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This paper provides a financial perspective to the valuation of Australian resource companies and projects. Valuation exercises need, however, to be seen in the broader context of a thorough business appraisal, one that incorporates all disciplines employed in the resources industry. Fine tuning a discount rate or determining a particular capital structure is likely to be less important to valuation than an adequate understanding of industry dynamics and a company's likely performance in future years.

Jan 1, 1989

Having worked as a consultant for most of his 40-year working life, mostly as a mineral property valuer, the author has seen many poor valuations. Most were valuations of exploration tenements where the selection of the rather subjective, but necessary, geological inputs raised the main concerns. Those valuations involving iron ore prospects raise particular problems due to the special characteristics of such deposits. Iron ore is more like an industrial mineral rather than precious or base metals and Reserves are determined not by a traditional cut-off grade but by customer specifications. This is intended to be an overview/keynote paper on the current state of the growing (yet consolidating) Australian Iron Ore industry. It has now moved beyond Western AustraliaÆs æPilbara Big TwoÆ of Rio/BHPB (with the emergence of the irrepressible FMG and Hancock Prospecting) to include the YilgarnÆs æMidwest ManyÆ (including US re-entrant Cleveland Cliffs through Portman) and projects in other States. Ore types have moved from haematite Brockman to martite-goethite Marra Mamba (including the RobeÆs mesas and below water table Yandicoogina CIDs) and magnetite ore types. There are DSOs and secondary process feed. Mineral valuers have to reflect today upon these and many other determinants of value when choosing the most appropriate methodologies to adopt when technically assessing and valuing exploration tenements containing iron ore. Set against a frame work of the JORC Code (2004) and VALMIN Code (2005), the general valuation issues involved in using the cost methods (eg multiple of exploration expenditure), market methods (eg comparable sales, rules-of-thumb and joint venture terms) and income methods (eg synthetic discounted cash flow (DCF)/net present value (NPV) modelling) are discussed. Relevant factors when valuing iron ore properties are discussed, eg ore type, lump/fines ratio, stripping ratio, water table, impurities and grade, particularly the JORC confidence category of the identified mineralisation. Remoteness and access to existing rail infrastructure is a key consideration.

Jan 1, 2007

How the Australasian and Canadian Codes (VALMIN and CIMVal) approach mineral property valuation is described. Brief comment is also made on the International Valuation Standards CommitteeÆs interest in a global valuation standard for Mineral (Extractive) Industries and the South African SAMREC initiatives to adopt a VALMIN-like Code. The conventional tripartite classification of valuation approaches into those that are Market-based, Income-based and Cost-based is outlined. It is best practice to use as many of these approaches as possible (and as many methods as reasonable in the particular circumstances), given the quantity and quality of the data available on the Mineral Asset (which depends upon the state of development of the mineral property). The use of specific methods must satisfy the basic considerations of logic and reasonableness and the purpose of the valuation. The competence, judgement and repute of the valuer are critical factors, since all valuations are time and circumstance specific. What constitutes æMarket ValueÆ in the different jurisdictions is discussed and definitions are given. Challenges facing the globalisation of a VALMIN-type Code for the international Minerals Industry are the influence of real estate valuers and the US jurisdictional idiosyncrasies. This is mainly due to a fixation on real property rights with a preference for using real estate-like comparative sales techniques (Market Approach) to the exclusion of Income-based approaches; a regulatory reluctance in the US to accept that Resources have considerable value; and the International Accounting Standards BoardÆs preference for Historical, rather than Current Value, accounting.

Jan 1, 2002

By A. L. Slaughter

A mineral deposit has been discovered and explored sufficiently to establish the presence of ore in ?commercially marketable quantities," This is the point at which exploration ends and development begins, Of course, when the presence of commercially marketable quantities of ore are thought to be present the deposit had to be evaluated before this decision could be reached. If, on the other hand, it was thought that commercially marketable quantities of ore are not present, either more exploration has to be done or the project must be abandoned. It is this decision with which this paper is concerned, more particularly, the influencing factors behind this decision. The final question to be answered is: what profit can my company reasonably expect to make by developing this property and putting it into production? The answer must be expressed as a figure for final profit per ton, money which can be used to pay dividends or to build up cash reserves. Some acquisition cost has probably been paid and the exploration cost incurred at the time of decision, (abandonment or development). In addition to returning these acquisition and exploration costs, the deposit must pay development, mining, milling, capital expense of new plants and equipment, taxes, and various other related costs.

