Mine valuation

T L MATETE
valuation
valuation can be described as the systematic investigation of the merit, worth, or significance
of any “project”

Effective valuation is not an "event" that occurs at the end of

a project, but is an ongoing process which helps decision
makers better understand the project; how it is impacting
participants, partner agencies and the community; and how
it is being influenced/impacted by both internal and external
factors.
Underlying logic of valuation
 No valuation is good unless… results are used to make a
difference

 No results are used unless… a market has been created

prior to creating the product

 No market is created unless…. the evaluation is well-

focused, including most relevant and useful questions
valuation
A valuation is an objective search for “true” value
◦ Truth 1.1: All valuations are biased. The only questions are how much and in which direction.
◦ Truth 1.2: The direction and magnitude of the bias in your valuation is directly proportional to who
pays you and how much you are paid.

A good valuation provides a precise estimate of value

◦ Truth 2.1: There are no precise valuations
◦ Truth 2.2: The payoff to valuation is greatest when valuation is least precise.

The more quantitative a model, the better the valuation

◦ Truth 3.1: One’s understanding of a valuation model is inversely proportional to the number of inputs
required for the model.
◦ Truth 3.2: Simpler valuation models do much better than complex ones.
Object of mine valuation

The object of mine valuation is the assessment in detail of all factors which decide whether it is
possible or not to obtain a fair and attractive return on capital invested in a mining venture. The
element of risk is usually greater than that incurred in other business enterprises due to the
uncertainties of mineral deposition and the hazards of faulted ground, fire, gases and water
underground, so that the reward should be accordingly greater. Certain calamities may be
insured against, but the cost of cover beyond certain limits becomes prohibitive.
Mine valuation is therefore primarily concerned with the revenue earning potential of a
proposition which depends on the price obtained for the product, offset against concomitant
expenditure. The price is usually fixed by the supply of and demand for the mineral on the world
markets, such as the London Metal Exchange, or it is dependent on special contracts drawn up
between the supplier and buyer.
purpose
Demonstrate project viability to funders
Better manage limited resources
Justify current program funding
Support the need for increased levels of funding
Factors to consider
>The availability of capital to finance its exploration and exploitation.
>The quality and quantity of the mineral content of the orebody.
>The likely price of the mineral product and future trends.
>The mode of occurrence of the mineral in the ore body and its conformation which affects exploration and working costs.
>The metallurgical processes of beneficiation and treatment required.
>The geographical location of the ore body in relation to air, road and rail transport, seaport facilities, electric power(ZESA), supplies, repair and to
other facilities
>The availability and cost of labour, skilled and unskilled, and the effect of any restrictive legislation, or of labour unrest, on mining operations
>The climatic conditions, particularly in regard to adequate water supply, surface or underground. Also the effect of climate on the health and
happiness of workers.
>Occupational health hazards peculiar to certain minerals and any special industrial legislation affecting operations.
>Lease consideration, royalty and taxation payments to the state and royalties to other parties
>Information about adjacent properties including those which have ceased operations. This information is usually available from the department of
mining engineering at the Ministry of Mines.
Generating new prospects
Generating new prospects is the critical first stage in the exploration process and is known as
prospecting. Traditionally, prospecting was the search for simple visual surface indications of
mineralization. Nowadays the range of surface indications that can be recognized by the
explorationist is expanded by the use of sophisticated geophysical and geochemical techniques.
Prospecting/exploration
All mining investment professionals, large-scale miners and mining academics will testify to the
fact that no activity adds value to mining than exploration. The reason for this is simple; the
value of information proving that you own (x) amount of mineral reserves beneath your feet far
exceeds the value one can ever hope to unlock by seeking to extract the resource. Thus if small-
scale miners can use their claims as collateral to draw upon exploration funds, they can conduct
stage one exploration involving relatively inexpensive surveying, trenching and sampling.
This will help to empower the miner by now allowing them to take out mining development
loans on the back of the mine reserves or enter into a joint venture from a powerful, informed
position. The process of exploration also indicates the best area to begin mining in a claim, thus
dramatically increasing mining productivity.
 New exploration ideas
Scenario 1: New knowledge of the geology or geophysics of an area becomes available from new mapping (either
your own or Geological Survey maps).Combined with your own understanding of mineralization, the new mapping
indicates the possibility of different styles of mineralization being present or different places to look.

