Basic Valuation

Concepts
Rini Novrianti Sutardjo Tui
 Valuation and Evaluation

Investment
analysis

Valuation is an Evaluation is an
estimation of the value economic assessment
or worth of the mineral property
of the mineral generally for an
property. investment decision.
How much is a Go or No Go
property worth in decision?
dollars?
 Purposes of Valuation

Acquisition

Regulatory
Requirements Valuation Taxation

Financing
Approach to Valuation: Values

Market
Value
Full
Insured
Cash
Value
Value

Assessed Salvage
Values
Value Value

Capitali Replace
zed ment
Value Value
Book
Value
 Market Value

The value (price) establish in a public market by exchanges between a

willing buyer and a willing seller when neither is under duress to complete
the transaction.

Cost Approach Income Approach Market Approach

A purchaser would not be A purchaser would not be

justified in paying more A purchaser would not be
justified in paying more to justified in paying more
for a property than it acquire income producing for a property than it
would cost him to acquire than the present value of would cost him to acquire
land and construct the income stream to be an equally desirable
improvement having derived from the property. substitute property.
comparable utility,
assuming no undue delay. Based on principle of Based on principle of
anticipation of substitution (market
Based on principle of
benefits (usually DCF) comparable)
contribution to value
 Types of Properties

Mineral
Exploration Development
Resources
Properties Properties
Properties

Advance stage
exploration Feasibility
properties study
Properties with completed Production
identified mineral
resources Properties
Development
Early stage
Pre-feasibility planned or
exploration
stage projects under
properties
construction
Marginal
development
properties Contain
mineral
Past producing resource and
mines mineral reserve
Stage-based Valuation
 Production Costs

Operating Costs General Expenses

Direct costs: materials,
labor
Marketing or sales
Indirect costs: plant
expenses
overhead, depreciation

Contingencies

Administrative
Distribution costs
expenses
 Direct Costs vs Indirect Costs

Direct costs Indirect costs

labor, materials, and expenditures which are
supplies which are independent of the level of
consumed directly in the production.
production process and
which are used roughly
in direct proportion to
the level of production.
 Other Costs

Cash costs Noncash costs A sunk cost The change Cost of The yield or

Opportunity Cost
Sunk Costs

Marginal Costs

Cost of Capital
Cash Costs

Noncash Costs

do not directly is simply an in total cost raising rate of return

are those represent such that arises foregone on
which outlays but
expenditure funds for
that has when the capital the most
represent are quantity profitable
permissible already investment.
actual deductions been made. produced investment
monetary from revenue. changes by opportunity
one unit. rejected by a
outlays. firm.
 Financial Statements

Income This statement summarizes the

Statement financial performance of the firm. It
consists of revenues and costs.

This statement summarizes the

Balance
financial condition of the firm. It
Sheet consists of assets and liabilities.

This statement explains changes in

Change in
Financial
the balance sheet from the end of the
Condition preceding period to the end of
current period.
 Factors for Consideration

Pre-production Production Post-production

Period Period Period

•Price
• Exploration •Processing costs • Salvage
expenses •Recovery value
• Water rights •Post concentrate costs
• Mine and plant •Reserves and percent • Contractual
removable
capital •Grade and
requirements •Investment tax credit reclamation
• Sunk costs •State tax
•Federal taxes
expenditures
• Working capital •Depletion rate
•Depreciation
• Land and •Capital investment
mineral rights •Royalty
• Environmental •Mining costs
costs •Development costs
•Exploration costs
• Development •General and
costs administration
•Insurance
• Financial •Production rate per year
structure •Financial year production
• Administration begin
•Production recovery
•Operating days per year