improved model quality, consistency
and transparency should permit users to focus on the business, rather than how the model works.
This chapter therefore covers the model design and practical implementation of PEG.
It is expected that models used to derive valuations for Rio Tinto businesses and projects would
have a core structure which seldom exceeds 5 Mb in size, excluding multiple alternative scenarios
which might be saved in the same file. These models, which are also used for many other purposes
are typically fed by inputs from other financial and physical models (e.g. from mine planning software
and short-term plans).

Guidelines for model design

The diagram below indicates how models might typically be related in BUs; it is recommended that
even the subsidiary model users consider adopting many of the suggestions in this guidance note.

Specific Project
Models

BU Valuation Model

Competitor
Models

Other models (for example)


Processing
(short/medium term
outlook)

Mine Production
Planning
(life of asset)

Pricing
(short/medium term
outlook)

Reasons for producing this guideline include:

Improving integrity and validation of models. A clear model will allow the reader to understand
the overall business and rapidly test the validity of the outputs.

Encouraging quality and consistency of model design with uniform application of conventions
and correct implementation of PEG.

Encouraging transparency of models to ease their use by others easing transferability of


models as personnel changes occur, facilitating reviews by BED and T&I etc.

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It is not suggested that each Business Unit (BU) should have the same model template; Rio Tinto
operations have differing business focuses and the substantial work carried out in creating the
existing suite of BU models should be built upon. However, it is important that there is a clear
understanding of the relationships between the various models that exist within the BU.
A supplementary activity that relates to this document has been the initiation of a process for
reviewing selected BU valuation models against the BMG, ensuring that models are sufficiently
transparent, determining that sound version control procedures are in place and the models have
ongoing integrity (see section 4).
This chapter is not intended to be a detailed manual on the use of Excel; various text books and
papers cover this ground and BED/ T&I can suggest additional reading on request.

2.2

Purpose of the business model


Underlying any valuation of a BU, there should be a business model which covers the life of the
asset concerned. This model may present the individual assets of a BU or the aggregate value of a
group of BU assets. If the assets are interconnected in an operational or business way, it is
recommended that the assets are modelled in the same file.
Currently, Rio Tinto HQ and the BUs use these models, in differing degrees, for the following:

As part of the annual planning process, Rio Tinto HQ collects valuations of all its businesses
using the Cash Generating Unit (CGU) template sent out by Controllers. These are used to
assess total Group value, to show sensitivities to major input parameters (see scenario
discussion in section 3.6.2) and to consider potential impairment issues. These annual
valuations, prepared by each BU and expressed in Net Present Value (NPV) terms, lay down a
PEG compliant central estimate valuation for the forthcoming plan year.

For mines, it is used to support the reserves prepared for the plan albeit with amended
assumptions to meet Rio Tinto guidance on both JORC and SEC reserve submissions.

Optimisation studies including strategic option analysis and sensitivity analysis. This may be
concerned with quantum changes in business activity or simply assessing the value of operating
procedure changes, revenue or cost saving initiatives. A model should show the elements of the
business value chain and the potential to increase NPV.

Project evaluation and justification (to the Investment Committee) of the (physical and) financial
benefits of proposed capital investments.

Competitor studies including potential acquisitions or divestments and for benchmarking.

Crosschecking with the outputs from the more complex (data based) financial systems used
(e.g. SAP and in-house financial models).

These different applications of models will usually require some customisation/ variation from the
central estimate case logic and structure. The nature of the input detail, the analysis logic and the
output formats required for any specific purpose may be different but any valuations so derived
should be reconcilable with the central estimate case.
Implicit in the above, is the compliance with PEG for the core part of the model. This requires the
derivation of a 100% equity-based cash flow statement. It is therefore preferable that additional
workings incorporating debt, minority interests, etc. should be shown separately.
It should also be noted that a high level model will be unlikely to have the same precision as a full set
of accounting statements derived from the BUs financial systems (typically for the first two years of a
plan period). The model should have a near identical cash flow statement but it is recognised that

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profit and loss or balance sheet numbers (if included) may not have the same precision in relation to
debt, non linear items, special provisions, etc.

2.3

Business model content and functionality


However well constructed, any model is only as good as the inputs provided to it. BUs will have
short-term models which should provide the foundations of and be compatible with the early years of
the long-term business model. Theoretically, more detailed input allows greater functionality and
accuracy but this has to be balanced by the practicality of using the model, for both the owner and
other potential users, and by the relevance of data over the asset life (accuracy tends to reduce,
particularly after the initial plan years). As indicated above, this guidance focuses on higher level
models which aim to provide a succinct representation of the overall business.
The disadvantage of projecting forward from early year hard coded inputs in a high level model is
that their relevance may reduce sharply once the model is asked to run options away from the
central estimate case. It is therefore necessary to decide on the functionality required for the model
and ensure that the data inputs are capable of driving both the physical and financial calculations
that lead to meaningful outputs.
As a minimum, any model should have a representative material balance that can be followed
logically from ore in the resource to the saleable product. Where there are key constraints on
physical activity, the modellers should consider including a flag or test against the constraint.
Similarly the financial numbers should be logically laid out and provide a comprehensible trail from
input to output. In particular, inputs taken from financial software (e.g. SAP) should be taken back to
the most original, appropriate source and whilst aggregation of like costs may be required, numbers
based on intermediate calculations should generally be avoided as inputs to the model (e.g. show
tonnes and grade rather than contained metal).

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3.

Guidance on Model Design

3.1

Software to be used
Microsoft Excel is the current tool of choice for high level models. Each BU should have at least an
Excel representation of its business, in a form that corresponds to the annual valuation for the
current planning period.

3.2

Model design and development


Rio Tinto does not recommend a single master template, the broad design is left to the modelling
team. The process should start with the key stakeholders (potential users, output recipients, data
providers, etc.) contributing to defining a scope and then outlining the logic to be used, to ensure that
the desired results will be calculated. Clarity on the critical outputs expected and the key business
variables driving the result should be decided early on to avoid a model with excessive detail/ logic in
non-critical areas. Visually outlining the overall design on a whiteboard or similar can be very useful.
A documented scope with the estimated budget and timescale for the development should be
agreed.
While creating a new model or carrying out a major review of an existing model, it is recommended
that the stakeholders continue to meet to discuss the evolution of the model and to review the
outputs and flexing options that they are expecting. It is also important to consider how the data
inputs should be sourced and to be aware of potential difficulties in obtaining good data. Throughout
the development process, there should be a clear owner of the model who is constantly testing it and
correcting the inevitable errors that occur during the build process.
The BED portal shows a checklist for BMG compliance. Consider using this checklists to confirm
that the model is meeting its objectives as well as aligning with Group guidance.
In summary, a best practice model is:

3.3

Transparent in design and easy to use, allowing more focus on productive use of the model for
analysis rather than struggling to produce simple results from a badly designed model.

Focussed on the important business issues, so time is not wasted in unnecessary development
of redundant features and/ or detail.

Easily maintainable.

Model structure General


Two styles of model structure are typically used:
Format A: Models with multiple worksheets; these typically may show;
i)

All inputs/ calculations/ outputs on separate sheets OR

ii)

Sheets for each functional area (marketing, mining, process, etc.) showing clearly separated
and appropriate inputs and calculations plus a sheet aggregating the results into cash flow,
earnings and other summary outputs.

Format B: Models in which the entire business is represented in a single vertical sheet. This allows
multiple options to be considered and then placed side by side in the model file so that the
differences between cases can be directly compared. A separate sheet with common business
drivers can then be added so that all the cases can be flexed together and the relative
consequences assessed.
Appendix 3.1 shows some typical structures used for modelling.

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For the central estimate BU valuation model, this guidance is recommending Format A as the
preferred structure, but is not mandating it. Format B is well suited to strategic analysis where
multiple cases are required in the same file; but it can make for very long sheets and potentially large
files. It is suggested that a well structured Format A style of model can be modified using Excels cut
and paste facility to create the single sheet version for particular studies; to achieve this certain
protocols such as keeping each year in the same column are required (see also section 3.4). The
notes in the following sections have generally been written to suit Format A i, but apply to other
structures.
3.3.1

File and sheet naming


Select a file name which is meaningful to the creator and potential users. This should indicate at
least the project/ case name, the version number and date. Systematic use of version numbers
enables sorting of multiple versions held in a working Excel folder. If several people are working on
the model, consider adding initials at the end of the file name.
Example

Escondida Central Estimate Ver2.2-17Feb11.xls


Escondida Mill Upgrade Fast Ver2.5-21Mar11 LHH.xls
Sheet names should be meaningful, but kept as short as practical. Otherwise cells referenced from
one sheet to another sheet may have long formulas that are hard to follow.
3.3.2

Headers and footers


Every sheet in the model should have appropriate descriptive headers and/ or footers to indicate the
source of any electronic or printed hard copy version of the model and to help the readers to
understand what they are looking at. These should at least show the file name, sheet and date
(when printed). Where multiple users are involved, consider adding the current users name to any
printout.
This may be set up by creating a default spreadsheet and saving it as a template for use each time a
new sheet is added. Sheets in existing models can be made consistent by grouping the sheets and
using File/ Page Setup/ Header/ Footer.

3.3.3

Model preface
All models should have a front sheet which explains its structure and the protocols followed. Most
models have evolved over a considerable period and it is recommended that a brief record of the
models history should also be shown in a registry on this front sheet.
BUs should take a view on how much chronology should be shown, but as a minimum it is
recommended that the model registry show the NPV of the prior years plan and the NPV of the
current years plan, noting significant changes in inputs, new data sources, and changes in logic or
structure between these cases. There may be various versions of the model which have been used
for differing purposes (e.g. a specific capital project, a commercial contract evaluation, etc.) and the
final version of such an application should have an appropriately updated preface. As the model
evolves through the year, the information in the registry should be sufficient for any independent
reviewer to reconcile that particular version back to the NPV shown in the central estimate case.
See Appendix 3.2 for a sample Preface sheet prepared for a multi sheet model.

3.4

Individual sheet structure and input protocols


The most important aspect of a good model is that there is a logical flow. Assuming a multi-sheet
structure, the following is recommended:

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All models should be set up to show annual data in columns running from left to right. Sub
division of years (e.g. monthly or quarterly for initial periods) is used by some BUs and, as a
minimum, it is recommended that such columns should be placed on a separate sheet or
consideration be given to placing them in a separate model that may mirror the model row
structure. If these part year periods form part of the calculation process, this should not detract
from the ability to run sensitivities/ flexes.

The start date for the valuation should be clearly shown and each calendar year should be in the
same column on every sheet. This will assist model development and make auditing much
easier.

Inputs should never be duplicated in the core modelling area; i.e. data should not be entered in
more than one location. If a range of cases/ inputs (e.g. for sensitivity analysis) is required, a
suitable multi-case table can be included; this is then read using one of the Excel functions at the
commencement of each calculation run. An example of this is shown on the AltInput sheet in the
sample model, with a simple drop down function selecting the case to be valued.

All inputs should be clearly identified and colour coded. A dark blue font on a pale green
background (to show up when photocopied) is used in the example (Appendix 3.3). One
business modeller who suffers from colour blindness has requested care with colour coding as
he sometimes cannot differentiate the signal being given. Remember that sheets may
sometimes be printed in black and white so suitable use of soft cell shading (fill) will at least
indicate cells which may be inputs.

Colouring of data which is being read from other sheets in the same file is optional, but if used,
cells must be coloured differently to the raw input colour. An example is given in the sample
Preface sheet (Appendix 3.2).

If, while developing or populating a model, the data in a cell or the logic of a calculation is
dubious, use a separate (temporary) strong colour to identify this cell as one which needs further
checking.

All inputs should be shown separately from the related calculation and output rows. If structure
A i is used, all inputs will usually be on a single sheet. Some BUs prefer to input data for a
functional area and then lead into the matching calculation directly below; this is acceptable if
there is clarity and co-positioning of the relevant inputs.

There should be no hidden cells, rows or columns containing input data; use the Excel Data/
Group facility to allow rows or columns that are not being worked on to be temporarily hidden,
but do not use permanently hidden rows. Similarly, intermediate calculations may be grouped
and temporarily hidden to aid clarity (see section 3.5.1).

No cells should have a mix of raw inputs and calculation such as =K24*45 again, no hidden
input data. If the 45 in this example is constant across a row, enter it as a hard code (say cell
E24) and use =K24*$E$24; if the 45 varies with time, enter the parameter across a separate
row and multiply the result along the lines of =K24*K25.

Ideally there should be no logic changes across the columns other than in the historical data
columns (see section 3.5.9) or in any initial years where hard coded input is made. The design
should aim to have only one formula across any row. If a logic change is required in future
years, consideration should be given either to introducing a separate input row or to using the
Excel IF function. Conditional formatting, showing a strong colour, may be used to show a
switch in the logic as decided by an IF function.