Scenario 2: Elsewhere in a district that you are exploring, a discovery is made which can be used as a new and
more relevant model for mineralization than the one that you have been using.

Scenario 3: A visit to other mining camps, maybe even on the other side of the world, provides new insight into
your exploration property. The formal description of an ore body in the literature is no substitute for seeing it for
yourself – particularly if there is an opportunity to see the discovery outcrop.

Scenario 4: Newly developed exploration technologies and/or methodologies make it possible to explore
effectively in an area where earlier prospecting methods were unsuccessful.

Scenario 5: Political changes make available for exploration and mining a part of the world that previously had not
been subject to modern methods of exploration.
Mineral exploration
Exploration is termed either Greenfields or Brownfields depending on the extent to which
previous exploration has been conducted on the tenements in question. Greenfields alludes to
unspoilt grass, and brownfields to that which has been trodden on repeatedly. While loosely
defined, the general meaning of brownfields exploration is that which is conducted within
geological terrains within close proximity to known ore deposits. Greenfields are the remainder.
Greenfields exploration is highly conceptual, relying on the predictive power of ore genesis
models to search for mineralization in unexplored virgin ground. This may be territory which has
been drilled for other commodities, but with a new exploration concept is considered
prospective for commodities not sought there before.
Mineral exploration
The success rate of exploration and the return on investment is low because exploration is an
inherently risky business. Figures for success rates depend on the commodity in question but a
good strike rate can be measured in the oil industry; the supergiant Prudhoe Bay oilfield was
found on the 12th well drilled into the area. Within gold deposits a discovery hole may be one in
one thousand and within some base metals commodities strike rates range from one in fifty to
one in one hundred.
Greenfields exploration has a lower strike rate, because the geology is poorly understood at the
conception of an exploration program but the rewards are greater because it is easier to find
the biggest deposit in an area earlier, and it is only with more effort that the smaller satellite
deposits are found. Brownfields exploration is less risky, as the geology is better understood and
exploration methodology is well known, but since most large deposits are already found the
rewards are incrementally less.
 Negative assumptions
• The area is not prospective because it is underlain by rock type X.
Comment: How do you know? The geological map you are using might be wrong or insufficiently detailed.
In any case, if rock type X is not prospective for your target commodity, perhaps it is prospective for some
other commodity.
• The area has already been exhaustively explored.
Comment: An area or prospect can almost never be exhaustively tested. Earlier explorers gave up because
they ran out of ideas, time or money. The best any explorationist can ever hope to do is to exhaustively
test some idea or model that they have about mineralization using the best tools at their disposal at that
time. Generate a new model, develop a new tool or simply find new access to risk capital, and the area
may turn out to be under-explored.
Negative assumptions
• All prospective rocks in the area are pegged (staked) by competitors.
Comment: When was the last check made on the existing tenements plan? Have all the
opportunities for joint venture or acquisition been explored? If you have ideas about the ground
which the existing tenement holder does not, then you are in a very good position to negotiate
a favourable entry.
• No existing ore-body model fits the area.
Comment: Mineral deposits may belong to broad classes, but each one is unique:
detailed models are usually formulated after an ore body is found. Beware of looking
too closely for the last ore body, rather than the next.
Negative assumptions
• The prospective belt is excluded from exploration by reason of competing land use claims
(environmental, native title, etc.).
Comment: This one is tougher; in the regulatory climate of many countries
today, the chances are very high that beliefs in this area are not mere assumptions.
However, with reason, common sense and preparedness to compromise, patience
and negotiation can often achieve much.
Stages of mineral exploration
Area selection is also influenced by the commodity being sought; exploring for gold occurs in a
different manner and within different rocks and areas to exploration for oil or natural gas or
iron ore. Areas which are prospective for gold may not be prospective for other metals and
commodities.
Similarly, companies of different sizes (in terms of market capitalization and financial strength)
may look for different sized deposits, or deposits of a minimum size, depending on their will and
