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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.
contact
Still have a question?
Sushil Kunwar
Training Consultant
+61 (0)2 9080 4395
training@informa.com.au