Reserve column A on each sheet for row notes to indicate:

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3.5

Sources of input data and date. If data has come from an external source, ensure that a Rio
Tinto person has at least endorsed its validity showing this in column A

Basis of calculation logic if not obvious

Any other comments that might aid the reader understand how that row of the model
functions

If the note becomes excessively long for the space available, either merge several cells down
column A to create a larger entry box or, only then, consider using the insert comment facility,
available by right clicking the cell.

Identify each row with an appropriate descriptive title typically use columns B and C. Where
possible, consider linking further uses of that title with a formula, rather than re-typing it.

Provide a units column consistently through the worksheets, typically in column D, and use
consistent formats for units. This is preferable to including the unit in the title column of the row
e.g. Rather than Tonnes mined kt show Tonnes mined and kt in separate columns.

Provide a column to the left of the annual (year) columns where totals or averages (e.g. grades)
can be shown (see Appendix 3.3). This allows a quick sanity check which will be more visible
than if the totals are placed on the far right of the sheet.

Use consistent number formatting and avoid large numbers of significant figures. Use millions
with perhaps no more than a couple of decimal figures rather than a large thousands number.
Where appropriate, use brackets rather than a minus sign to indicate negative numbers.

A sheet will be easier to read if zero value cells use the dash (-) convention where a zero
number has been deliberately entered or an algorithm is present.

It is not necessary to enter cost inputs as negatives but where values are being aggregated as in
a cash flow statement or a profit and loss statement, it is recommended that revenues are shown
in black and costs are shown in red with brackets. See examples in Appendix 3.3.

Selecting the data to input


As indicated in chapter 2, as far as possible, inputs should be in real terms reflecting currency of the
valuation date. If nominal input values are essential, consider a suitable cell colour code to indicate
this and show as Nominal$ in the unit column.
It is acceptable to have some intermediate subsidiary calculations in the input area for example
where sub totals of product or ore tonnes might be a useful check of the validity of an input row.
Defining the source and level of detail for the inputs is intrinsic to a models value as a management
tool. As discussed in section 3.3 above, there is a balance required between complex/ detailed and
high level summary inputs. It is important to understand what data is available from existing sources,
how meaningful it may be over multiple future years and how to extract the key drivers for use in the
model.

3.5.1

Use of the data/ group function


Whilst constructing, using or reading a model, the Data/ Group function is extremely useful as it
permits rows which are not being worked on to be temporarily hidden. A well structured input sheet
can be reduced to a few major headings and, if required, a few visible key input rows - when all the
grouped rows are hidden. This allows rapid appreciation of the high level logic followed and
navigation to the rows of interest.
The same function can be used to hide the row notes in column A, as described above, so that it
does not occupy screen space when not required.

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A similar argument applies for calculation and output areas. Grouping is used in the sample model.
(Note remember that hiding the data for graphs using grouping renders the graph blank in Excel
one solution is to put data at bottom of sheets and away from the grouped rows).
3.5.2

Input currency
While the US$ is the dominant currency of many Rio Tinto models, other models assume inputs that
are in their local currency plus sometimes a mix of other currencies. This is essential where these
elements represent a significant part of revenue or costs. As a minimum, each model should show
some percentage of the input costs and/ or revenues as being related to the US dollar and include
logic that reflects this when the US$/ local currency rate is flexed. See Appendix 3.3 for an example
where a simplistic aggregate percentage is estimated for operating costs and another for capital
costs. Complex multi-currency projects will usually require a more sophisticated analysis.

3.5.3

Commercial input
The PEG eRoom provides guidance for the major commodities that Rio Tinto produces, where there
is either a fully transparent (LME) or partially transparent (benchmark) pricing basis. Product Groups
selling more specialised commodities such as industrial minerals will have their own pricing sources.
The model should show the base price where appropriate and, where there are adjustments to this
price due to premia or discounts, these should be shown separately to allow sensitivities to be
tested. Royalties, freight and other selling costs should be input to allow the revenue to be correctly
computed.

3.5.4

Operating cost input


Each business will have to determine an appropriate level of cost detail for its model. Chapter 2
outlines the direct operating and the general & administrative costs that should typically be
considered. This guideline cannot address the wide variety of input drivers that apply across Rio
Tinto, but it is suggested that two levels of detail be considered:
Level 1 is populated with fixed costs and variable unit costs (on occasions derived from an absolute
input value divided by the driver e.g. absolute dollars/ absolute tonnes); this is a minimum
requirement and the major functional activities should be reflected in both physical and financial
terms. For example the mining function might be reflected by the following inputs:
Physical Drivers

Financial Input

Ore mined (drill/blast/load tonnes)

Variable cost ($/t)

Ore grade (%)

Feeds into recovery/ revenue calculation

Waste mined (drill/blast/load tonnes)

Variable cost ($/t)

Ore haul (tonnes)

Variable cost ($/truck hour or $/EFH {Effective Flat Haul} km)

Waste haul (tonnes)

Variable cost ($/truck hour or $/EFH km)

[None]

Fixed operating costs ($)

Level 2 should be considered when a deeper analysis of the business is required and includes
productivity and input price data; for this guidance note, this level is set as best practice. The
inputs are broken down into more fundamental drivers and costs in order to allow an aggregate of a
particular cost type to be made and the impact on the business better assessed. A typical example
would be where the total energy demand from the operation is computed and the sensitivity to
different energy price inputs assessed.

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The ore mined row in the table above, for Level 1, might then be broken down as follows:
Physical Drivers

Financial Input

Ore drill/blast/load (tonnes)

Variable cost ($/t)

Labour numbers/t

Labour price ($/hour)

Energy litres or kWh/t

Energy price ($/litre or kWh)

Ore mined (tonnes)

Supplies/maintenance ($/t)

Similar breakdowns would then be selected for waste mined and for hauling variable and fixed
costs.
If a site aggregation of labour or energy is required, each functional area of the operation would
need to have inputs divided into similar categories.

If the model does not go into this detail, it may be necessary to use a more detailed, short-term
model to check that the important value drivers are reflected in the level 1 modelling. Section 8 of
volume 2 provides guidance on cost assessment.
3.5.5

Rollover of physical and cost parameters into future years


If input data appears only to be available for a limited number of years it will be necessary to project
these inputs forward.
The modeller should firstly check whether an engineered forecast can be provided; for example it
would be dangerous in all but the simplest of conceptual studies or sensitivity analyses to create a
valuation without taking inputs from a properly sequenced and costed mine plan. If the mine cost
inputs are Level 2 as described above, the validity of flexed cases will be more relevant than a Level
1 input model which may rapidly lose accuracy.
Where input assumptions have to be projected forward because no engineered data is available, the
validity of the projection will still be influenced by the level of detail at which the inputs are modelled.
But one should bear in mind that uncertainty increases and accuracy falls with years.
Using near term cost forecasts as the basis for forward projections may pose risks as they may not
be representative of long-term costs this has been particularly true in recent years where input
costs (e.g. steel and energy) have risen far faster than inflation. It is reasonable to assume that
there is a correlation between input costs and a strong rise in commodity prices but as commodity
prices revert to a long-run level, so will (some) input costs return to long-run levels. The guidance on
this is covered in chapter 2, but the relationship between revenue prices and input costs must be
considered carefully before rolling out a long-term (flat) assumption. Where major expansions are
involved, projection of both fixed and variable costs may need review.

3.5.6

Forecasting improvements
A key issue to watch when modelling improvements is that of quantum performance improvements
which may have been included in the model. These may come from:

Capital investments: the model should split out sustaining capital (including necessary HSEC
expenditure) from development capital. The impact of the latter may be on physical, revenue or
cost performance; the model structure should allow the benefit of the improvement to be visible
in the inputs and it should show the aggregate (incremental) effect in the outputs. The sample
Excel model includes an example where the recovery at a concentrator is improved as a result of
capital investment. A drop down selection option is available on the Input cell so that the result
with and without the investment can be shown.

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3.5.7

Management improvement initiatives: some models have single line entries for unspecified (unengineered or undefined) improvements. Whilst it is always better to include defined
improvements, it is recommended that the benefit of any target improvements should be
modelled in a way that shows how much they contribute to the overall valuation. Care should be
taken that these savings are not double counted with any PEG cost saving trends (e.g. falling oil
price).

Capital cost input (including closure)


Capital costs are most often inputs from subsidiary workings/ models (e.g. mine planning software).
As noted above, sustaining operational capital, including ongoing HSEC capital, should be shown
separately from development capital. It is recommended that the model should show which major
development projects are approved and which are not.
Closure capital must be shown separately and, where appropriate, consideration may have to be
given to showing both non-cash provisions for closure and actual cash expenditures.
If variations from a central estimate case are required, a decision will be needed on how to flex
capital; flexing capital proportionately to physical or commercial sensitivities may not be appropriate
and there may be a need to utilise new hard coded entries from an engineered alternative case. In
some circumstances, simple switches might be included in the logic so that a particular capital
expenditure profile can be in or out - with a corresponding effect on physical or financial
performance. This equates to a Level 1 standard of model.
For major project submissions, as described for operating costs, a more sophisticated Level 2 model
will break down the capital inputs in more detail and may well have some simple algorithms which
allow a degree of automatic flexing as volumes or other drivers change.
As existing operating companies will have asset registers with a range of residual depreciation lives,
it is generally recommended that the forecast depreciation charges for existing assets are hard
coded inputs to the model. For ongoing sustaining and improving capital, suitably high level average
depreciation rate(s) can be used so as to allow changing capex inputs to impact depreciation
possibly in two or three categories depending on the applicable local tax regulations (care must be
taken in cases where earnings depreciation is different to tax depreciation).

3.5.8

Working capital
Inputs for major working capital would normally cover inventory, debtors and creditors. Whereas
inventory should be calculated from the physical plans and should pick up any differences between
sales tonnes and production tonnes, debtors/ creditors are typically input as an average number of
days (of revenues/ costs) so that this part of working capital flexes with prices, costs and volumes.
Working capital must be calculated in nominal terms, per section 7.5.7 of volume 2, in order to show
the value impact of holding it. The model should reflect the liquidation of working capital at the end
of asset life.

3.5.9

Historical data
The inclusion of prior year data provides a useful opportunity to compare forecasts with actual
performance. Re-organisations or major investments may render comparison difficult but, even if
only a selection of high level numbers are incorporated, this can provide a good benchmark when
considering the forward looking assumptions.
It is strongly recommended that the model shows at least two years of actuals for existing
operations. Applying the calculation logic of the model to these years will also allow a check on the
logic for much of the model. When moving the base year for the model forward (e.g. for each
planning cycle), the historical information should not be discarded.

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3.5.10

Carbon costs
Section 7.5.7 of volume 2 requires that models include an estimate of carbon costs. In all cases the
inputs and calculations of this cost should be shown separately in the model.

3.5.11

Terminal values
Excel allows multiple years laterally across the working sheets and it is recommended that the model
is populated with data for the anticipated valuable operating life of the operation. Therefore, terminal
values are not recommended.

3.5.12

Input links to other models


During construction of a model, many modellers will collect inputs from a series of external or
subsidiary (Excel) data sources and keep live links to these sources to assist with auditing the
developing design. These should provide input data only and the high level model should never
drive any calculations in the source models. When the links are broken, the high level model should
be capable of functioning in its own right.
Where the model is being used to run multiple options the alternative input methods include:

Keeping live links with regularly used source files and creating the different options in this source
file e.g. market tonnage and price mixes or varying mine plans;

Using a discreet area in the model where alternative inputs can be copy/ pasted;

Setting up an input area where several scenarios are hard coded (copy/ pasted from subsidiary
data sources) and then selected using either a switch logic, a look up function logic or a macro
(see also section 3.6.2) to run through the cases. The sample Excel model does this for
alternative mine plans and alternative price scenarios on the AltInput sheet - with drop down
selection of the requisite case being made in the yellow highlighted cells on the Input sheet.

The use of live links is generally considered the most risky approach because these can fall out of
synchronisation when models are e-mailed or worked on in isolation. This guideline favours hard
coding using copy/ paste, but BUs should make a conscious choice as to what suits their needs after
due consideration. If live links are retained, it is suggested that a specific cell colour protocol is
adapted - see example in Appendix 3.2.
It is recommended that each BU should maintain a summary map of the relationships between these
additional models. It is also suggested that if a model is being updated or further cases are being
run, the relationship between the then current version of the model and the annual central estimate
valuation should be shown on the Preface sheet.