Jan 1, 1958

By D. R. Young

Drilling exploration over the Wesizwe Platinum Limited?s Pilanesberg Project has identified the Merensky Reef at depths varying from 594 m to 1 552 m depth. Merensky Reef thickness varies from 0.05 m to 3.63 m and contains PGE(4) mineralization above a cut-off grade of 1.0 g/t over intersection widths of 0.95 m to 2.63 m. Four distinct facies types have been identified over the property, viz.1) Normal Merensky Reef, generally 1.2 m thick, bounded by thin top and basal chromitite layers and composed of upper feldspathic pyroxenite and lower feldspathic olivine pegmatoids containing base metal sulphide mineralization overlying poikilitic anorthosites. 2) Single chromitite Merensky Reef, generally0.15 m thick and usually devoid of internal silicate material, overlying variable stratigraphy containing significant base metal sulphide mineralization. 3) Detached Merensky Reef, generally1.0 m thick, bounded by thin top and basal chromitite layers and composed of feldspathic pyroxenite or pyroxenite containing base metal sulphide mineralization overlying Merensky Pyroxenite. 4) Normal footwall Merensky Reef, generally 1.8 m thick, bounded by thin top and basal chromitite layers and composed of feldspathic pyroxenite containing base metal sulphide mineralization overlying norites also containing significant base metal sulphide mineralization. The PGE(4) content?s (g/m2) distribution for the global intersection data appears to be lognormal, and conversion to lognormal space produces a near normal distribution which could be interpreted as a compound lognormal distribution. The mean PGE(4) contents estimated by these three different distributions are the same, and thus do not impact on the contained metal. Data for the Normal Merensky Reef facies type are sufficient to indicate that a normal distribution is followed for this facies type, and therefore does not need to be transformed to log space for estimation of the mean and the 90% confidence limits. A global evaluation based on all of the data is compared with a facies-weighted evaluation. The latter method is noted to provide a better definition of the associated estimation errors and thus potential classification of Mineral Resources. A valuation of $20.95 for Inferred and $41.90 for Indicated PGE(4) ounces is applied to both of the evaluations and compared. The global evaluation is considered to over-value the project by approximately 40%, thus indicating that valuations based on global summary sampling data that have a compound distribution may be materially flawed, and that cognizance of the underlying geology is crucial for unbiased valuation.

Jan 1, 2006

By Kenneth A. Grace

Jan 1, 1985

By AIME AIME

A COMMITTEE, representing a number of the larger oil companies in California, met in San Francisco on Nov. 12, 1919, for the purpose of discussing the depletion deductions to be allowed in computing the Federal income taxes under the Internal Revenue Act of 1918. It was the general sense of the committee that a system based on sound engineering principles should be formulated for estimating the value of oil properties, so that better and more uniform results might be obtained by the various companies in filing their returns with the' Bureau of Internal Revenue. A subcommittee, consisting of five petroleum engineers, was thereupon appointed to collect information and draft a report. The committee consisted of G. C. Gester, Carl H. Beal, J. H. G. Wolf, E. G. Gaylord, and E. D. Nolan; this report is the work of that subcommittee.

Jan 1, 1920

Discussion * of the paper of H. M. Chance, presented at the butte meeting, august, 1913, and printed in bulletin No. 79, July, 1913, pp. 1315 to 1341. George H. Ashley,+ Washington, d. C.:-Mr. Chance's long practical experience in reporting on coal lands admirably fits him for a discussion of the value of such lands. On behalf of the government geologists, I wish to express my appreciation of Mr. Chance's friendly, constructive criticism of the government method of valuing coal land in the first part of his paper and, at the same time, to reply to some queries he makes. All admit that coal has no " intrinsic "-monetary value, in the sense that a pound of coal of certain chemical and physical characters is worth " intrinsically " so many cents or fractions of a cent. The term has, however, been found very useful as including those natural factors of coal value, among which are its position and location in the earth, that affect its sale price in contrast with the other cost elements involved in the labor and capital necessary in mining, preparing, transporting, and selling the coal (extrinsic factors). Mr. Chance, while recognizing the " dual origin of value," does not offer any better terms. The survey agrees with Mr. Chance in his definition of coal conservation, that it means the fuller utilization of the heat contents of the coal, and the more complete recovery of the coal from the ground. Coal land withdrawals have not been made to keep such lands off the market, but to prevent their acquisition as non-coal lands before they could be classified so as to be disposed of under the proper law. Nor has the pricing of the more valuable coal lands above the minimum been to raise money for the reclamation fund, to which the money goes, but primarily to discourage the alienation, for holding or speculation, of coal lands not intended or needed for development, and, secondarily, to secure to the people the ?unearned increment," which they are certain in any case to be charged.

