Webinar 2019 Mining Financial Model Valuation

Mining Financial Model &
Valuation
corporatefinanceinstitute.com
Corporate Corporate
Development Development
Tim Vipond
CEO and Instructor at
Corporate Finance Institute®
Investment Investment
Management Banking
Learning objectives
Read a technical report / feasibility Input all assumptions into a

study and gather the important robust and dynamic financial
economic information model
Run sensitivity analysis on Calculate the value of a mining

the value of that asset asset
Key Valuation Metrics
Mining Valuation – NPV
Mining assets are essentially one big NPV analysis
Engineering and technical Early stage is much

No terminal value in Any mining project/asset
reports harder to value
a non-renewable industry with a study is a perfect
DCF candidate
Provide a very detailed Last years are negative

plan cash flow
P/NAV
Equity value metric
Minority interest
Net Asset Value The value of all Cash &
/ equity
(NAV) mining assets equivalents
investments
Expressed as P/NAV
NPV of
Each mining asset valued independently corporate Debt
overhead
Corporate adjustments are made at the end
P/NAV
NAV Breakdown ($M)

Mining Assets
NPV Sauder Mine 3,000

NPV Keevil Mine 2,500
NPV Chan Mine 2,000
Total 7,500
Assets
Plus: Other Assets
Cash 500
Equity Investments 250
Total 750
Less: Corporate Adjustments
NPV Corp. G&A (500) Liabilities

Debt (2,000)
Total (2,500)
NAV
Net Asset Value 5,750

Equity
Market Capitalization 6,120
P/NAV 1.1x
P/NAV
Why would a company trade at a premium to it’s Net Asset Value?
I.e. Why would you pay more than it’s “worth”
Currently senior gold miners trade from 0.7 – 1.5x

This is a phenomenon with gold companies
NAV
P/CF
Cash flow (“CF”)
Net Cash from Operating Activities
“Adjusted Operating Cash After interest (equity metric) After taxes

Equity Value Metric
Flow” of the business
Before changes in working
Before capital expenditures
capital
Cash Flow Free Cash Flow
EV/Resource
Not a good indicator of Enterprise value

economic value metric
Does not take into account cost Values all gold in the
to extract metal ground
Total Resource, total ounces
contained in the ground
Crude valuation
Physical metric
technique
Used more for early stage

projects
Total Acquisition Cost
“Build it up” to get the total cost of gold
Average cost to
Cost to acquire
asset $/oz
(EV/Resource)
Cost to build mine
$/oz
mine gold $/oz (All-
in sustaining cost - TAC
AISC)
Total Acquisition Cost
Example
$100/oz to $200/oz to $900/oz to

$1,200/oz TAC
acquire asset build mine produce gold
Typically want TAC to

be <80% of spot price
Financial Model - Assumptions Section
Assumptions Section
Keep all assumptions in one section
Has to be conducted on same

Allows for a single Easier for other users Simplifies model Sensitivity Analysis tab as the input
location of inputs to understand structure
Simplifies sensitivity analysis
All prices and figures are typical in REAL DOLLARS
Assumptions Section
Resource details
Major assumptions include

● Ore (tonnes)
● Grade (g/t)
Metal prices Capital cost Payability & Terms
Operating costs
Milling rate Recovery
(unit costs)
Financial Model - Mining Section
Mining Section
Contains the full production schedule
Ore > mined material > processed material > metal
Often very detailed and complicated
Multiple
Multiple ore Stockpiling of products -
Penalty items
types ore dore and/or
concentrate
Mining Section
2 main approaches include:
Detailed Mine Schedule

Mineral Inventory approach
approach
Slowly deplete reserves at a constant rate and

Specific volume and grade each year
grade
Mining Section
Mining Section
Financial Model - Financial section
Financial Section
Working
Operating Depreciation Tax
Royalties Revenue capital
costs schedule schedule
schedule
Certain tax
Unit operating Based on % of
regimes are Not material in
Metal A % of revenue costs x tonnes production
quite most costs
production x of ore schedule
complicated
metal price
Simplified Typically no real

approach in this inventory build
model up in mining
Financial Model - DCF Section
DCF Section
Working Free cash Discount