3.6

Calculation Areas
The model should flow logically and, where practical, it is recommended that physical calculations be
kept separate from financial calculations. Working in discrete blocks with an easy to follow sequence
and an obvious concluding row for each section is recommended.
The primary objective of the calculation algorithms is to reflect the business value chain and show
how it is affected by the key business drivers. Calculations should show:

All significant physical movements including, if appropriate, any rehandling or movement to/ from
stockpiles/ stocks. Unless they are significant, physical and value calculations are not normally
necessary for all the immediate stocks in the mining process since many models will usually
assume steady state stocks with a higher level working capital calculation capturing any major
movements; e.g. for a major expansion;

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A material balance for the entire production process from ore in-situ to saleable product. The
model should not take product tonnages as hard coded numbers from a subsidiary model, but
should show the recovery and other factors used to compute them;

Sufficient calculation rows for a reviewer to understand the aggregation of physicals, revenues
and costs. Models should avoid cells with excessively long formulae which carry out complex
calculations that are hard to follow; such formulae should be broken down into steps that ensure
the logic is clear;

Workings should generally be in real money terms. Exceptions to this include:

Computation of tax, including depreciation. Tax computation is often complex and the model
designer should take expert advice from the tax department;

Computation of working capital;

Earnings statements and balance sheets (if included) as derived from the real terms cash
flow calculation;

Whether calculations are in real or nominal terms, possibly using a cell colour coding, and also
whether numbers are in mid-year, start of year or end of year terms. Similarly, the date of the
NPV calculation (start or mid-year) should be clearly identified;

The element of revenues plus operating and capital costs that are determined by different
currencies where significant;

Whether the resulting valuation is a 100% valuation or Rio Tintos share if not a 100% owned
entity.

Section 7 of volume 2 provides fuller guidance on some of these issues.


The simple working example shown in Appendix 3.3 assumes cash flows are spread evenly over the
full financial year considered. This may not be the case, particularly during project start ups. BED or
T&I can provide advice on how to model this.
3.6.1

Calculation summary
On a long calculation sheet where certain key calculations have been concluded many rows from the
top of the sheet, interim summary rows can usefully be placed near the top of the sheet. This will
help a new reader to navigate to the relevant calculation area.
An equally effective approach is to use the Group facility in Excel to close down the calculation to a
very small number of rows with just the key outputs visible. The relevant rows can then be opened
up for the reader to examine as required.

3.6.2

Sensitivities and scenario analysis


There are numerous ways of calculating and showing the model sensitivities discussed in section 8
of volume 2. Changing the hard coded inputs is the simplest, but something more sophisticated is
required if multiple alternatives are to be considered.
Data tables are a simple to use Excel function allowing two input parameters to be flexed with the
resulting outcome in a format that is ideal for graphical representation. It is worth doing a brief
manual calculation check of one cell of an array output like this; just to ensure the logic has been
correctly applied.
Where one parameter is to be flexed by a constant multiplier, it is often practical to build in the
multiplier along the row concerned and drive this from a clearly identified input cell.

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Section 8 of volume 2 provides upside and downside scenarios detailing a set of synchronised
assumptions on prices, cost and, in some cases, currency. This will require the running of scenario
analyses where multiple parameters are to be changed. This could be done using individual hard
copy/ pasted entries on multiple rows, but it is possible to automate a model so that either a switch or
an Excel lookup function can be incorporated. The sample Excel model does this with a drop down
switch on the Input page which selects from a menu of scenarios on the AltInput sheet. The
handling of currency exchange rates needs particular care, because the PEG scenario cost profiles
are derived from US$ data and therefore the local currency content of costs must be modelled when
changing exchange rates.
Simple macros can be used for scenario analysis but it is not the purpose of this document to
provide advice on macro writing. Using macros is a specialist skill and is generally discouraged,
especially for multi user business models.
The long single vertical sheet model described above allows multiple cases to be placed on adjoining
sheets with certain key drivers, to be tested for sensitivity, entered on a separate input sheet, which
drives all the cases simultaneously. The structure of such a model is shown in Appendix 3.4.
3.6.3

Range names
Many modellers use range names to facilitate spreadsheet navigation and selection of print ranges.
Range names can present problems during a models construction if cutting and pasting or logic
changes are frequent but they do aid understanding provided they are clearly defined. For
example: Price*exchange is far easier to comprehend than H7*H43.
An excessive number of names can quickly cause confusion to a new reader, it is suggested that a
limited number of names are used and are defined on the Preface sheet.

3.7

Model Outputs
Model outputs will be individual to each business unit, with the format and results presented to suit
management requirements. Once the model has been developed and tested, running it is a different
activity. The new reader or user of the model should rapidly be able to appreciate the key features of
the business from a set of well chosen outputs.
It is recommended that outputs, such as earnings statements, be presented in a way that is initially
comparable with the format and definitions used for the business monthly reporting and plan
formats. Revenues should be on the same basis (ex works, delivered, etc.), costs should be shown
so that they can be aggregated to match the same departmental functions, etc. This should then aid
the review of the model against history and current year actuals.
Depending on the business or project being evaluated, deeper analysis of the results can then be
added as part of the model outputs. As a minimum all models should show:

A real terms cash flow over the life of the asset. This should show 100% equity cash flows
before debt; with any financing impact shown separately. The output sheet in Appendix 3.3
includes columns to show, for each revenue and cost heading, the total cash over the asset life
and the discounted cash value of that row. This provides a high level view of the major
constituents of the net present value.

A nominal terms earnings statement (P&L).

Modelling of balance sheets can be difficult; particularly those including financing/ debt, non-linear
provisions etc. The advantage is that they can provide a validation of the modelling outputs. BUs
should decide on whether to include a full or partial balance sheet.

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Other outputs may include charts and tables showing the key features of the business including
identification of key drivers to support sensitivity analyses and a summary of the sources of
underlying value. Waterfall analysis is a particularly useful format for showing the value chain, as
shown in the example in Appendix 3.3. Care should be taken that graphs are not misleading, for
example with inappropriate scales, and that they deliver a meaningful message about the business.
When a new annual valuation is prepared; the output should be structured so that, by comparison
with the previous version, the major reasons for the value change are visible at least at high level.
Where the model is being used for an investment proposal; the elements of the value being added
should equally be visible.
3.7.1

Output summary
In most cases the output area is extensive and delivers a substantial amount of information.
Consideration should therefore be given to a summary output area optionally on a separate sheet.
This should present the key results only, including key sensitivities, and be suitable for printing or
pasting into a written report as a standalone summary. The summary might include the project
name, location, ownership, mined tonnes/ schedule, operating and capital costs, products, revenues,
valuation and, most importantly, the valuation date and case description.
If the model is used to run multiple scenarios, copy/ pasting this summary onto an archive sheet
(within the model or otherwise) can provide an important reference for future use. Supplementary
output sheets, with a specific set of data, may also be created for forwarding to an interested party,
who does not want or should not have the whole model.

3.7.2

The CGU template


The sample Excel model now includes an output section which mirrors the sheet named CGU2 in the
template sent out by Controllers as part of the annual planning process. This shows the raw 100%
equity basis cash flows over the life of the cash generating unit and allows selected sensitivities to be
hard copy/ pasted into this output section.
The key sensitivities to be reported in the template are taken from the PEG price guidance tables
and consist of one upside scenario and one downside scenario. The business model should be run
with the appropriate scenario inputs and the results copy/ pasted into the allocated areas of the
output sheet. Controllers review these two scenarios and will ask for further sensitivities to be run if
the carrying value of the asset is below or close to the downside scenario NPV. Additional areas in
this output section allow these further sensitivities to be recorded.
This data can then be copied directly into the full CGU template, which has been amended to match
the sample model output format.
An addition to the 2012 CGU template is a request for data on the reserves and resources
consumed in the annual plan valuation. This should be acquired from the appropriate Competent
Person and would not normally be available in the high level business model.

3.7.3

The PEG sensitivity template


The sample model also includes a modified version of the PEG Excel template which should be
included in an Investment Committee proposal. The example deals with an overall operating asset
rather than just a project; the sensitivities therefore need to be slightly different and should be
selected to suit BU requirements. The section in the sample model can be quickly modified if a
particular project is to be reported,

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4.

Model Integrity, Testing and Checklists


For a model to be useful it must be technically accurate as well as giving a suitable reflection of the
overall business. It is therefore essential that the complete model is tested, typically against the
following headings:

Meets specification giving the required outputs

Formulae are appropriate reflecting the business drivers

Numeric accuracy the quality of inputs and calculation

Robustness able to deal with all feasible scenarios or applications

Specific testing techniques will vary but a good starting point is the BMG checklist, which has been
prepared to allow assessment of models against this document.
It is recommended that, throughout the model, and particularly in the calculation area, suitable built
in integrity checks should be built which flag potential errors to the user be they in the insertion of
new input data or in the execution of the calculation logic. These may include check rows which
carry out simple maths checks to ensure that row totals derived by adding across columns give the
same totals when added vertically or that total costs divided by a suitable physical driver show
sensible unit costs etc. Output graphs will often show a discrepancy in the logic, if for example there
is an unexpected step change on the graph or simply an out of range outcome.
Where physical constraints are being tested or where values should not leave a given range, the
modeller should consider using the data validation function and/ or conditional formatting to flag
when the constraint is breached.
One check of numeric accuracy may be to compare the model outputs with the outputs from other
planning tools at the BU (e.g. the initial years of the BU plan might be generated in SAP and, if
possible, some flexed cases should be compared over these years).
There are some excellent Excel auditing tools which can be used to review the content and structure
of models. These can show where inconsistent formulae have been introduced across rows, where
hard coded entries have been input, where complex formulae have been created, etc.
It is recommended that testing of new models, or reviews of ongoing models, should be carried out
by someone other than the model creator. This will allow an impartial assessment of the
transparency and usability of the model, as well as checking its underlying performance. All major
changes to the model should be shared with this independent reviewer. BED/ T&I can assist with
the auditing of models.
It is not enough to have a model which is mathematically precise as there may be flaws in the
underlying logic used. A users experience will therefore always be called upon and, if the model is
well structured and transparent, there is a far better chance of intuitively recognising faults in the
logic when reviewing the results, particularly if extreme case inputs are being considered.
The model owner will have collected multiple inputs from different departments in the BU. After
constructing/ updating the model, it is strongly recommended that he/ she shows the relevant model
outputs to the input providers so that they can review them and comment if surprised by what the
output shows.

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5.

Model Ownership and Security


There should be a defined owner of the model, whose identity is flagged on the Preface sheet. The
model should be stored securely on an appropriate network drive with controlled access as required.
In some BUs, the number of people familiar with the model is very small. Such models should be
made as accessible as possible, while good practice demands a reasonable degree of back-up for
the primary owner of the model. Some BUs have chosen to prepare a user manual for their models;
the need for this is considered on a case by case basis.
Where sections of a model are particularly confidential/ sensitive, a cut down version using summary
data might be created; for example detailed sales contracts might be summarised to provide average
price inputs if the model is being used by a technical group who do not need this detail for their
analyses.
The use of the cell locking function should be considered for all but selected input cells, particularly if
the model is being used by people outside of the model owners department.
As shown in Appendix 3.2, at the bottom of the Preface sheet, it is recommended that a suitable
confidentiality statement be inserted in every model. The words chosen for the sample model have
been approved by the Rio Tinto Legal Department.

5.1

Change control
The sample Preface sheet in Appendix 3.2 shows an area at the bottom where users of the model
can comment on the content, logic, etc. of the model. The purpose of this is to encourage
suggestions for improvement by asking users to send comments on the model back to the primary
owner of the model. It is then the owners decision on what changes to implement, to document
them and raise the version number accordingly.
Each BU should develop a formalised procedure for change control related to their primary business
valuation models.

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Appendix 3.1: Typical Business Model Structures - Overview


TYPICAL BUSINESS MODEL STRUCTURES
Multiple Worksheet - Format A i

Multiple Worksheet - Format A ii

SHEET
PREFACE

Item
File name; contents; protocols;
change history; related models

SHEET
PREFACE

INPUTS - all financial & physical inputs

Corporate guidance (exchange,


discount etc)
Commercial assumptions; prices;
royalties; discounts; freight etc
Physicals (reserves, mine plan,
processing etc)

PHYSICALS

For scenario analysis, some modellers


will add an "alternative" input data
section. This may be at the bottom of
main Input sheet or on a separate
identically formatted sheet allowing
either copy/paste of data to the main
Input area or including a logic to read
this with a switch or a macro (not
encouraged by the BMG document)

OPERATING COSTS

Input

Input
Sustaining capital; major projects;
closure
Calculate Total capital costs

Revenues (by product and region


as appropriate); royalties
Total operating costs - real (with
nominal for earnings statement)
Fixed capital including closure

Variable & fixed cost assumptions (by


area/process) - real (with nominal for
earnings statement)

Calculate Total operating costs


FIXED CAPITAL COSTS

Physicals; production and full


material balance

Reserves; mine plan; process etc

Calculate Revenues (by product and region as


appropriate); unit prices etc

Other (tax, depreciation, debt if


appropriate etc)

CALCULATIONS

Input

Calculate Physicals; production and full material


balance
Input
Prices; exchange; royalty; volumes
COMMERCIAL (including financial
(driven from physicals or as input from
inputs need to compute revenues - such
Marketing); discounts; freight etc
as exchange etc)

Operating costs - variable & fixed


(by area/process)
Capital costs - sustaining capital;
major projects; closure

Item
File name; contents; protocols; change
history; related models

Depreciation
FINANCIAL (tax, if complex, may be on Input
a separate sheet)

Other - discount rate, tax, provisions


etc. Opening balances if appropriate

Calculate Cash flow; NPV; earnings statements,


margins etc. Debt if required.