ability to finance construction. Often the major mining houses will not look for deposits of less
than a certain size class because small deposits will not meet their criteria for an internal rate of
return. This practice may result in larger mining companies relinquishing control of smaller ore
bodies they find, or may preclude them from entering a terrain which is characterized by
deposits of a particular type or style. For example, a mining major would not look for a relatively
small, high-cost Kambalda style nickel deposit and would direct their efforts toward discovering
a Mt Keith style deposit.
Area selection
Often a company or consortium wishing to enter mineral exploration may conduct
market research to determine, if a resource in a particular commodity is found, whether or not
the resource will be worth mining based on projected commodity prices and demand growth.
This process may also inform upon the Area Selection process as noted above, where areas with
small-sized deposit styles will be ruled out based on likely economic returns should a deposit be
found. This occurs because often smaller deposits are more expensive to run, and hence, carry
greater risks of closure if commodity prices fall significantly.
Area selection may also be influenced by previous finds, a practice affectionately named
nearology, and may also be determined in part by financial and taxation incentives and tariff
systems of individual nations. The role of infrastructure may also be crucial in area selection,
because the ore must be brought to market and infrastructure costs may render isolated ore
uneconomic.
The ultimate result of an area selection process is the pegging or notification of exploration
licenses, known as tenements.
Select Area
How do we select an area to look for gold?
◦ Areas of known production
◦ Areas of known gold occurrences
◦ Favorable conditions for gold
COLLECT DATA
Historical data
State, federal surveys
University research programs
Archives
Company reports
Web sites
Published literature
Prospectors
Target generation
This includes all exploration on the prospect undertaken prior to the drilling of holes
directly targeted on potential ore. The aim of the exploration is to define such targets.
The procedures carried out in this stage could include some or all of the following:
• a review of all available information on the prospect, such as government geologicalmapping and
geophysical surveys, the results of previous exploration andthe known occurrence of minerals;
• preliminary geological interpretations of air photographs and remote sensedimagery;
• regional and detailed geological mapping;
• detailed rock-chip and soil sampling for geochemistry;
• regional and detailed geophysical surveys;
• shallow pattern drilling for regolith or bedrock geochemistry;
• drilling aimed at increasing geological knowledge.
Target drilling
This stage is aimed at achieving an intersection of ore, or potential ore. The testing
will usually be by means of carefully targeted diamond or rotary-percussion drill
holes, but more rarely trenching, pitting, sinking a shaft or driving an adit may be
employed. This is probably the most critical stage of exploration since, depending
on its results, decisions involving high costs and potential costs have to be made.
If a decision is made that a potential ore body has been located, the costs of exploration
will then dramatically escalate, often at the expense of other prospects. If it is
decided to write a prospect off after this stage, there is always the possibility that an
ore body has been missed.
Resource evaluation drilling
This stage provides answers to economic questions relating to the grade, tonnes and
mining/metallurgical characteristics of the potential ore body. A good understanding
of the nature of the mineralization should already have been achieved – thatunderstanding was
probably a big factor in the confidence needed to move to this
stage. Providing the data to answer the economic questions requires detailed patterndrilling and
sampling. Because this can be such an expensive and time-consuming
process, this drilling will often be carried out in two sub-stages with a minor decision
point in between: an initial evaluation drilling and a later definition drilling stage.
Evaluation and definition drilling provide the detail and confidence levels requiredto proceed to
the final feasibility study.
Feasibility study
This, the final stage in the process, is a desk-top due-diligence study that assesses
all factors – geological, mining, environmental, political, economic – relevant to
the decision to mine. With very large projects, the costs involved in evaluation are
such that a preliminary feasibility study is often carried out during the preceding
resource evaluation stage. The preliminary feasibility study will identify whether
the costs involved in exploration are appropriate to the returns that can be expected,
as well as identify the nature of the data that must be acquired in order to bring the
project to the final feasibility stage.
Resource evaluation
Resource evaluation is undertaken to quantify the grade and tonnage of a mineral occurrence.