Jan 11, 1913

By H. M. Chance

(Butte Meeting, August, 1913.) ADEQUATE treatment of the difficulties surrounding the valuation of mineral lands requires that agreement be first reached defining value as understood for the purpose of appraisal. To define value as the price of a product is not sufficient, and does not assist us in using the factors that cause variations in values and in relative values. The real value of any product depends primarily upon its relation to the necessities, comforts and pleasures of mankind. As the necessities, comforts and pleasures of the civilized races differ from those of more primitive man, the value of products varies with the degree of civilization and the environment of the consumer. Coal has no value to the savages of warm climates, and arrow-head flint none to the residents of New York. It has long been recognized that what has been termed ? intrinsic value " must be limited to materials that are essential to existence-air, water, food. But "intrinsic value" cannot be measured in monetary terms. The intrinsic value of a bushel of wheat is due to the fact that it will support the life of an individual for a certain definite time, but this fact does not enable us to measure or to express that value in monetary terms. It has often been proposed to adopt as a measure of the value of any product the quantity of labor necessary to produce it, but this method is of limited application, and will not apply to what may be termed "intrinsic values." For many reasons it might be well, while assenting to the fact that any material may he intrinsically valuable, to abandon the use of the term " intrinsic value." One of these reasons is the tendency to confuse the idea of intrinsic value with a value that is conferred by economic conditions, that is purely artificial and that may be permanent or evanescent; Intrinsic value must from its nature be permanent and unchangeable.

Jan 7, 1913

By H. M. Chance

(Butte Meeting, August, 1913.) ADEQUATE treatment of the difficulties surrounding the valuation of mineral lands requires that agreement be first reached defining value as understood for the purpose of appraisal. To define value as the price of a product is not sufficient, and does not assist us in using the factors that cause variations in values and in relative values. The real value of any product depends primarily upon its relation to the necessities, comforts and pleasures of mankind. As the necessities, comforts and pleasures of the civilized races differ-from those of more primitive man, the value of products varies with the degree of civilization and the environment of the consumer. Coal has no value to the savages of warm climates, and arrow-head flint none to the residents of New York. It has long been recognized that what has. been termed ?intrinsic value " must be limited to materials that are essential to existence-air, water, food. But " intrinsic value " cannot be measured in monetary terms. The intrinsic value of a bushel of wheat is due to the fact that it will support the life of an individual for a certain definite time, but this fact does not enable us to measure or to express that value in monetary terms. It has often been proposed to adopt as a measure of the value of any product the quantity of labor necessary to produce it, but this method is of limited application, and will not apply to what may be termed " intrinsic values." For many reasons it might be well, while assenting to the fact that any material may be intrinsically valuable, to abandon the use of the term "intrinsic value." One of these reasons is the tendency to confuse the idea of " intrinsic value with a value that is conferred by economic conditions, that is purely artificial and that may be permanent or evanescent. Intrinsic value must from its nature be permanent and unchangeable.

Jan 7, 1913

THE COMMITTEE, appointed early in May, met and organized in Washington, May 9, 1923, and were then advised that such data as they required would as far as obtainable be submitted to them in tabulations, and that they could not be allowed to see the individual reports nor know the identity of the operators on whose reports the figures submitted were based, therefore the Committee's valuation is based on data received from your statisticians, and on tonnages estimated by your staff and by the United States Geological Survey. Various methods of valuation for mining properties have been suggested, but all authorities seem to agree in accepting, as the fairest and most practicable and logical, a capitalization of the estimated future earnings, when such estimate can reasonably be made. Hoover and Finlay both emphasize this. The United States Supreme Court says in Cleveland, Cincinnati, Chicago & St. Louis Railway Co., v. Backus, 154 U. S. 439: But the value of the property results from the use to which it is put and varies with the profitableness of that use, present and prospective, actual and anticipated. There is no pecuniary value outside of that which results from such use. The amount and profitable character of such use determines the value. The Committee on Federal Taxation of the American Institute of Mining and Metallurgical Engineers, appointed in 1919, in its report states: A proper value of a mining property is the present value of the prospective net earnings, taking into account probable variations in output and value. Ingalls (" Wealth and Income of the American People," p. 97) says: The fundamental principle of mine valuation is the present worth of an annual dividend accruing during the period of years corresponding with the life of the mine. It is a convention that the estimated period shall not be more than 30 years.