Tax schedule capital flow rate
schedule schedule
Certain tax Build up from

Calculate
regimes are Not material in Net income or
discount factor
quite most costs down from
for each year
complicated EBITDA
Simplified Typically no real Unlevered at the Nor NPV formula

approach in this inventory build asset level in Excel
model up in mining
DCF Section
Currently lots of debate over

discount rates Discount factor formula:
Discount
rate
5% (real) is tradition in gold
industry
WACC over long term is 1

about 5-6% (real)
(1 + Discount rate) ^ (# years)

Gold companies have a low
beat
Country risk premiums

should be considered
Sensitivity Analysis
Sensitivities
There is not “one number” for value
Once the model is setup sensitivity can be analyzed
All the key inputs should be sensitized
Metal prices Capital cost Payability & Terms Payability & Terms
Operating costs (unit Operating costs (unit

Milling rate Recovery
costs) costs)
Sensitivities – Data Tables
Link cell to desired Input the range of Link to original

output (i.e. NVP) assumption(s) you wish to assumption(s)
test
Must be a hardcode (i.e. gold

Must be a formula / output Data > What if Analysis > Data sectionle
price: $1,200; $1,300; etc)
Sensitivities – Data Tables
Enterprise Value ($M)
Product Price ($unit)
6.00 7.00 8.00 9.00 10.00 11.00 12.00

EBITDA Margin (%)
45% -1,036 -764 -491 -219 54 312 507
50% -880 -577 -274 28 315 534 746
55% -734 -401 -68 259 516 750 983
60% -590 -227 134 456 711 965 1,219
65% -447 -54 333 630 905 1,181 1,456
70% -304 120 504 803 1,100 1,396 1,693
75% -161 290 658 976 1,294 1,612 1,929
Thank you
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Mining Financial Model &

Read a technical report / feasibility Input all assumptions into a

Run sensitivity analysis on Calculate the value of a mining

Mining assets are essentially one big NPV analysis

Engineering and technical Early stage is much

Provide a very detailed Last years are negative

Equity value metric

NAV Breakdown ($M)

NPV Sauder Mine 3,000

Less: Corporate Adjustments

NPV Corp. G&A (500) Liabilities

Net Asset Value 5,750

Why would a company trade at a premium to it’s Net Asset Value?

I.e. Why would you pay more than it’s “worth”

Currently senior gold miners trade from 0.7 – 1.5x

Cash flow (“CF”)

Net Cash from Operating Activities

“Adjusted Operating Cash After interest (equity metric) After taxes

Cash Flow Free Cash Flow

Not a good indicator of Enterprise value

Used more for early stage

“Build it up” to get the total cost of gold

$100/oz to $200/oz to $900/oz to

Typically want TAC to

Keep all assumptions in one section

Has to be conducted on same

All prices and figures are typical in REAL DOLLARS

Major assumptions include

Metal prices Capital cost Payability & Terms

Contains the full production schedule

Ore > mined material > processed material > metal

Often very detailed and complicated

2 main approaches include:

Detailed Mine Schedule

Slowly deplete reserves at a constant rate and

Simplified Typically no real

Working Free cash Discount

Certain tax Build up from

Simplified Typically no real Unlevered at the Nor NPV formula

Currently lots of debate over

WACC over long term is 1

(1 + Discount rate) ^ (# years)

Country risk premiums

There is not “one number” for value

Once the model is setup sensitivity can be analyzed

All the key inputs should be sensitized

Operating costs (unit Operating costs (unit

Link cell to desired Input the range of Link to original

Must be a hardcode (i.e. gold

Enterprise Value ($M)

Product Price ($unit)

6.00 7.00 8.00 9.00 10.00 11.00 12.00

45% -1,036 -764 -491 -219 54 312 507

50% -880 -577 -274 28 315 534 746

55% -734 -401 -68 259 516 750 983

60% -590 -227 134 456 711 965 1,219

65% -447 -54 333 630 905 1,181 1,456

70% -304 120 504 803 1,100 1,396 1,693

75% -161 290 658 976 1,294 1,612 1,929

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