This is achieved primarily by drilling to sample the prospective horizon, lode or strata where the
minerals of interest occur.
The ultimate aim is to generate a density of drilling sufficient to satisfy the economic and
statutory standards of an ore resource. Depending on the financial situation and size of the
deposit and the structure of the company, the level of detail required to generate this resource
and stage at which extraction can commence varies; for small partnerships and private non-
corporate enterprises a very low level of detail is required whereas for corporations which
require debt equity (loans) to build capital intensive extraction infrastructure, the rigor
necessary in resource estimation is far greater. For large cash rich companies working on small
ore bodies, they may work only to a level necessary to satisfy their internal risk assessments
before extraction commences.
Reserve definition
Reserve definition is undertaken to convert a mineral resource into an ore reserve, which is an
economic asset. The process is similar to resource evaluation, except more intensive and
technical, aimed at statistically quantifying the grade continuity and mass of ore.
Reserve definition also takes into account the milling and extractability characteristics of the
ore, and generates bulk samples for metallurgical testwork, involving crushability, floatability
and other ore recovery parameters.
Reserve definition includes geotechnical assessment and engineering studies of the rocks within
and surrounding the deposit to determine the potential instabilities of proposed open pit or
underground mining methods. This process may involve drilling diamond core samples to derive
structural information on weaknesses within the rock mass such as faults, foliations, joints and
shearing.
At the end of this process, a feasibility study is published, and the ore deposit may be either
deemed uneconomic or economic.
extraction
The ultimate goal of mineral exploration is the extraction, beneficiation and profitable and
beneficial sale of mineral commodities.
Extraction methods may vary considerably and it is the discipline of engineers trained in
mining engineering to determine the most safe, cost effective and efficient method of mining the
ore body.
Mineral exploration and development does not cease upon a decision to mine. Exploration of a
brownfields nature is conducted to find near-mine repetitions, extensions and continuity of the
existing ore body. In-mine exploration and grade control drilling is a major concern of operating
mines and can be an effective tool in adding value to existing mineral operations.
Often the lessons learned from studying an exposed ore body, both empirically and scientifically,
are invaluable to the exploration geologist and geophysicist, for they get to see the proof of their
concepts and the errors of the assumptions they used in the search for the ore body. It is always
the case that the exact nature of the ore body does not exactly match the models used to find it.
Exploration wastage curve
discussion
Obviously not all prospects that are generated will make it through to a mine. Most will be
discarded at the target generation or target drilling stages. Of the small numbers that survive to
evaluation drilling, only a few will reach feasibility stage, and even they may fail at this last
hurdle. The total number of prospects that have to
be initially generated in order to provide one new mine discovery will vary according to many
factors (some of these are discussed below) but will generally be a large number. Some idea of
what is involved in locating an ore body can be gained by considering a prospect wastage or
exploration curve (Fig. 1.1). This is a graph on which the number of prospects in any given
exploration play (the vertical axis) is plotted against the exploration stage reached or against
time, which is the same thing (the horizontal axis). The large number of prospects initially
generated decline through the exploration stages in an exponential manner indicated by the
prospect wastage curve.
Discussion
The curve labelled A represents a successful exploration play resulting in an ore body discovery.
The curve labelled C represents another successful exploration play, but in this case, although
fewer prospects were initially generated, the slope of the line is much less than for play A. It can
be deduced that the prospects generated for play C must have been generally of higher quality
than the prospects of play A because a higher percentage of them survived the initial
exploration stages. The line B is a more typical prospect wastage curve: that of a failed
exploration play.
It should be clear from the graph, that there are only two ways to turn an unsuccessful
exploration programme into a successful one; the exploration programme either has to get
bigger (i.e. increase the starting number of prospects generate or the explorationist has to get
smarter (i.e. decrease the rate of prospect wastage and hence the slope of the exploration
curve). There is of course a third way: to getluckier.
Prospecting methods