Jan 1, 1924

By John Dilworth

THIS paper treats primarily of the valuation of developed coal properties by the method of capitalizing their estimated average future earnings. However, in it reference is also made to valuations of undeveloped coal lands and to various methods of appraisal other than by future earnings. FUNDAMENTAL VALUATION PRINCIPLES Before discussing in detail coal property valuations, a few statements bearing on the general subject will be made to present certain of the writer's views on the question as a whole. 1. A certain property at a given time has but, one true value. This is not universally admitted. The appraiser rather frequently finds that a coal owner has in mind three valuations for his holdings; one, the figure at which he feels they should be appraised for taxation purposes; another, the much higher one that should be used if a loan is to he negotiated on the property; and a third, intermediate between the other two, the price for which he would be willing to dispose of his holdings were they for sale. The last is usually nearest to the true value, and because this is so the statement is generally accepted that the fair value of such a property is the price arrived at by negotiation between a willing seller and a willing buyer who are otherwise disinterested. 2. Notwithstanding the foregoing, it is only very generally and approximately true that the proper measure of the value of a given developed1 coal acreage is the unit or per-acre price for which one or more bodies of similar coal in the salve district have been sold recently. To give a few reasons why such a measure of value can not be strictly applied, it may be noted:

Jan 1, 1927

By John Dilworth

IN considering the valuation of industrial properties in general, and of developed coal properties in par-ticular, it is assumed as fundamental that they have but one true value regardless of the object for which they are appraised. As regards developed coal lands, this value is only very approximately indicated by the recent sale price of neighboring lands, for the reason that it is rarely possible to find a sale of a coal property sufficiently similar in essential mining conditions to the one under consideration to serve as a measure of its value; and if such a one is found there are frequently incidental conditions peculiar to this particular transaction which invalidate the use of the sale price as a measure of general values. The true measure of the value of a coal mining opera-tion is the amount and rate of earnings it will afford with intelligent and experienced management. Prac-tically all of the features of a property which are gen-erally recognized as affecting its value relate either to the cost of producing the coal, or to the price it will bring, and so are intimately associated with earnings. In practice it is customary to appraise those portions of a developed coal property which are produced -by the industry of man-mine plant, equipment, development, town, etc.-at their cost of replacement at prevailing prices of materials, machinery, and labor, with such deductions for age, condition, obsolescence, and lack of usefulness as conditions warrant. Surface is appraised at the estimated cost of similar land in the district. Coal value is the difference between the worth of the entire property; considered as an industrial unit and

Jan 9, 1927

By A. M. Nordale

Let us first trace a line, mentally, across Alaska and Yukon, starting at a point in the west slightly south of the delta of the Yukon river and from there continuing eastward, loosely following the 63rd parallel of latitude until we have passed beyond the eastern border of Yukon. We will make two pronounced digressions southward to include the greater parts of the Iditarod and Tanana River valleys. That visualized line roughly defines the southern boundary of permafrost. North of it lies a vast region, fully three-fourths of the area of the two territories, which includes Seward peninsula, the great Yukon River basin, and the tractless wastes of the Arctic. During some frigorific cycle in the distant geological past, the ground there was frozen to a depth of many hundreds of feet. How deep the frost actually penetrated is not known, but it has been found to exceed three hundred feet in many places. Nature afterwards provided a perfect insulating cover in the form of heavy moss and dense grass, which has protected the ground from the heat of the sun's rays during the intervening ages. This frozen condition has always been accepted as something indigenous to the North and little thought was given to -it until recently, when the United States Government and, I believe, the Canadian Government, began extensive studies of it, particularly in respect to its effect and bearing on the development of the great oilfields of the Arctic. Within this large region and but a short distance south of the Arctic circle are the three principal producing placer gold fields in the sub-arctic, whose hubs centre at Nome and Fairbanks in Alaska and at Dawson in Yukon Territory. The geological structure and history of the gold-bearing deposits of Dawson and Fairbanks are very similar and probably closely related. They are typical placer deposits produced by stream action during periods of erosion and inundation and subsequently covered with a thick layer of fine, powdery silt mixed with decayed vegetation which, locally, is termed 'muck'. The depth of muck varies from less than 10 to more than 250 feet, with the greater depth near the lateral edges of the valleys. The gravel underlying it is medium in size, well rounded, and composed mostly of quartz and schist. The proportion of sand or fines is approximately 40 per cent. No large boulders and little clay are found, for those districts, as well as that of Nome, have not been subjected to glaciation. The most common bed-rock found is either decomposed or hard schist, but infrequently it is slate, quartz, diorite, or a porphyry. The vertical concentration of the gold is invariably on bed-rock and in the lower few feet of gravel which overlie it. The horizontal concentration or paystreak is roughly parallel to the trend of the valley but does not ordinarily coincide with the course of the present stream. The width of the paystreak usually expands from a few feet at the head of a creek to several hundred feet near its mouth.