Depreciation/tax

Sensitivities - as required

Working capital
Other - debt & funding if appropriate

Check calculations

Sensitivities - as required
Check calculations
OUTPUTS - Summary reports & graphics Key physicals

Cash flow & NPV


Earnings statement

Balance sheet - (optional)

Balance sheet - (optional)

Key performance indicators & other


analyses
Charts

Key performance indicators & other


analyses
Charts

SHEET
PREFACE

Item
As above

SUMMARY SHEET - major outputs

Can look at multiple cases


simultaneously. Compares options,
shows graphs etc
(Major) inputs used to drive all
vertical sheets simultaneously

VERTICAL SHEET 1 - Datum Case


showing entire business

Key physicals

Earnings statement

Vertical sheet model - Format B

COMMON DRIVERS

OUTPUTS - Summary reports & graphics

Cash flow & NPV

Note : As indicated in the BMG text, all models should maintain consistency in matching
columns and calendar years. i.e. 2007 is always column K for example.
This will make it easier to move a multi sheet model into the vertical format if required for a
subsequent analytical exercise (e.g. Strategic Production Planning).

Inputs as for multiple worksheet


above except for those driven from
Common Drivers sheet
Calculations as above
Outputs as above - for datum case

then add alternative scenarios on new sheets


New inputs for scenario, except for
VERTICAL SHEET 2 - Scenario 1
those driven from Common Drivers
sheet
these are identical so that outputs
always on same row

Calculations as above
Outputs as above

VERTICAL SHEET 2 - Scenario 2

New inputs for scenario, except for


those driven from Common Drivers
sheet
Calculations as above
Outputs as above

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Appendix 3.2: Example of a Model Preface (Front Sheet)


Note : This is a sample Preface sheet. Where text is shown in red italics , these are explanatory comments and not part of normal Preface
CLICK 2 ON TOP LEFT CORNER TO OPEN UP THE GROUPED ROWS IN EACH SHEET

Filename
MODEL NAME

BMG sample model Axia 12 Rev 2 - 6 Jan 2012.xlsx


NPV 8 = US$ 494M = A$ 529M
Axia Minerals LOM Business Model

Prepared in Excel 2007 but readable in earlier versions.

PEG compliant?

This version shows

yes

Central Estimate case for 2012 plan, updated for new discount rate in December 2011. It
assumes no expansion of Mine B and mine closure in 2028.

Operations covered

Update this for each significant version saved


All Axia operations in Australia including Mine A, Mine B, Process Plant and SG&A. Rio Tinto owns 80%.

CGU (s) included

Axia Australia

Model description and


purpose

The model computes Cash Flow, Earnings and Net Present Value in Australian dollars as at 1 January 2012 over the remaining life of mine

If more than one CGU included, expand and list all.

The model is built on a 100% ownership basis. Rio Tinto share is only shown after the 100% cashflow/earnings calculation
For this sample high level valuation model, the life is deliberately short and the complexity low
This is a multi tab version of a model (Format Ai in the BMG section of PEG 6)
Contact
Creator(s)
Lindsey.Henniker-Heaton@riotinto.com London
+44 7801 433202
Max.Oddie@riotinto.com
London
+44 20 7781 1979
Current Owner of model

Table of Contents
(a simple scematic poviding
an overview of the model is
outlined at the bottom of this
sheet)

Sheet
Input
(all financial & physical inputs)

Item
General economic inputs
Commercial - Prices
Commercial - Other
Physicals - Reserves
Physicals - Mine plan
Physicals - Process parameters
Operating costs - Mine
Operating costs - Process
Operating costs - SG&A
Operating costs - Carbon tax
Provisions and Closure
Capital
Other inputs

Comments
PEG and Economics inputs
Product pricing - US$/unit
Royalty, freight, terms
Starting tonnes plus additions
Full Life of Mine physicals
Recoveries etc
Fixed & variable
Fixed & variable
Fixed & variable
Per PEG
Capital cost and provisions
Sustaining and project capex
Misc income, inventory, cash

Calc

General financial - exchange/inflation

(All workings through to output)

Physical production
Revenues
Operating costs
Inventories
Capital costs & depreciation
Working capital
Tax
Other income/expenses - net
Others - unit costs, margins, integrity checks
Tables for chart data

Nominal exchange rate &


cumulative inflation
Saleable product
Converted to A$
By process
Not used in this version
Simplified depreciation calc.
Creditors, debtors, inventory
Simple flat rate example

Output
(Summary reports & graphics)
(with sensitivities as required)

Key physicals
Cash flow & NPV (with value chain)
Earnings statement
Balance sheet - (not included)
Charts
KPIs
CGU cash and sensitivities
NPV sensitivities chart
Economic contribution chart

AltInput (Alternative Data)

Core and Alternative mine plans


Central Estimate and Alternative price
scenarios

Project Evaluation Guidance v6.1 Sep 2012

Add as required
Summaries to suit outputs
Ore mined and product sales
Real terms cash flows
Nominal terms P&L
Optional
Key business graphs
Key performance indicators
Rows set to feed CGU
template for Controllers
Example using BED template
Indicative example
An optional sheet allowing
more than one mine plan
Allows selection of price &
cost scenarios per PEG 5

Page 24 of 35

Location - rows
20 -47

Preface continued with schematic summary below:


Protocols Used
Colour coding
(to stand out in B&W)

Column A
Columns B & C
Column D
Columns E & F
Columns G & H
Column I

Real terms
Negative values
Debt
Names
Abreviations
Others/links .

Hard coded input - dark blue font on pale green, choice of colour to suit John Smith (colour-blind)
A dark blue font on a bright yellow background is used to show switch drivers and cells switched
to/from Central Estimate case using AltInput sheet data
Input from another (linked) workbook - dark green font on pale green
Data from another sheet in this workbook - automatic (black) on pale yellow
All calculated cells - automatic (black) except NPVs in dark blue, no background colour
Inputs or calculations where there is doubt about the data or logic are coloured pink until the issue is
non standard inputs

Must be coloured

Examples
1234

Must be coloured

1234

Must be coloured - none used this example 1234


not used this example
1234
1234
resolved. Also used for some
1234

Reserved for notes on sources of data, logic used etc (hideable with column group function)
Descriptor of each row; major headings in B and sub-headings in C
Units where appropriate
Used to sum row data and show NPV, also to provide single value inputs or check cells
Two prior year's actual data - these are coloured with a turquoise background; hard coded inputs have a dark blue font
Always year 2012.
This model does not include quarterly or monthly computations but they could be added in a subsidiary sheet if required.
There are no hidden inputs or calculations with hard coded inputs
All inputs and calculations are in real terms except on those rows where the units cell is in italics and showing Nominal.
Shown in brackets - with red font
No debt or interest calculations are included in this model.
Names are limited to the cells as listed under "Formulas/Name Manager" on the toolbar
Consider listing any abreviations that may not be obvious to model users.
There are no linked files in this sample reference case; all inputs are hard coded.

History
01 July 2009
02 October 2009
24 November 2009

Case - standard model


Reference case - Axia 09 Ver1
Plan 2010 - Axia 10 Ver1
After HQ review - Axia 10 Ver2

02 February 2010
04 August 2010

2010 contracts - Axia 10 Ver3


Re-set for Plan 2011 - Axia 11 draft

30 September 2010
30 April 2011

Plan 2011 - Axia 11 Ver1


Updated after 1st Qtr plus re-estimate of
benefit from concentrator upgrade project Axia 11 Ver 4

Comments & Changes made


2009 plan version for update - discount rate 7%
2010 plan version for HQ
2010 plan after HQ review. Some costs reset. Delayed replacement of haul trucks.
Amended tax logic per London advice.
Updated for PEG5 guidance incl. Scenario analysis. Added CGU format to Output
Inserted actual 2010 contracts now finalised. See Input rows for source.
Start year 2011. Actual for 2009 inserted.

NPV - A$M
385
395
420

430
450

2011 plan version for HQ. Reforecast tonnes and costs after 2Q result known. Better
prices for plan 2011
Reforecast tonnes and costs after 1Q result known. Better prices
Recovery benefit increased to 8%

490
502

16 October 2011

Plan 2012 - Axia 12 Ver1 - 16Oct11

2012 plan version for HQ. Reforecast tonnes and costs after 2Q result known. Better
prices for plan 2012. Strong A$ exchange rate.

552

21 December 2011

Plan 2012 - Axia 12 Rev 1 - 21Dec11

2012 plan version for HQ but updated to reflect revised PEG discount rate of 8%

529

Quick evaluation of increase to 20Mt/y total ore rate.

450

(called work ing model for this example)

Related model versions


23 October 2010

Case - special studies


Expansion study - Axia 25Mt Exp Ver1

Other related models


The following other BU models provide significant feed to this model, either directly linked or simply hard coded.
(consider a diagrammatic map
of these other related models
if appropriate)

Source files - linked


Source files - not linked

NONE
Marketplan.xls
MineplanAB.xls
Processplan.xls
Financecosts - SAP.xls

Comments & Suggestions

This area is reserved for users of the model to make comments on the model - suggestions for improvement, errors found or queries on the logic. If this
applies, please mark up and colour highlight the applicable rows, summarise the issue below here and send back to the Current Owner of the model as
indicated above.
Comments here and in column A of relevant sheet (with colour highlight)

CONFIDENTIAL
This document contains confidential information belonging to members of the Rio Tinto Group of companies. No further copies may be made nor may it be disclosed to any third parties
without the prior consent of the Current Owner of the Model as shown above. If consent is given, disclosures to third parties must only be made pursuant to an appropriate non-disclosure
agreement.

Select mine plan used in


calculation in Cell D44 in
the sheet called 'Input'
Datum

General economic inputs

AltMin

Mine planning
software

Mine plan
s witch

AltInput (mine)

General financial

Site operations Physicals

Physical production

Key physicals

Commercial inputs

Revenue

Cash flow

Operating cost inputs

Cash operating costs

P&L

Provision & closure

Inventories

Balance sheet - not incl.

Capital costs

Fixed capital

Sensitivities

Other

Working capital

Key performance
indicators

Tax

Graphs & tables

Similarly link these to the economic and commercial


inputs

Other income

AltInput (scenarios)

Input

Calc

BMG sample model - December 2011 - Final

Project Evaluation Guidance v6.1 Sep 2012

Page 25 of 35

Output

Appendix 3.3: Examples from a Simple Multi-Sheet Model


The electronic version of this sample model is available on the BED portal, (zoom in on page for
greater clarity of this extract). The columns shown are columns A to N.
The extracts below are taken from the Input sheet and show the sources of data in column A; this
can be hidden using the Data/ Group facility in Excel so it is only visible when required. Each input
row should have a clearly identified source with appropriate authority. NPV result is shown top left of
every sheet so that the effect of changes are immediately visible. Scenario case is selected by drop
down in the cell.
Sources/Comments
Widen column A to read

Filename

BMG sample model Axia 12 Rev 2 - 6 Jan 2012.xlsx

Operating years driven from


NPV 8 = US$ 494M
Start Year 2011 or 2012
Choice of Start year but then
Comments in column A
Start Year
must change all Total
columns to sum from one year
Valuation date
different. Changing valuation
General
Economic
Inputs
date requires change to NPV
formulae also
Head Office Exchange/Price Assumptions

Commercial Inputs

As per existing licences


From Axia Transport, P
Smith, 4 July 2011.
Axia Finance, R Smith, 23
June 2011

2011

2012

2013

2014

2015

F'cast

Long term
0.93
0.93

0.80
0.80

0.99
0.99

%
%
select drop down

Discount Rate per HQ

Updated Oct 2011, M Smith. If


appropriate, customise these
rows to suit TC/RC, %
payable etc
Showing a couple of flex
factors to allow quick price
sensitivity
Apply to all costs except

2010
Actual

SELECTED SCENARIO

30.0%

8.0% Compound multiplier

30.0%

Central estimate

2016
5

Hard code inputs - blue font on green

Units
A$
US$/A$
US$/A$

US $ inflation rate
Australian $ inflation rate
Tax Rate

Operating Years

2012
01-Jan

Local currency
Exchange Rate - Central estimate
Exchange Rate - for case chosen

Sourced from Rio Tinto


Economics - plan guidelines
dated 1 August 2011 but then
updated in Oct 2011. Entered
on AltInput sheet. Need
second row to allow Scenario
cases to cost flex and
RTHQ tax dept 6Jul11
PEG 6 guideline, updated tp
8% in December 2011

carbon.