>GEOPHYSICAL

>GEOCHEMICAL
 Geophysical methods
Airborne magnetometers are used to search for magnetic anomalies in the Earth's magnetic
field. The anomalies are an indication of concentrations of magnetic minerals such as magnetite,
pyrrhotite and ilmenite in the Earth's crust. It is often the case that such magnetic anomalies are
caused by mineralization events and associated metals.
 
Ground-based geophysical prospecting in the target selection stage is more limited, due to the
time and cost. The most widespread use of ground-based geophysics is electromagnetic
geophysics which detects conductive minerals such as sulfide minerals within more resistive host
rocks.
 
Ultraviolet lamps may cause certain minerals to fluoresce, and is a key tool in prospecting for
tungsten mineralization.
I
m
Remote sensing
Aerial photography is an important tool in assessing mineral exploration tenements, as it gives
the explorer orientation information - location of tracks, roads, fences, habitation, as well as
ability to at least qualitatively map outcrops and regolith systematics and vegetation cover across
a region. Aerial photography was first used post World War II and was heavily adopted in the
1960s onwards.
Since the advent of cheap and declassified Landsat images in the late 1970s and early 1980s,
mineral exploration has begun to use satellite imagery to map not only the visual light spectrum
over mineral exploration tenements, but spectra which are beyond the visible.
Satellite based spectroscopes allow the modern mineral explorationist, in regions devoid of cover
and vegetation, to map minerals and alteration directly. Improvements in the resolution of
modern commercially based satellites has also improved the utility of satellite imagery; for
instance IKONOS satellite images can be generated with a 30 cm pixel size.
 SATELLITE Remote sensing is the science of
LANDSAT
remotely acquiring, processing and
interpreting spectral information about
the earth’s surface and recording
interactions between matter and
electromagnetic energy.
AIRBORNE
HYPERSPECTRAL
GROUND
Field Spectrometer

Alumbrera, Ar

Data is collected from satellite

and airborne sensors. It is then
calibrated and verified using a
field spectrometer.

CUPRITE, NV
Goldfield, NV
Geochem
Geochemistry is a fundamental aspect of virtually every exploration program
It has evolved from simple assaying of the commodity in question eg Au, to
identifying subtle geochemical anomalies using major and trace elements
contained in surficial sediments eg soil, laterite, till, vegetation or groundwater
The object of geochemistry is to define a geochemical anomaly which
distinguishes an ore deposit from background and insignificant mineralisation
Types of Surveys

Rock (lithogeochemical)
Soil (pedogeochemical)
Stream sediments
Water (hydrogeochemical)
Vegetation
Vapour
VAPOUR SURVEYS
Vapour surveys aid in the location of buried deposits through the detection of halos of sulphur dioxide,
hydrogen sulphide, mercury, iodine, radon, or other gases or volatile elements and compounds often at
considerable distances from source of mineralization.
 
Included in the general category vapor surveys are (1) Air (Atmogeochemical) surveys. (2) Soil gas surveys.
(3) Some vapours (e.g., He, Rn, Hg) may be detected in ground water.
 
Volatile elements may be released to the atmosphere (or soil) from three major sources (1) Through
oxidation of ore deposits. (2) Through radioactive decay (e.g., He and Rn from uranium); and (3) During
volcanism (e.g., H and He).
 
Mercury was suggested as a pathfinder for locating sulphide deposits as long as 1946.
Vegetation Surveys
Geobotany: Visual surveys of vegetation

Biogeochemistry: collection and testing of plant material

Costs in exploration
Exploration work phase: the search for, discovery and first delimitation of a
previously unknown mineral deposit or the re-evaluation of a sub-marginal or
neglected mineral deposit in order to enhance its potential economic interest
based on delimited tonnage, grade, and other characteristics. This phase is
completed when a deposit has sufficient indicated mineral resources
accompanied by a positive scoping study (preliminary economic assessment)
that justifies additional, more detailed and costly deposit appraisal work. The
expenditures include all field activities and support, including capital, repair and
maintenance expenditures1, carried out on- or off-mine site.
Exploration costs
Deposit appraisal work phase:
The steps undertaken to bring a delimited deposit by definition
drilling, comprehensive tests and planning to the stage of detailed
knowledge required for an exhaustive and complete feasibility study
that will fully justify and support a production decision and the
investment required. The expenditures include all field activities and
support, including capital, repair and maintenance expenditures1,
carried out on- or off-mine-site2, 3.
Exploration costs
Mine complex development work phase:
All work and support activities carried out on a mine site2 to define, block out
and gain access to the ore and prepare it for production, as well as to extend
the current ore reserves by exploring and appraising the immediate vicinity of
the deposits.
The expenditures include all field activities and support, including capital, repair
and maintenance expenditures carried out on a mine site that is in production
or committed to production and for related infrastructure and plants, such as
pelletizing plants, that are not located at the mine site, but exclude metal
smelting and/or refining plants.
Categories of expenditures
Surface and Underground Field Surveys
Includes expenditures associated with geoscientific surveys, drilling, rock work,
other costs, engineering, economic and feasibility studies, mineral leases, and
head office costs related to the project.
It includes wages, salaries, fringe benefits, food, accommodation and other
services, equipment rentals, all vehicle expenses, transportation costs (for
people and equipment), and all related technical activities/services such as
planning, data collection, interpretation, evaluation, map making and reports.
Continued….
The costs reported for each activity should include all work carried out by the project operator
and contractors, and all required field supervision and project management.

