Personal tools

Course Outline


  Background: Mining in context

Download Course Brochure

  • Quantifying key issues in mining (e.g. environmental, political, technological)
  • Factoring in uncertainties:
    > Feasibility analyses
    > Permit delays
    > Commodity pricing
    > Grade variability
    > Extraction inefficiencies
    > Exchange rate impacts
    > Scare resources / key factor analysis
    > Stockpiling
    > Transportation complexities
    > Wastage
  • Confusing optimisation with forecasting
  • Considerations of open pit design and planning
  Introduction to project finance
  • What is project finance?
  • How it works
  • Sources of funding
  • What investors and lenders look for
  • Key metrics
  • Importance of the cash cascade / debt waterfall
  • Project finance examples
  Accounting issues
  • Why accounting is important
    > Explaining the three primary financial statements:
    – Income statement
    – Balance sheet
    – Cash flow statement
    > Direct versus indirect modelling considerations
    > Why Source and Uses of Funds is so important in project finance
  Introduction to financial modelling

Project finance, or limited recourse financing, has features which render it quite different from ‘normal financings’ and these differences permeate throughout the structure.

  • Brushing up on Excel skills with practical exercises
    > Key Excel functions, functionalities and shortcuts:
    – Keyboard shortcuts
    – Navigation shortcuts
    – Formats versus styles
    – Key functions:
    • INDEX
    • IRR and XIRR
    • LOOKUP
    • MATCH
    • NPV and XNPV
    • OFFSET
    • SUM (care needed…)
    • SUMIF

    >Time series analysis: determining the forecast period and periodicity
    > Key concepts of “best practice” modelling
    > Understanding the factors that govern the model structure
    > Why flags are so important in project finance modelling

  Mining modelling case study
  • Development of a mining model
  • Model construction 101
    > How scoping and outputs determine the order of construction
    > Keeping the level of granularity consistent in the model
    > Layout of a standalone model: the concept of a chart of accounts
    > Methods of building model assumptions
  Construction period
  • Understanding the lead times
  • Considering costs: real vs nominal?
  • Costs of delay
  • Asset modelling
  • Milestone modelling, e.g. feasibility study completed, permits received, drill program initiated
  • How funding works
  • Capitalising interest
  Operations period
  • Refinancing implications
  • Treatment of existing non-current assets
  • Implications due to project finance projects being typically finite
  • Always model nominally
  • Working capital considerations
    > Why working capital is so important to financial modelling
    > Comparing different working capital modelling techniques and understanding the potential traps to watch out for in modelling
    > Working capital vs depreciation – a subtle modelling point
  • Capital expenditure modelling
    > Capital assets and depreciation
    > Specific depreciation issues in mining
    > The traps in capital expenditure modelling: why depreciation calculations are often wrong
    > Maintenance reserve account
  Understanding the role of debt in project finance
  • Modelling debt
    > Returns on capital
    > Returns of capital
    > The concept of CFADS: the cash flow available for debt servicing
    > Grace and tenor period modelling
    > Types of debt financing
    – Senior debt
    – Mezzanine finance
    – Subordinate debt
    – Convertible debt
    – Working capital facilities
    > Servicing debt: calculating interest using mathematics, without using circular references
    > Debt and financial structure; orchestrating debt scheduling
    > Issues with modelling multiple debt facilities
    – Risk
    – Return
    – Ranking
    > Repayment methods: PPMT, IPMT and PMT functions in Excel; consideration of debt sculpting
    > Incorporation into financial statements: the debt waterfall
    > Debt service reserve account
    > Debt covenants
    – Debt service coverage ratio
    – Interest coverage ratio
    – Debt to equity mix
    – Loan life cover ratio
    – Project life cover ratio
    > Cash sweep modelling
    – Triggers
    – Bullet repayments
    – Standalone cash sweep modelling analysis
    > Debt sizing and capacity implications
    > Financial statement analysis for modelling
  • Modelling tax
    > Key principles behind accounting and taxation assumptions: understanding the rationale for the similarities and differences
    > Basic tax computations
    > Permanent versus timing differences: the implications for deferred tax
    > Modelling tax depreciation
    > Modelling tax losse
  • Modelling equity
    > Which came first, the funding or the requirement?
    > Initial and subsequent investments
    > Dividend calculations
    > Impact upon retained earnings
    > Share price implications for quoted companies
    > Returns on equity


  • Key outputs
    > NPV and IRR analysis
    > (Discounted) payback analysis
    > Accounting ratios: indicators of profitability, liquidity and gearing

    Case study: what do accounting ratios tell us?
  • Measurement of risk in financial models
    > Useful Excel tools: Data tables, OFFSET, tables, Goal Seek and Scenario Manager
    > Sensitivity analysis
    > Break-even analysis
    > Scenario analysis

    Case study: creating tornado and waterfall charts

  Case 2: Power project


Bond financing for Special Purpose Vehicles (SPVs)


An increasingly important financing option, but having very distinct disadvantages as well as advantages:

  • The history of bond finance of limited recourse SPVs
  • Cross-border bonds – prerequisites
  • Rule 144A – implications for emerging market projects
  • Rating agencies – approach to different sectors
  • Piercing the sovereign ceiling
  • The limited window for high yield bonds
  • Why use bond financing – advantages and disadvantages

  Case 3: Liquified Natural Gas (LNG) project


Export Credit Agencies (ECAs)


An explanation of how ECAs and their products work, and the pluses and minuses of getting them involved in the structure:

  • Buyer credits
  • Political and commercial risk cover
  • Concessional finance rates
  • Lines of credit
  • Advantages/disadvantages of ECA involvement
  • Multilateral agencies

Financier perspective


Total dependence on a single cash flow results in structures and covenants that are not found in other financings.

  • Risk – solvency risk vs volatility risk
  • Free cash flow – why is it fundamental to analyse
  • Cash management issues
  • Liquidity – creating ‘suspension’ for the special purpose vehicle
  • Why the financial covenants are different from conventional lending
  • Cash Available for Debt Service (CADS)
  • Loan life cover, project life cover, debt service cover (LLCR and ADSCR)
  • Surplus cash flows, lock-up, cash sweeps
  • Waterfall/cascade, reserve accounts
  • Contingency reserves
  • Designing structures to match cash flows
  • Dealing with default
  • Mortgage debentures/fixed and floating charges
  • Separating risk-taking and funding

  Case 4: An emerging market infrastructure project


Sponsor perspective


Sponsors need to have a disciplined approach to screen projects that are likely to deliver the benchmark IRR. There are number of potential pitfalls in the analytical approach.

  • The investment analysis without project finance
  • The difference in approach with a limited recourse structure
  • Project IRR contrasted with Equity/Sponsor IRR
  • The drivers of Sponsor IRR – and implications of negotiation of the financing term sheet
  • Evaluation of projects in emerging markets
Keep updated with the latest news and happenings  Follow us on Linkedin  Follow us on Twitter  Featured speaker presentations  Watch event highlights and exclusive interviews  Google+  Flickr-Informa Australia