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Mineral Economics & Project Evaluation Masterclass
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Mineral Economics & Project Evaluation Masterclass

3-Day Training Course: An in-depth look at mining finance & evaluation. Build your confidence & understanding of mining finance through this Excel-based course on the principles & methodologies of finance & project evaluation for improving decision making in exploration & mining

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overview

Key Learning Objectives

  • Review Discounted Cash Flow (DCF) modelling and evaluation of mining projects
  • Analyse the funding of mining projects: examining the role of equity and debt
  • Identify and quantify project and financial risk using sensitivity and scenario analyses and Monte Carlo simulation
  • Determine criteria for investment decisions under uncertainty balancing risk and returns in line with corporate risk profiles and preferences
  • Recognise modelling and advanced project evaluation methodologies

About the Course

This course provides an understanding of the fundamental principles and concepts of finance and project evaluation as applied to investment decisions in the resources sector.

It progresses from simple Discounted Cash Flow (DCF) models constructed under assumed certainty, to basic consideration of the related project and financial risk, and factors that shape investment decisions under uncertainty.

The final session will provide general familiarisation with risk analysis and recent developments in project evaluation including an introduction to the concept of Real Option Valuation (ROV).

Learning will be re-enforced by back of envelope numerical exercises and by the construction of a simple financial model of a mining project using an Excel spreadsheet and a proprietary risk analysis software package (Decision ToolworksTM) which will be provided to course participants

Laptops are required

Who Will Benefit

Course Level: Intermediate
Recommended Course Pre-Requisites:

  • Exploration, Mining & Processing Fundamentals
  • Finance & Accounting Fundamentals in the Resources Industry

This course will benefit all technical/managerial personnel in the mining, securities, financial and government sectors who need to understand the fundamentals of investment decisions, project economics and evaluation of exploration and mining projects

A CPD Course

Use this course to help fulfil your Continuing Professional Development (CPD) educational requirements to retain your professional/chartered status. Contact your relevant association to learn how

Testimonials

Very good presenter and very knowledgeable. Content very challenging. Pietro has a very good understanding of the subject matter with good use of examples bringing the topics to life
Policy Analyst, IRD

Course Outline

Financial accounting reports as a source of information for cash flow modelling of mining projects

  • Corporate financial objectives
  • Differences between Financial Accounting on an accrual basis and Cash (Management) Accounting
  • Understanding financial accounting statements
  • Assets, asset lives and depreciation of mining assets
  • Elements of mining taxation: mineral royalties, corporate income tax and capital gain tax
  • Converting the Profit and Loss statement into the corresponding Net Cash Flow for the period

Practical exercise:
Capturing the effect of common transactions on the Balance Sheet of a mining company and on its cash balance

Discounted Cash Flow (DCF) analysis – General concepts

  • Cash in-flows and out-flows: capital expenditure, and recurrent revenue and expenses
  • Inflation – real and nominal dollars terms
  • Time value of money, discounting rates and periods
  • DCF criteria of value: Net Present Value (NPV), Internal Rate of Return (IRR), payback etc.

Practical exercise:
Building a simple mining project model under assumption of certainty and 100% equity

  • “Whole-of-life” Cash Flow (CF) model structure
  • Single-point, “expected value” of inputs
  • Correct handling of depreciation, salvage value and working capital
  • Completing the base case mine model
  • Interpreting the results

Practical exercise:
Estimating the net smelter return of a base metal mine

  • Resources and reserves: dilution and recovery
  • Determining an optimal mine life
  • Concentrates transport, smelting and refining charges and Net Smelter Returns (NSR)

Funding a mineral project: The role of equity & debt

  • Sources of equity funds
  • Estimating the cost of equity with the Capital Asset Pricing Model (CAPM)
  • Debt, leasing, project finance, financial leverage and financial risk
  • The Weighted Average Cost of Capital (WACC)
  • Determining an optimal debt: equity ratio

Practical exercise:
How to introduce borrowing and interest expenses in the simple gold mine DCF model

Risk analysis – General concepts

  • Uncertainty, expected value (EV) and risk
  • Risk-neutral decisions and risk of Gambler’s ruin

Practical exercise:
Determination of EVs using decision trees

  • Sensitivity and scenario analysis
  • The nature of probabilities and probability distributions
  • Monte Carlo simulation

Practical exercise:
Identifying and assessing the project and financial risk of the simple gold mine

Decisions under uncertainty

  • Preferences (utilities) and risk attitudes
  • Certainty Equivalents (CE), the price of risky investments and risk-averse decisions

Practical exercise: 

Choosing between two projects with the same EV and determining optimal joint venture participation given a specific risk attitude and tolerance

Developments in mineral project evaluation methodologie

  • Identifying and addressing possible DCF biases
  • Project evaluation using the Modern Asset Pricing (MAP) methodology
  • Introduction to real option valuation (ROV) of mineral projects

On-site & in-house training

Deliver this course how you want, where you want, when you want – and save up to 40%! 8+ employees seeking training on the same topic?

Talk to us about an on-site/in-house & customised solution.

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