Other costs should be attributed to the field survey and work category they relate to, if feasible .
Mineral leases, claims, staking and line cutting:

Staking costs and fees (including recording fees), licence and lease
application, renewal fees, legal fees pertaining to mineral leases and
claims, and fees paid in lieu of assessment work.
Fees paid in lieu of unperformed assessment work should be
credited to this account upon reimbursement following performance
of the work (when applicable). All environment-related costs are
excluded.
Engineering studies
All expenditures related to the additional studies, tests, pilot work and production tests (for
mining, sampling plant, mineral processing and/or metallurgy of bulk samples,
dewatering/pumping tests, etc.) and all plans, designs and appraisals required to establish the
technical feasibility of a mining project.
Environmental characterization
All costs of environmental characterization, baseline studies, assessment (preliminary
environmental impact studies).
Environmental assessment and
permits:
All costs related to the process of meeting the legal and regulatory requirements or guidelines
for environmental assessment and for obtaining permits required for the work program under
consideration, including preproduction permits.
Environmental protection:
Costs for monitoring (additional to normal practices) and complying with laws, regulations and
guidelines related to air emissions, liquid effluents, ground pollution, and wildlife and habitat
protection. Environmental fines are included in this category.
Environmental restoration:
All costs of decommissioning TEMPORARY installations, reclamation
and restoration, as well as monitoring, if required, after specific work
has ceased. Include in Section 18 capital, repair and maintenance
expenditures related to restoration of permanent installations at the
mine complex development phase (including care and maintenance
at temporarily closed mines). Exclude mine site reclamation of mines
permanently shut down.
Socio-economic and impact benefit
agreements:

land access agreements, permits, damages as well as all costs related to establishing Impact
benefit agreements, socio-economic agreements, and other requirements for mine complex
development and mine production, and the costs of rights of way, damages and permits for
exploration and deposit appraisal work, including all associated legal fees, but excluding all
environment-related costs.
 Other field work costs:

Expenditures related to surveying and general or overhead costs that could

NOT be attributed or prorated to a specific work activity. These
expenditures may include such items as office rental, warehouse and
storage, radio and telecommunications, and energy costs unrelated to mine
production. At the exploration and deposit appraisal phases, these costs
may include the temporary construction of camps, access roads and
airstrips, other transportation-related facilities as well as the care and
maintenance of projects on hold, awaiting permits or financing.
 Exploration Work Phase
Ideally, the exploration phase ends when a newly discovered mineral deposit has first
been delimited on a moderately wide drilling grid and a mineral inventory has been
carried out to establish its potential economic interest for eventual development.
Estimation of a mineral resource shall be justified by the dimensions, metals and minerals
contents and other pertinent characteristics of the deposit.
The economic potential that justifies the estimation of a mineral resource should be
formally presented in a preliminary technical and economic study.
 
Scoping, pre-feasibility or final
feasibility studies
The exploration phase ends with the first quantitative deposit
inventory that is accompanied by a preliminary technical and
economic study (scoping study), that evaluates the potential
economic interest of the deposit.
Deposit appraisal starts when the funds required to do so are
available and the operator decides to undertake a deposit appraisal
program. Several prefeasibility studies are carried out during deposit
appraisal for review and planning purposes.
Continued….
A production feasibility study (full-scale and detailed) is required to establish the technical
feasibility and economic profitability of a mining project and to conclude this phase. This due
diligence review is the first of the five essential criteria needed to establish that the project has
entered the mine complex development phase.
Repair and Maintenance
Non-capitalized REPAIR AND MAINTENANCE expenditures consist of the gross non-capitalized
repair expenditures on non-residential buildings, other structures and machinery, the costs of
maintaining the restored mine site (care and maintenance), and the routine care of assets,
including environmental monitoring of the restored mine site. Exclude costs incurred at
permanently closed mines.