Mining Financial Model & Valuation - PGO

1 MiningFinancial Model & DevelopmentCorporate DevelopmentInvestment ManagementInvestment BankingTim VipondCEO and Instructor at Corporate Finance institute Input all assumptions into a robust and dynamic Financial modelCalculate the value of a Mining assetRun sensitivity analysis on the value of that assetRead a technical report / feasibility study and gather the important economic Valuation MetricsEngineering and technical reportsNo terminal value in a non-renewable industryAny Mining project/asset with a study is a perfect DCF candidateEarly stage is much harder to valueMining assets are essentially one big NPV analysisProvide a very detailed planLast years are negative cash Valuation NPVC orporate adjustments are made at the endEach Mining asset valued independentlyExpressed as P/NAVNPV of corporate overheadDebtCash & equivalentsMinority interest / equity investmentsThe value of all Mining assetsEquity value metricNet Asset Value (NAV) AssetsNAV Breakdown ($M)Plus: Other AssetsLess: Corporate AdjustmentsAssetsLiabilitiesEquityCashEq uity InvestmentsTotal500250750 NPV Corp.

2 G&ADebtTotal(500)(2,000)(2,500)Net Asset ValueMarket CapitalizationP/NAV5,7506, Sauder MineNPV KeevilMineNPV Chan MineTotal3,0002,5002,0007, Why would you pay more than it s worth This is a phenomenon with gold companiesCurrently senior gold miners trade from NAVWhy would a company trade at a premium to it s Net Asset Value? Value Metric Adjusted Operating Cash Flow of the businessNet Cash from Operating ActivitiesCash flow ( CF )Before capital expendituresAfter taxesAfter interest (equity metric)Before changes in working capitalCash FlowFree Cash value metricValues all gold in the groundPhysical metricUsed more for early stage projectsCrude Valuation techniqueDoes not take into account cost to extract metalNot a good indicator of economic valueTotal Resource, total ounces contained in the cost to mine gold $/oz(All-in sustaining cost -AISC)Cost to build mine $/ozCost to acquire asset $/oz(EV/Resource)

3 Build it up to get the total cost of Acquisition Cost$1,200/oz TAC$900/oz to produce gold$200/oz to build mine$100/ozto acquire assetExampleTypically want TAC to be <80% of spot Acquisition CostFinancial Model -Assumptions for a single location of inputsEasier for other users to understandSimplifies Model structureSensitivity AnalysisKeep all assumptions in one sectionHas to be conducted on same tab as the inputSimplifies sensitivity analysisAll prices and figures are typical in REAL SectionOperating costs (unit costs)Payability& TermsRecoveryCapital costMilling rateMetal pricesMajor assumptions include Ore (tonnes) Grade (g/t)Resource details SectionFinancial Model - Mining the full production scheduleOre > mined material > processed material > metalOften very detailed and complicatedMultiple ore typesStockpiling of oreMultiple products -doreand/or concentratePenalty SectionMineral Inventory approachDetailed Mine Schedule approach2 main approaches include:Slowly deplete reserves at a constant rate and gradeSpecific volume and grade each year2 main approaches include.

4 Slowly deplete reserves at a constant rate and SectionFinancial Model - Financial capital scheduleTax scheduleDepreciationscheduleMetalproduct ion x metal priceA % of revenueUnit operating costs x tonnes of oreBased on % of production scheduleCertain tax regimes are quite complicatedNot material in most costsSimplified approach in this modelTypically no real inventory build up in SectionFinancial Model -DCF rateCertain tax regimes are quite complicatedNot material in most costsBuild up from Net income or down from EBITDAS implified approach in this modelTypically no real inventory build up in miningUnlevered at the asset levelCalculate discount factor for each yearNor NPV formula in ExcelFree cash flow scheduleWorking capitalscheduleTax SectionDiscount rateDiscount factor formula:1(1 + Discount rate)^(# years)Country risk premiums should be consideredGold companies have a low beatWACC over long term is about 5-6% (real)5% (real) is tradition in gold industryCurrently lots of debate over discount SectionSensitivity rateMetal pricesPayability & TermsCapital costRecoveryOperating costs (unit costs)Payability& TermsOperating costs (unit costs)All the key inputs should be sensitizedOnce the Model is setup sensitivity can be analyzedThere is not one number for to original assumption(s)Input the range of assumption(s) you wish to testMust be a formula / outputMust be a hardcode ( gold price: $1,200; $1,300.)

5 Etc)Data > What if Analysis > Data sectionleLink cell to desired output ( NVP) Data TablesEnterprise Value ($M)Product Price ($unit) ,036-764-491-2195431250750%-880-577-2742 831553474655%-734-401-6825951675098360%- 590-2271344567119651,21965%-447-54333630 9051,1811,45670%-3041205048031,1001,3961 ,69375%-1612906589761,2941,6121,929 EBITDA Margin (%) Data you