= A$ 529M

Alt inputs - blue font on yellow

0.95
0.95

0.94
0.94

0.93
0.93

0.93
0.93

0.93
0.93

0.00%
0.00%

1.90%
2.80%

2.20%
2.80%

2.40%
2.80%

2.60%
2.80%

30.0%

30.0%

30.0%

30.0%

30.0%

0.962

0.891

0.825

0.764

0.707

Read from AltInput sheet

Prices Benchmark price - Product 1

US$/t

flex

0.0%

255.0

280.0

494.0

494.0

494.0

468.0

448.5

Benchmark price - Product 2


Payable content - Product 1
Payable content - Product 2

US$/t
% CIF
% CIF

flex

0.0%

400.0
95.0%
80.0%

430.0
95.0%
80.0%

455.0
95.0%
80.0%

455.0
95.0%
80.0%

455.0
95.0%
80.0%

429.0
95.0%
80.0%

409.5
95.0%
80.0%

Cost adjustment Scenario cost adjustment

% total costs

Other Royalties
Freight to point of sale - CIF Product 1
Freight to point of sale - CIF Product 2
Creditor Terms
Debtor Terms

% CIF
A$/t
A$/t
days
days

(apply after US$ adjustment - see Calc row 80)


3.0%
20.0
26.0
40
60

nb currency
nb currency

3.0%
20.0
28.0
40
60

0.0%

0.0%

0.0%

0.0%

0.0%

3.0%
20.0
30.0
40
60

3.0%
20.0
30.0
40
60

3.0%
20.0
30.0
40
60

3.0%
20.0
30.0
40
60

3.0%
20.0
30.0
40
60

The model has a full material balance and shows consumption of reserves per the engineered mine
plan. The mine plan physicals can be switched in this simplistic model, but appropriate changes to
capital and operating costs may also be needed.
Site Operations - Physicals
Reserve estimate from L
Smith, Competent Person, 25
June 2011

check rows + column F


checks all
ore is used
Reserve
estimate
from L
Smith, Competent Person, 25
June 2011

check rows

Reserves Pit A ore in situ & stockpile

Mt

Grade - Metal 1
Contained metal 1 remaining
Grade - Metal 2
Contained metal 2 remaining
Pit B ore in situ & stockpile
Grade - Metal 1
Contained metal 1 remaining
Grade - Metal 2
Contained metal 2 remaining

%
Mt
%
Mt
Mt

Check close
(0.0)

Year start
126.39

0.0
0.0
0.0

%
Mt
%
Mt

0.0
0.0

115.94

106.32

96.07

85.27

74.74

1.06%
1.33
0.78%
0.99
126.21

1.05%
1.22
0.78%
0.90
120.36

1.05%
1.12
0.78%
0.83
113.43

1.05%
1.01
0.78%
0.75
107.21

1.04%
0.89
0.78%
0.66
102.30

1.03%
0.77
0.77%
0.58
96.59

0.65%
0.82
1.00%
1.26

0.64%
0.77
0.99%
1.19

0.63%
0.72
0.98%
1.12

0.63%
0.67
0.98%
1.05

0.62%
0.63
0.97%
0.99

0.61%
0.59
0.96%
0.93

10.25
1.08%
0.78%
36.98
5.12
13.87
6.22
0.77%
1.12%
12.45
3.11
4.67
16.47
65.89

10.80
1.12%
0.81%
39.19
5.40
14.70
4.91
0.77%
1.12%
9.82
2.45
3.68
15.71
64.72

10.53
1.12%
0.81%
37.67
5.27
14.13
5.71
0.77%
1.12%
21.76
2.86
8.16
16.24
75.68

10.48
1.05%
0.76%
27.38
5.24
10.27
5.33
0.76%
1.11%
13.32
2.66
5.00
15.80
56.51

Total
Switch allows an alternative
input data set to be pasted
and selected from the
supplementary sheet AltInput
Mine plan XX from G Smith,
26 June 11

SELECTED MINE PLAN


Mine Plan Pit A ore mined
Grade - Metal 1
Grade - Metal 2
Waste
Truck hours - ore mining
Truck hours - waste mining
Pit B ore mined
Grade - Metal 1
Grade - Metal 2
Waste
Truck hours
Truck hours
Total ore mined
Total material mined

Project Evaluation Guidance v6.1 Sep 2012

Core
Mt
%
%
Mt
khrs
khrs
Mt
%
%
Mt
khrs
khrs
Mt
Mt

select drop down

126.4
1.05%
0.78%
567.5
62.7
212.8
126.2
0.64%
0.99%
358.6
63.1
134.5
252.6
1178.7

Read from AltInput sheet

10.50
1.07%
0.78%
39.00
4.50
13.75
3.85
0.77%
1.12%
10.00
2.50
4.00
14.35
63.35

10.51
1.09%
0.79%
38.00
5.00
14.25
4.85
0.82%
1.19%
11.00
2.63
4.25
15.36
64.36

10.45
1.08%
0.78%
41.79
5.22
15.67
5.85
0.80%
1.16%
11.70
2.92
4.39
16.29
69.78

9.62
1.06%
0.77%
46.50
4.81
17.44
6.93
0.77%
1.12%
13.87
3.47
5.20
16.56
76.92

Page 26 of 35

Variable cost inputs are selected to match major drivers. This shows Level 1 detail (see section
3.5.4).
Operating Cost Inputs - all in Australian $
From G Smith, 26 June 11 but
revised 10 Sept 2011

Mine Variable Costs Pit A Drill/Blast/Load


Pit A Ore haul cost
Pit A Waste haul cost
Pit A Rehandling stockpile
Pit B Drill/Blast/Load
Pit B Ore haul cost
Pit B Waste haul cost
Pit B Rehandling stockpile

A$/t material moved


A$/hr - ore haul
A$/hr - waste haul
A$/t to/from stock
A$/t material moved
A$/hr - ore haul
A$/hr - waste haul
A$/t to/from stock

Mine Fixed Costs Mining department overhead etc

0.60
0.65
0.65
0.65
0.63
200.0
200.0
180.0
170.0
170.0
200.0
200.0
180.0
170.0
170.0
This model has no stockpile activity - add rows if required
0.70
0.75
0.72
0.70
0.70
200.0
200.0
180.0
170.0
170.0
200.0
200.0
180.0
170.0
170.0
This model has no stockpile activity - add rows if required

0.63
170.0
170.0

0.63
170.00
170.00

0.63
170.00
170.00

0.70
170.0
170.0

0.70
170.00
170.00

0.70
170.00
170.00

A$M

15.00

15.00

15.00

14.50

14.00

13.50

13.50

13.50

A$/t ore fed


A$/t product
A$/t product

4.00
7.50
14.00

4.00
7.50
15.00

4.00
8.00
15.00

4.00
8.00
15.00

3.80
8.00
15.00

3.50
8.00
15.00

3.50
8.00
15.00

3.50
8.00
15.00

A$M

18.00

18.00

18.00

17.50

17.20

17.00

17.00

17.00

A$/t ore mined


A$M

1.00
14.00

1.00
14.00

1.00
13.00

1.00
12.50

1.00
12.50

1.00
12.50

1.00
12.50

1.00
12.50

15%

15%

15%

15%

15%

15%

0.19
19.00

0.19
19.00

0.19
19.00

0.19
27.00

0.20
27.00

0.15
27.00

From H Smith 4 July 2011


different finishing circuits
different finishing circuits

Process Variable Costs Input driven


Output driven - Metal 1
Output driven - Metal 2
Process Fixed Costs Process department overhead etc
SG&A Other variable costs, overheads etc
Other fixed costs, overheads etc

Simple estimate - refine as


needed if percentage content
significantly changes through
life
of mine.
usuallyPlans
be
From
Mine +Will
P:rocess
june
2011
RT Economics
guideline
Not used here, but to allow
simple opcost sensitivity, this
model could be adjusted so

Percentage US$ content All operating costs

Carbon tax inputs Tonnes of CO2 from operations plan


Anticipated unit charge
Flex factor on operating costs

Mt
US$/t CO2
flex

0.0%

Capital inputs can be broken down into considerably more detail; this just shows the summary rows.
Sustaining capital is best separated from significant development (project) capital.
Capital Cost Inputs
two rates - allowed in year of
purchase

Depreciation method

Plant and Equipment


Property and Buildings

Straight yrs
Straight yrs

5
10

Axia Finance 23 June 2011 - Existing Asset Register


but existing charge for Plant &
Book value at start of year Plant and Equipment
Equipment awaiting internal
Property and Buildings
review

20
35

A$M
A$M
A$M - nominal
Depreciation charge Existing Plant and Equipment
Existing Property and Buildings
A$M - nominal
Closing balance these assets
A$M
assume tax allowance depn.
New Capital Expenditure - Summary
same as P&L rate
From mine and process plan - Plant & Equipment
Sustaining - mine (driver material mined)
A$M
G Smith & H Smith as above.
Sustaining - process (driver ore fed)
A$M
Sustaining - G&A (driver ore fed)
A$M
Sustaining - spare
A$M
Any cash flows from projects
already approved should be
shown separately. The logic,
for simplicity, only depreciates
Identify new projects &
benefit. This example has a
switch cell in column F to
show effect as a sensitivity,
other benefit logic can be

Major Projects - P&E


approved
Major Projects - P&E to be
approved

Axia Finance 23 June 2011 but existing charge for Plant &
Equipment awaiting internal
Property and Buildings
review
From G Smith, 26 June 11

Carry over cash flow from these

20%
10%
check
OK
OK

Total
82.6
39.8
13.3
0.0

$/unit driver
0.08
0.18
0.06

8.00
5.00

8.00
5.00
55.00

6.00
5.00
44.00

5.00
5.00
34.00

4.00
5.00
25.00

3.00
5.00
17.00

2.00
4.00
11.00

0.00
3.00
8.00

5.00
2.60
0.80

6.00
2.90
0.80

5.58
2.93
0.98

6.15
2.98
0.99

5.27
2.96
0.99

5.18
2.83
0.94

6.05
2.92
0.97

4.52
2.84
0.95

2.00

2.00

0.0%

0.0%

0.0%

0.0%

0.0%

40.00
0.0%

A$M

4.0

A$M
%
A$M

40.0

A$M

179.6

8.40

9.70

11.49

12.13

9.22

8.95

9.95

48.31

Sustaining
Projects - approved
Projects - to be approved
Sub total Property and Buildings
Note : Closure Capex entered separately

A$M
A$M
A$M
A$M

15.0
0.0
10.0
25.0

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

Total Capital pre adjustment

A$M

204.6

9.40

10.70

12.49

13.13

10.22

9.95

10.95

49.31

(assumes benefit already included above)

Upgrade concentrator - both metals


Benefit - Recoveries increased by
A.N. Other project
Benefit - as specified .
Sub total Plant & Equipment

select drop down

yes
8.0%

0.0

The extracts below here are taken from the Calculation sheet. Good sequencing and clarity of logic
should make the calculations accessible to a new reader.
Column A can be used to explain any complex logic used.
Physical Production
assumes no stockpiling

This can be switched on or off


on Input sheet

Mine Summary Pit A ore production = feed to process


Pit B ore production = feed to process
Total waste
Strip Ratio

Process calculation Upgrade concentrator benefit


Metal 1
Contained Metal 1 recovered from Pit A ore
Contained Metal 1 recovered from Pit B ore
Total contained Metal 1 in Product 1
Grade of Metal 1 in final Product 1
Total Product 1 tonnes
Metal 2
Contained Metal 2 recovered from Pit A ore
Contained Metal 2 recovered from Pit B ore
Total contained Metal 2 in Product 2
Grade of Metal 2 in final Product 2
Total Product 2 tonnes

Project Evaluation Guidance v6.1 Sep 2012

Mt
Mt
Mt

Total
126.4
126.2
926.1
58.8

10.50
3.85
49.00
3.42

10.51
4.85
49.00
3.19

10.45
5.85
53.48
3.28

9.62
6.93
60.36
3.65

10.25
6.22
49.43
3.00

0.0%

0.0%

0.0%

10.80
4.91
49.01
3.12

0.0%

10.53
5.71
59.44
3.66

10.48
5.33
40.70
2.58

0.0%

0.0%

yes

kt
kt
kt
%
kt

1,246.3
727.7
1,974.0
30.0%
6,580.1

101.1
24.9
126.0
30.0%
420.0

103.1
33.4
136.5
30.0%
455.0

101.3
39.8
141.0
30.0%
470.1

92.1
45.4
137.4
30.0%
458.1

99.2
40.7
139.9
30.0%
466.5

108.7
32.1
140.8
30.0%
469.3

106.1
37.4
143.5
30.0%
478.2

99.0
34.4
133.4
30.0%
444.7

kt
kt
kt
%
kt

903.9
1,066.6
1,970.5
40.0%
4,926.2

71.9
34.5
106.4
40.0%
266.0

73.3
46.3
119.6
40.0%
298.9

72.0
54.4
126.4
40.0%
316.1

65.5
62.1
127.6
40.0%
319.0

70.6
55.8
126.3
40.0%
315.8

77.3
44.0
121.2
40.0%
303.1

75.4
51.2
126.6
40.0%
316.5

70.4
47.1
117.5
40.0%
293.8

Page 27 of 35

This example is an A$ model but has revenues in US$. If selling prices are multi currency, this
should be reflected in the modelling.
Revenue

Total

Model NPV requires A$


workings as well as US$

@ NPV 8

Product 1 - selling price, payable CIF

US$/t

425

242

266

469

469

469

445

426

Product 2 - selling price, payable CIF

US$/t

325

320

344

364

364

364

343

328

408
312

Product 1 - Revenue CIF

US$M

2,794

1,701

101.75

121.03

220.61

215.01

218.92

208.64

203.76

181.25

Product 2 - Revenue CIF


Total

US$M
US$M
US$M

1,601
4,395

948
2,649

85.10
186.85

102.83
223.86

115.07
335.68

116.11
331.11

114.94
333.86

104.03
312.67

103.69
307.45

91.67
272.92

Royalty
Freight and Packaging
Net Revenue
Net Revenue

US$M
US$M
US$M
A$M

(132)
(260)
4,003
4,297

(79)
(153)
2,416
2,591

(5.61)
(12.25)
168.99
211.24

(6.72)
(13.98)
203.17
205.22

(10.07)
(17.86)
307.75
325.50

(9.93)
(17.52)
303.66
324.64

(10.02)
(17.49)
306.35
329.41

(9.38)
(17.19)
286.10
307.63

(9.22)
(17.73)
280.50
301.62

(8.19)
(16.47)
248.27
266.95

This shows Level 1 cost calculations. The assumed US dollar element of costs is applied to the total
costs except for those, such as carbon costs where 100% US is assumed. The effect of the scenario
cost adjustment is computed after the exchange adjustment.
Cash Operating Costs
Mine Costs Pit A Drill/Blast/Load
Pit A Ore haul cost
Pit A Waste haul cost
Pit A Rehandling stockpile
Pit B Drill/Blast/Load
Pit B Ore haul cost
Pit B Waste haul cost
Pit B Rehandling stockpile
Sub total - Variable Costs
Fixed Costs
Total Mining Costs
Mine Unit Costs Cost per tonne of ore
Cost per tonne of material moved
Process Costs Input driven - variable
Output driven - variable
Fixed Costs
Total Process Costs
Process Unit Costs Cost per tonne of feed
Cost per tonne of product (saleable)
SG&A Variable Costs
Fixed Costs
Total SG&A
This row computes impact of
flexes to exchange rate from
the central estimate case before applying the scenario
factor to the new total opex
SCA is applied to total costs
excl. carbon

A$M
A$M
A$M
A$M
A$M
A$M
A$M
A$M

Total
@ NPV 8
(439)
(260)
(11)
(7)
(36)
(21)
0
0
(340)
(183)
(11)
(6)
(23)
(12)
0
0

(31.53)
(1.00)
(2.85)

(33.95)
(0.94)
(2.82)

(36.48)
(0.82)
(2.96)

(29.75)
(0.87)
(2.36)

(31.50)
(0.92)
(2.50)

(30.37)
(0.90)
(2.40)

(23.85)
(0.89)
(1.75)

(9.69)
(0.50)
(0.80)

(11.89)
(0.53)
(0.85)

(12.63)
(0.53)
(0.79)

(14.56)
(0.59)
(0.88)

(13.07)
(0.53)
(0.79)

(10.31)
(0.42)
(0.63)

(19.23)
(0.49)
(1.39)

(13.06)
(0.45)
(0.85)

(44.34)
(15.00)
(59.34)

(48.64)
(15.00)
(63.64)

(51.66)
(15.00)
(66.66)

(56.29)
(14.50)
(70.79)

(47.37)
(14.00)
(61.37)

(46.26)
(13.50)
(59.76)

(54.77)
(13.50)
(68.27)

(40.84)
(13.50)
(54.34)

(4.14)
(0.94)

(4.14)
(0.99)

(4.09)
(0.96)

(4.28)
(0.92)

(3.73)
(0.93)

(3.80)
(0.92)

(4.20)
(0.90)

(3.44)
(0.96)

(57.39)
(6.87)
(18.00)
(82.26)

(61.43)
(7.90)
(18.00)
(87.33)

(65.18)
(8.50)
(18.00)
(91.68)

(66.23)
(8.45)
(17.50)
(92.18)

(62.58)
(8.47)
(17.20)
(88.25)

(54.97)
(8.30)
(17.00)
(80.28)

(56.86)
(8.57)
(17.00)
(82.43)

(55.32)
(7.97)
(17.00)
(80.28)

(5.73)
(119.93)

(5.69)
(115.83)

(5.63)
(116.61)

(5.57)
(118.61)

(5.36)
(112.81)

(5.11)
(103.93)

(5.07)
(103.72)

(5.08)
(108.70)

A$M
A$M
A$M

(860)
(219)
(1,079)

A$/t ore
A$/t rock

(4.27)
(0.92)

A$M
A$M
A$M
A$M

(905)
(127)
(274)
(1,306)

A$/t
A$/t

(5.18)
(113.99)

A$M
A$M
A$M

(253)
(201)
(453)

(146)
(115)
(262)

(14.35)
(14.00)
(28.35)

(15.36)
(14.00)
(29.36)

(16.29)
(13.00)
(29.29)

(16.56)
(12.50)
(29.06)

(16.47)
(12.50)
(28.97)

(15.71)
(12.50)
(28.21)

(16.24)
(12.50)
(28.74)

(15.80)
(12.50)
(28.30)

A$M
A$M

(2,838)
(426)

(1,643)
(246)

(169.96)

(180.33)

(187.64)
(28.15)

(192.02)
(28.80)

(178.59)
(26.79)

(168.24)
(25.24)

(179.45)
(26.92)

(162.93)
(24.44)

A$M
A$M
A$M

0
(1,643)
0
(49)

0.00
(187.64)
0.00
(3.77)

0.00
(192.02)
0.00
(3.81)

0.00
(178.59)
0.00
(3.83)

0.00
(168.24)
0.00
(5.44)

0.00
(179.45)
0.00
(5.81)

0.00
(162.93)
0.00
(4.35)

(1,691)

(191.40)

(195.83)

(182.41)

(173.69)

(185.26)

(167.28)

Total Cash Operating Costs - excl. carbon cost


US$ related share of total costs - in real A$
at central estimate case exchange rates
(if flexing exchange) Impact on total operating costs
Total Cash Operating Costs after exchange flex- excl. carbon cost
Scenario cost adjustment
Carbon Tax Total charge

A$M

0
(2,838)
0
(90)

Net operating cash costs

A$M

(2,928)

Project Evaluation Guidance v6.1 Sep 2012

(29.70)
(0.90)
(2.75)

(490)
(127)
(617)

(532)
(74)
(158)
(764)

(169.96)

(180.33)

Page 28 of 35

Simple examples of depreciation and tax calculations are shown below these can be very much
more complicated for some BUs and appropriate detail to reflect the cash flow implications should be
included.
Fixed Capital - new expenditure & depreciation
You may want to indicate that
the logic used has been
approved by a particular
manager or other BU function
Read from Input, apply % to
A$
Thiscosts
computes the change in
capex when flexing for a

Fixed capital Sustaining capital


Project capital
by category for depreciation Real terms cash - Plant & Equipment
Real terms cash - Buildings
Total capital investment pre flex
US$ related share of total costs - in real A$
at central estimate case exchange rates
(if flexing exchange) Impact on total capital costs
Scenario cost adjustment

Logic reads year in column C


and applies annual charges
which are then summed at
bottom of table

This logic lays out each year


and is reasonably easy to
follow. BED also have a
complex formula which will do
the same in many less rows.
Available on request

(10.70)
0.00
(9.70)
(1.00)
(10.70)

(10.49)
(2.00)
(11.49)
(1.00)
(12.49)
(5.62)

(11.13)
(2.00)
(12.13)
(1.00)
(13.13)
(5.91)

(10.22)
0.00
(9.22)
(1.00)
(10.22)
(4.60)

(9.95)
0.00
(8.95)
(1.00)
(9.95)
(4.48)

(10.95)
0.00
(9.95)
(1.00)
(10.95)
(4.93)

(9.31)
(40.00)
(48.31)
(1.00)
(49.31)
(22.19)

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

0
0

A$M

(205)

(128)

(12.49)

(13.13)

(10.22)

(9.95)

(10.95)

(49.31)

Nominal terms cash invested - for depreciationA$M - nominal


(244)
sum check
Simplified Depreciation Capital Expenditure - Plant & Equip. nominal A$M - nominal
(213)
Capital Expenditure - Buildings. nominal
A$M - nominal
(30)
Annual Depreciation Charge - Plant & Equip A$M - nominal
Annual Depreciation Charge - Buildings
A$M - nominal
Year
1
A$M - nominal
2
A$M - nominal
3
A$M - nominal
4
A$M - nominal
5
A$M - nominal
6
A$M - nominal
7
A$M - nominal
8
A$M - nominal
9
A$M - nominal
10
A$M - nominal

(148)

(12.49)

(13.49)

(10.80)

(10.81)

(12.23)

(56.62)

(130)
(18)

(11.49)
(1.00)
(2.30)
(0.10)

(12.47)
(1.03)
(2.49)
(0.10)

(9.75)
(1.06)
(1.95)
(0.11)

(9.72)
(1.09)
(1.94)
(0.11)

(11.12)
(1.12)
(2.22)
(0.11)

(55.47)
(1.15)
(11.09)
(0.11)

(2.40)
(2.40)
(2.40)
(2.40)
(2.40)
(0.10)
(0.10)
(0.10)
(0.10)
(0.10)

(2.60)
(2.60)
(2.60)
(2.60)
(2.60)
(0.10)
(0.10)
(0.10)
(0.10)
(0.10)

(2.06)
(2.06)
(2.06)
(2.06)
(2.06)
(0.11)
(0.11)
(0.11)
(0.11)
(0.11)

(2.05)
(2.05)
(2.05)
(2.05)
(2.05)
(0.11)
(0.11)
(0.11)
(0.11)
(0.11)

(2.33)
(2.33)
(2.33)
(2.33)
(2.33)
(0.11)
(0.11)
(0.11)
(0.11)
(0.11)

(11.21)
(11.21)
(11.21)
(11.21)
(11.21)
(0.11)
(0.11)
(0.11)
(0.11)
(0.11)

(2.40)
0.00
(2.40)
(11.00)

(4.99)
0.00
(4.99)
(10.00)

(7.05)
0.00
(7.05)
(9.00)

(9.10)
0.00
(9.10)
(8.00)

(11.44)
0.00
(11.44)
(6.00)

(20.35)
0.00
(20.35)
(3.00)

0.00

0.00

0.00

0.00

0.00

0.00

Annual Charge
Write off post closure years
Total depreciation -new capital only
Carried forward depreciation - old capital
Closure cash after scenario adjustment - net
of asset sales

A$M - nominal
A$M - nominal
A$M - nominal
A$M - nominal

A$M

(9.40)

(10.70)

(244)
(244)
(55)

(13.00)

(13.00)

(90)

Working Capital - at end of each year


Working capital Creditors
Debtors
Other inventory/stores etc - end of year
Total - real terms

would normally have fuller


inventory calc

Nominal terms
Change in working capital - nominal
Change in working capital - real

back into real terms for NPV

A$M
A$M
A$M
A$M
A$M - nominal
A$M - nominal

Tax
A simple flat rate calculation
excluding debt etc.
Customise for BU concerned
with advise from tax
department

(9.40)
0.00
(8.40)
(1.00)
(9.40)

0
0

logic to ensure no residual


depreciation remains

simplified example, expand as


needed for business
derived in real terms;
converted to nominal for
calculation of annual change in
WC
flexes with process tonnes;

LOM
LOM
Total
@ NPV 8
(151)
(92)
(54)
(36)
(180)
(113)
(25)
(15)
(205)
(128)
(92)
(57)

A$M
A$M

Net capital cash costs

Shows two categories of


capex - can increase to more
if needed

A$M
A$M
A$M
A$M
A$M
A$M

(Real terms - simple tax calc) Net Revenue


Net Cash costs
Operating Cash Flow
Depreciation carried forward
Depreciation - new purchases
Closure provisions
Taxable Profit
Tax Rate
Tax on Operations
Tax Payable
Tax Loss carry forward

A$M
A$M
A$M
A$M
A$M
A$M
A$M
%
A$M
A$M
A$M

18.63
(34.72)
10.00
(6.10)

19.76
(33.73)
10.00
(3.97)

20.98
(53.51)
10.43
(22.10)

21.46
(53.37)
10.31
(21.60)

19.99
(54.15)
10.38
(23.78)

19.03
(50.57)
10.24
(21.29)

20.30
(49.58)
10.54
(18.74)

18.33
(43.88)
9.80
(15.75)

(6.10)
0.00

(3.97)
2.13
2.13

(22.10)
(18.13)
(18.13)

(22.20)
(0.10)
(0.10)

(25.13)
(2.93)
(2.78)

(23.13)
2.00
1.84

(20.93)
2.20
1.97

(18.09)
2.84
2.47

211.2
(170.0)
41.29
(13.00)

205.2
(180.3)
24.89
(13.00)

0.00
28.29
30.0%
(8.49)
(8.49)
0.00

0.00
11.89
30.0%
(3.57)
(3.57)
0.00

325.5
(191.4)
134.10
(11.00)
(2.40)
(5.80)
114.90
30.0%
(34.47)
(34.47)
0.00

324.6
(195.8)
128.81
(9.73)
(4.86)
(5.80)
108.42
30.0%
(32.53)
(32.53)
0.00

329.4
(182.4)
147.00
(8.52)
(6.67)
(5.80)
126.01
30.0%
(37.80)
(37.80)
0.00

307.6
(173.7)
133.95
(7.36)
(8.38)
(5.80)
112.41
30.0%
(33.72)
(33.72)
0.00

301.6
(185.3)
116.36
(5.37)
(10.24)
(5.80)
94.95
30.0%
(28.48)
(28.48)
0.00

267.0
(167.3)
99.67
(2.61)
(17.72)
(5.80)
73.53
30.0%
(22.06)
(22.06)
0.00

3.97

Total
@ NPV 8
4,297
2,591
(2,928)
(1,691)
1,369
900
(51)
(41)
(193)
(103)
(88)
(52)
1,037
704
(311)
(311)

(211)
(211)

This simplified model does not include a margin analysis but this might typically be added after
derivation of revenues and costs.
Integrity checks can be added either through the calculation area or grouped together as allowed for
in the above extract. Select these to check maths or capacity or whatever is appropriate for the
business.
Also in the sample model, an area for customised chart data has been included below the main
calculations. These can be laid out and formatted to suit the chart style - with links to the source
calculation so the chart changes as the model is flexed.

Project Evaluation Guidance v6.1 Sep 2012

Page 29 of 35

The extracts below are taken from the Output sheet. The summary cash flow table, in real terms,
shows, in column F, the life of mine contribution to NPV from each revenue and cost row and it is
recommended that this should always be included. As noted in Chapter 2, NPV computations for
submissions should primarily be in US$; the sample model also shows the local currency NPV.
Separate tables showing summaries of key outputs can then be prepared to provide high level
information for users/ readers.
Sources/Comments
Widen column A to read

Filename

BMG sample model Axia 12 Rev 1 - 21Dec11.xlsx

Years driven from Input sheet

NPV 8 A$ 529M
Comments in column A

Start Year
Valuation date

SELECTED SCENARIO

Operating Years
2012
01-Jan

2011

2012

2013

2014

2015

2016

2017

F'cast

LOM

Central estimate

Output - key physicals


Mt
Mt
Mt
Gross kt
Gross kt
Gross kt

Total
126
126
253
6,580
4,926
11,506

US$M
US$M
US$M
US$M
US$M
US$M

LOM
Total
2,794
1,601
4,395
(132)
(260)
4,003

Mining
Processing
SG&A
Exchange and Scenario cost adjustments
Carbon tax
Net Cost

US$M
US$M
US$M
US$M
US$M
US$M

(1,005)
(1,216)
(422)
0
(84)
(2,727)

OPERATING SURPLUS

US$M

1,276

839

Sustaining capital
Project capital
Exchange and Scenario cost adjustments
Net Closure capital incl adjustment

US$M
US$M
US$M
US$M
US$M

(140)
(50)
0
(84)
(274)

(85)
(33)
0
(24)
(142)

US$M
US$M
US$M

(2)
(290)
709

(11)
(197)
489

US$M
US$M

5
714

5
494

Ore mined - Pit A


Ore mined - Pit B
Total ore mined
Sales - Product 1
Sales - Product 2
Total sales

2010
Actual

Grade
11
4
14
420
266
686

11
5
15
455
299
754

10
6
16
470
316
786

10
7
17
458
319
777

10
6
16
466
316
782

11
5
16
469
303
772

11
6
16
478
317
795

10
5
16
445
294
739

LOM
@ NPV 8
1,701
948
2,649
(79)
(153)
2,416

101.7
85.1
186.9
(5.6)
(12.3)
169.0

121.0
102.8
223.9
(6.7)
(14.0)
203.2

220.6
115.1
335.7
(10.1)
(17.9)
307.8

215.0
116.1
331.1
(9.9)
(17.5)
303.7

218.9
114.9
333.9
(10.0)
(17.5)
306.4

208.6
104.0
312.7
(9.4)
(17.2)
286.1

203.8
103.7
307.5
(9.2)
(17.7)
280.5

181.3
91.7
272.9
(8.2)
(16.5)
248.3

(575)
(712)
(244)
0
(46)
(1,577)

(47.5)
(65.8)
(22.7)
0.0
0.0
(136.0)

(63.0)
(86.5)
(29.1)
0.0
0.0
(178.5)

(63.0)
(86.7)
(27.7)
0.0
(3.6)
(181.0)

(66.2)
(86.2)
(27.2)
0.0
(3.6)
(183.2)

(57.1)
(82.1)
(26.9)
0.0
(3.6)
(169.6)

(55.6)
(74.7)
(26.2)
0.0
(5.1)
(161.5)

(63.5)
(76.7)
(26.7)
0.0
(5.4)
(172.3)

(50.5)
(74.7)
(26.3)
0.0
(4.1)
(155.6)

33.0

24.6

126.8

120.5

136.7

124.6

108.2

92.7

(7.5)
0.0
0.0
0.0
(7.5)

(10.6)
0.0
0.0
0.0
(10.6)

(9.9)
(1.9)
0.0
0.0
(11.8)

(10.4)
(1.9)
0.0
0.0
(12.3)

(9.5)
0.0
0.0
0.0
(9.5)

(9.3)
0.0
0.0
0.0
(9.3)

(10.2)
0.0
0.0
0.0
(10.2)

(8.7)
(37.2)
0.0
0.0
(45.9)

0.0
(6.8)
18.7

2.1
(3.5)
12.6

(17.1)
(32.6)
65.2

(0.1)
(30.4)
77.7

(2.6)
(35.2)
89.5

1.7
(31.4)
85.7

1.8
(26.5)
73.4

2.3
(20.5)
28.6

4.0
22.7

5.0
17.6

4.7
70.0

77.7

89.5

85.7

73.4

28.6

70.0
67.3

147.7
136.5

237.1
210.4

322.8
275.8

396.2
327.7

424.8
346.4

30%
40%

Cash Flow & NPV (US$M - Real terms)


Ungeared Cashflow

Revenues - US$M
Product 1
Product 2
Sub total
less Royalty
Freight - if applicable
Net Revenue

Operating Costs - US$M

exchange effect using an


average % US content from
central estimate case, then
scenario cost adjustment

exchange effect using an


average % US content from
central estimate case, then
scenario cost adjustment

Net Capital
Working capital change
Tax payable

NET CASH FLOW (before financing)


cash in bank at start date

Add any opening cash

IRR only applicable where a


project is being assessed set logic to read incremental
cash

IRR %

LOM RESULT

CUMULATIVE CASH - LOM


CUMULATIVE NPV - LOM

n/a
US$M
US$M

714
494

Earnings statements should be shown in nominal terms; this extract is in local currency.
Profit and Loss Statement (A$M - Nominal terms)
Revenues

Product Sales Revenue


Less royalty
Less freight
NET REVENUE

A$M
A$M
A$M
A$M

LOM
Total
5,751
(173)
(343)
5,236

Operating Costs

Mining
Processing
SG&A
Exchange and Scenario cost adjustments
Carbon tax
Inventory movements
Provisions - closure
Depreciation
Cost of Sales

A$M
A$M
A$M
A$M
A$M
A$M
A$M
A$M
A$M

(1,340)
(1,610)
(561)
0
(114)
15
(108)
(299)
(4,016)

Other income (expense)


EBIT
Financial items (incl interest)
Income Tax Expense
PROFIT AFTER TAX

A$M
A$M
A$M
A$M
A$M

24
1,244
0
(361)
882

(not applicable this model)

233.6
(7.0)
(15.3)
211.2

226.1
(6.8)
(14.1)
205.2

355.0
(10.7)
(18.9)
325.5

363.9
(10.9)
(19.3)
333.7

379.4
(11.4)
(19.9)
348.1

365.2
(11.0)
(20.1)
334.2

369.2
(11.1)
(21.3)
336.8

336.9
(10.1)
(20.3)
306.5

(59.3)
(82.3)
(28.3)
0.0
0.0
0.0
(13.0)
(183.0)

(63.6)
(87.3)
(29.4)
0.0
0.0
0.0
0.0
(13.0)
(193.3)

(66.7)
(91.7)
(29.3)
0.0
(3.8)
(0.4)
(5.8)
(13.4)
(211.0)

(72.8)
(94.8)
(29.9)
0.0
(3.9)
0.1
(6.0)
(15.0)
(222.1)

(64.9)
(93.3)
(30.6)
0.0
(4.0)
(0.1)
(6.1)
(16.0)
(215.0)

(64.9)
(87.2)
(30.6)
0.0
(5.9)
0.1
(6.3)
(17.1)
(211.9)

(76.2)
(92.1)
(32.1)
0.0
(6.5)
(0.3)
(6.5)
(17.4)
(231.1)

(62.4)
(92.2)
(32.5)
0.0
(5.0)
0.9
(6.7)
(23.3)
(221.2)

1.2
29.5

1.2
13.1

1.2
115.7

1.2
112.8

1.3
134.4

1.3
123.6

1.3
107.0

1.4
86.7

(8.5)
21.0

(3.6)
9.5

(34.5)
81.2

(33.4)
79.4

(40.0)
94.4

(36.6)
86.9

(31.8)
75.2

(25.3)
61.3

Produce P&L also in US$ if required.

Project Evaluation Guidance v6.1 Sep 2012

Page 30 of 35

Choice of output graphics is important in delivering insight to the user. A selection of examples is
shown below. The waterfall chart shows the value chain that adds up to the NPV of the business.
The chart below shows how little value is added in the later years.
NPV Value Chain
US$ Millions
3,000

2,500

2,000

Central estimate NPV 8 US$494M


1,500

1,000

500

Cumulative Post Tax Cash Flow


US$ Millions
600
500

400

300

Central estimate NPV 8 US$494M


200

100

These charts can also be adapted to show the impact of an individual project on the business
plotting the outcome with and without the investment.
Other charts will typically show the KPIs of the business. Each of these should be customised to suit
the business and the information being sought from the model. Typical charts might be as below
with cost and margin analyses, capacity constraints etc being added to support the assessment of
the major drivers of value.

Project Evaluation Guidance v6.1 Sep 2012

Page 31 of 35

Material Mined per annum - Mt


80
70
60
50
40
30
20
10
0

Pit A ore mined

Pit B ore mined

Total Waste

Cash Operating Costs


US$ Millions
200
180
160
140
120
100
80
60
40
20
0

Mining

Processing

Project Evaluation Guidance v6.1 Sep 2012

SG&A

Exchange and Scenario cost adjustments

Carbon tax

Page 32 of 35

The sample model includes an additional output area which matches with the style of presentation
required by Controllers in the CGU template sent out as part of the planning process.

This area corresponds with


the second of the CGU sheets
which RTHQ Contollers ask
Business Units to complete
as part of the annual planning
process

Output to suit CGU entry


USE ONLY WHEN CENTRAL ESTIMATE SELECTED ON INPUT SHEET
CGU2
CASHFLOW SCHEDULE & SENSITIVITIES FOR AXIA AUSTRALIA
Australia

Country
YEAR

2010
Actual

2011
F'cast

2012

2013

2014

2015

2016

2017

2018

$494.00
$455.00

$494.00
$455.00

$494.00
$455.00

$468.00
$429.00

$448.50
$409.50

$429.00
$390.00

$429.00
$390.00

0.95
0.95

0.94
0.94

0.93
0.93

0.93
0.93

0.93
0.93

0.93
0.93

0.93
0.93

NPV @
8.0%
2,591
(1,430)
(262)
(211)
(11)
(92)
(61)
5
529

325
(162)
(29)
(34)
(18)
(10)
(2)
5
74

325
(167)
(29)
(33)
(0)
(11)
(2)
83

329
(153)
(29)
(38)
(3)
(10)
96

308
(145)
(28)
(34)
2
(10)
92

302
(157)
(29)
(28)
2
(11)
79

267
(139)
(28)
(22)
2
(9)
(40)
31

302
(154)
(29)
(28)
(3)
(11)
(10)
68

NPV @
8.0%
2,416
(1,333)
(244)
(197)
(11)
(85)
(57)
5
494

308
(153)
(28)
(33)
(17)
(10)
(2)
5
70

304
(156)
(27)
(30)
(0)
(10)
(2)
78

306
(143)
(27)
(35)
(3)
(10)
89

286
(135)
(26)
(31)
2
(9)
86

281
(146)
(27)
(26)
2
(10)
73

248
(129)
(26)
(21)
2
(9)
(37)
29

281
(143)
(27)
(26)
(3)
(10)
(9)
63

COMMODITY PRICES AND EXCHANGE RATE USED IN CENTRAL ESTIMATE (REAL TERMS)
Business Unit Product Prices - Real terms
Product 1
Product 2
Tertiary commodity

The numbers from 2010 can


Primary commodity
be hard code copy/pasted into Secondary commodity
CGU sheet 2

CGU reads exchange from


CGU sheet1 but sensitivity
below needs to know if
inverted.

Invert exchange rate


TRUE

(paste into CGU)


(paste into CGU)
(paste into CGU)

US$/t
US$/t
n/a

Exchange Rate - Central estimate


Exchange Rate - for case chosen

(do not paste into CGU)


(do not paste into CGU)

US$/A$
US$/A$

This case 2012 real terms cash flows, in A$ (m)


0.9

Annual cashflow numbers can


be hard code pasted into CGU
sheet 2. Do not paste the
check definition Controllers
NPV column as CGU
calculates it.

Revenue
Operating costs
SG&A costs
Tax
Working capital changes
Sustaining capex
Other capex
Other
Free cash flow excl financing

A$M
A$M
A$M
A$M
A$M
A$M
A$M
A$M
A$M

This case 2012 real terms cash flows, in US$ (m)

Revenue
Operating costs
SG&A costs
Tax
Working capital changes
Sustaining capex
Other capex
Other
Free cash flow excl financing

CGU 2 sheet will calculate the


US$ numbers - no need to
paste across

US$M
US$M
US$M
US$M
US$M
US$M
US$M
US$M
US$M

Central estimate NPV 8 A$529M

Central estimate NPV 8 US$494M

2012 US$ (millions)

Cash Flow Schedule & Sensitivities

2012 US$ (millions)


120
100
80
60
40
20
0
-20
-40
-60
-80
-100
2012

2013

SENSITIVITY ANALYSIS

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

(this is work ing output area for sensitivities, select central estimate on input sheet before saving core model)
(select scenario or flex % on Input sheet, then "copy"/"paste special"/"value" the result from work ing output into appropriate box below)

Discount

Central estimate

Upside Scenario

Downside Scenario

Discount rates +/- 2% from CE

rate

A$ (m)

US$ (m)

A$ (m)

US$ (m)

A$ (m)

US$ (m)

Show NPVs for central


estimate and upside/downside
per plan guidelines (per PEG
5, these are "New Horizon"
and "The Unwinding" at time
of writing this).

10.0%

489

456

660

685

356

297

8.0%

529

494

717

743

386

322

6.0%

576

537

783

810

421

351

(the sensitivities below here are generally optional - see CGU guidance sheet on the template from Controllers)
Discount

Simple +/- price sensitivities


for two (if appropriate) major
products

From central estimate

From central estimate

Product 1 minus 10%

Product 2 plus 10%

Product 2 minus 10%

A$ (m)

US$ (m)

A$ (m)

US$ (m)

A$ (m)

US$ (m)

A$ (m)

US$ (m)

10.0%

623

581

394

367

572

534

445

415

8.0%

680

634

424

395

623

581

480

448

6.0%

746

695

458

427

683

637

521

485

Discount
Simple +/- sensitivities for
total operating cost and for
exchange (if appropriate).

Product 1 plus 10%

rate

Operating Cost plus 10%

Operating Cost minus 10%

Local L/T FX rate 0.837

Local L/T FX rate 1.023

rate
10.0%

A$ (m)

US$ (m)

A$ (m)

US$ (m)

A$ (m)

US$ (m)

A$ (m)

US$ (m)

349

325

668

623

632

544

407

405

8.0%

372

347

731

682

694

596

436

433

6.0%

398

371

805

751

766

657

467

466

Apply to long term fx if diff erent


to spot

Apply to long term fx if diff erent


to spot

The sample model includes shows a template similar to that suggested in section 4 of volume 2 where an alternative sensitivity profile is shown in chart format.

Project Evaluation Guidance v6.1 Sep 2012

Page 33 of 35

Appendix 3.4: Examples of a Vertical Sheet Model


A typical Level 2 model set up in a vertical format might be structured as follows:
The extracts below are taken from an old Axia model but the principals shown remain relevant.
The overall structure might be as below.
Vertical Structure - Format B
Excel Sheets

Standard model populated with alternative scenarios ..

Preface - as
normal

Summary compares
different cases

Common inputs
(drivers) used in all
cases

Datum
case

Scenario 1 Scenario 2
etc .

The Preface Table of Contents might then be as follows


A

3
4

Filename

5
6

MODEL NAME

Axia 06 Vertical Style Ver 2 - 7Aug06.xls


NPV 8 US$ 342M
Axia Minerals LOM Business Model

PEG compliant?

yes

Datum case for 2006 plan. It assumes no expansion of Mine B and mine closure in 2020.

This version shows

Update this for each significant version saved


8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61

Operations covered

All Axia operations in Australia including Mine A, Mine B, Process Plant and G&A. Rio Tinto owns 80%.

Model description and


purpose

The model computes Net Present Value in Australian dollars as at 1 January 2006 and shows earnings over the remaining life of mine
The model is built on a 100% ownership basis. Rio Tinto share is only shown after the 100% cashflow/earnings calculation
For this sample high level valuation model, the life is deliberately short and the complexity low
This is a vertical tab version of a model (Format B in the BMG - see section 3.3) with level 2 cost inputs
Contact
Creator(s)
Lindsey.Henniker-Heaton@riotinto.com Bristol
+44 7801 433202
Current Owner of model
Matt.Halliday@riotinto.com
London
+44 207 7532287

Table of Contents
Sheet
Summary
(summary reports & graphics)

Item

Comments

Summary physicals
Summary financials
Value chain comparisons
Graphics

Comparative summaries

Location - rows

NPV breakdowns by case

Common Drivers
General economic inputs
Commercial - Reference prices/Other
Common operating parameters

PEG and Economics inputs


Product pricing - US$/unit
Major drivers to all scenarios

Datum Case
(all flexing financial & physical inputs)

Full model in vertical sheet


Commercial - this case
Physicals - Reserves
Physicals - Mine plan
Physicals - Process parameters
Operating costs - All functions
Operating costs - Carbon tax
Provisions and Closure
Capital
Other inputs

Product pricing - US$/unit


Starting tonnes plus additions
Full Life of Mine physicals
Recoveries etc
Fixed & variable
Per PEG
Capital cost and provisions
Sustaining and project capex
Misc income, inventory, cash

(All calculations through to output)

General financial - exchange/inflation


Physical production
Revenues
Operating costs
Inventories
Capital costs & depreciation
Working capital
Tax
Other income/expenses - net
Cash flow & NPV
Earnings statement
Balance sheet - (not included)
Charts for Datum case
KPIs
Others - unit costs, margins, integrity checks
Tables for chart data

Scenario 1

Exch & cumulative inflation


Saleable product
Converted to A$
By process and nature
Not used in this version
Simplified depreciation calc.
Creditors, debtors, inventory
Simple flat rate example
Real terms cash flows
Nominal terms P&L
Optional
Key business graphs
Key performance indicators
Add as required
Summaries to suit outputs

Repeat of Datum sheet with different inputs


Same structure as for datum

Add additional scenarios as required

For a model with Level 2 inputs the generic inputs would be placed on the Common Inputs sheet as below:
B
34
35
36
37
38
39
40
41
42

OPEX Inputs
Key Factor Inputs
Labor - total including oncosts
Operators/Mechanics
Supervisors
Managers
Power
Diesel
ANFO

A$/manyear
A$/manyear
A$/manyear
A$/kWh
US$/litre
A$/kg

Project Evaluation Guidance v6.1 Sep 2012

Page 34 of 35

The central estimate case inputs would then be taken from the mine and process plans relevant to
that case and might have the following headings. Each of these when multiplied by the generic
inputs allows calculation of the appropriate operating cost:
Mining costs
B
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88

Operating Cost Inputs - all in Australian $


Mine Variable Costs Pit A Drill/Blast/Load - Operators
Pit A Drill/Blast/Load - Diesel used
Pit A Drill/Blast/Load - Explosives used
Pit A Drill/Blast/Load - Other supplies/maint.
Pit A Ore haul cost
Pit A Ore Haul - Operators
Pit A Ore Haul - Diesel consumption
Pit A Ore Haul - Other supplies/maint.
Pit A Waste haul cost
Pit A Waste Haul - Operators
Pit A Waste Haul - Diesel consumption
Pit A Waste Haul - Other supplies/maint.
Pit A Rehandling stockpile
Pit A Rehandling S/P - Operators
Pit A Rehandling S/P - Diesel consumption
Pit A Rehandling S/P - Other supplies/maint.
Pit B Drill/Blast/Load
Pit B Drill/Blast/Load - Operators
Pit B Drill/Blast/Load - Diesel consumption
Pit B Drill/Blast/Load - Explosives used
Pit B Drill/Blast/Load - Other supplies/maint.
Pit B Ore haul cost
Pit B Ore Haul - Operators
Pit B Ore Haul - Diesel consumption
Pit B Ore Haul - Other supplies/maint.
Pit B Waste haul cost
Pit B Waste Haul - Operators
Pit B Waste Haul - Diesel used
Pit B Waste Haul - Other supplies/maint.
Pit B Rehandling stockpile
Pit B Rehandling S/P - Operators
Pit B Rehandling S/P - Diesel consumption
Pit B Rehandling S/P - Other supplies/maint.
Mine Fixed Costs Operators
Supervisors
Managers
Power
Other overheads

Number
litre/t material moved
kg/t material moved
A$/t material moved
Number
litre/truck hour
A$/truck hour
Number
litre/truck hour
A$/truck hour
Number
litre/truck hour
A$/truck hour
Number
litre/t material moved
kg/t material moved
A$/t material moved
Number
litre/truck hour
A$/truck hour
Number
litre/truck hour
A$/truck hour
Number
litre/truck hour
A$/truck hour
Number
Number
Number
kWh
A$M

Process and overhead costs


B

90 Process Variable Costs


91
92
93
94
95
96
97
98
99
100
101
Process Fixed Costs
102
103
104
105
106
107
108
109
110
111
112
113

Input circuits - Operators


Power
Major consumable XX
Other supplies

Number
kWh
A$/t material fed
A$/t material fed

Product A output circuits - Operators


Power
Other supplies
Product B output circuits - Operators
Power
Other supplies

Number
kWh
A$/t material produced
Number
kWh
A$/t material produced

Operators
Supervisors
Managers
Power

Number
Number
Number
kWh

Other overheads

A$M

G&A Other variable costs, overheads etc


Other fixed costs, - operators
Other fixed costs, - supervisors
Other fixed costs, - managers
Other fixed costs, - power
Other fixed costs, - overheads

A$/t production (or ore)


Number
Number
Number
kWh
A$M

The calculation rows then continue as per the multi sheet model and produce the required outputs
for the central estimate case and each scenario.
The addition of a summary sheet, in this example at the front, allows the multiple cases to be
compared. For more detail on how this is used, the reader is asked to contact the T&I team who are
responsible for the Strategic Production Planning (SPP) studies.

Project Evaluation Guidance v6.1 Sep 2012

Page 35 of 35