Jan 1, 1947

By Hrayr Agnerian

The fair market value of an exploration property is determined by its potential to host a mineral deposit. This potential is gauged by the results of previous exploration, exploration stage, meaningful past expenditures and remaining targets that are not yet tested. Values of exploration properties can be viewed as distinct points in a three-dimensional space defined by orthogonal axes, namely: Exploration Stage (x-axis); Cumulative Expenditures (y-axis); and Property Value (z-axis). In general, these values are estimated by applying activity factors on previous exploration expenditures, e.g. an activity factor of 100% for an active property with good potential and a factor of 50% for an active property but past expenditures have not upgraded the property. At certain periods, a market factor may also be applied to reflect the activity of mineral property acquisitions. For properties that do not exhibit any exploration potential, only nominal values are applied.

Jan 1, 1996

This paper examines the issues involved in the technical audit and valuation of exploration prospects. Certain methodologies are more appropriate to use depending upon whether the mineral property valuation is of an exploration area, a project under development, or an operating mine. Valuation approaches that are reviewed include the Multiple of Exploration Expenditure, Joint Venture Terms, Rules of Thumb, and particularly the Kilburn Rating Method. The DCF/NPV Financial Simulation Method, even modified by the use of Expected Values, is not considered appropriate for valuing exploration prospects. The choice of the most appropriate methodology and its successful application depends primarily upon the amount of reliable input data available and, more importantly, the experience and judgement of the valuer. It must be remembered that all valuations are time and circumstance specific and will be generally subject to revision as more data becomes available.

Jan 1, 1993

By J. G. Russell

The valuation of known mineral re-serves entails the economic evaluation of the mining enterprise and the valuation of other assets employed, including mining and processing plant and intangible assets. A case study approach analyzes two reserve situations: ownership of reserves (phosphate rock), and leasing of reserve lands (kaolin). The appraisal of the physical property is outlined, along with the economic analysis of the operation. The discounted net cash flow approach is used to value the enterprise, leading to value of the reserves after correlation with other assets employed.

Jan 1, 1989

By E. E. White

I disagree with Mr. Brinsmade on serveral points, and I will discuss this remards under the same six topics which he has used.

Jan 1, 1915

By E. E. White

I DISAGREE with Mr. Brinsmade on several points, and I will discuss his remarks under the same six topics which he has used. 1. Rate of Interest Earned by Sinking-Fund.-I believe Mr. Brinsmade is confused in his ideas as to the effect of new gold on the interest earned on money. The flood of gold which he mentions certainly should not operate, to increase interest rates, but since it replaces and adds to liquid capital should reduce interest rates and counteract the destruction of liquid capital which he mentions. Furthermore, it is doubtful if the destruction of capital since 1897 by wars and catastrophes has been any greater in proportion than in similar periods before 1897. With regard to savings banks, I would say that only 3 per cent. is allowed on deposits through a large part of the West. As to bonds, they can be bought to yield any rate. of interest desired up to 6 per cent., but, a 5 per. cent. bond is not as safe as a 4 per cent. bond, nor a 4 per cent. bond as safe as a 3 per cent. government security. I do not understand why Mr. Brinsmade says that Mr. Denny's quoted opinion of a 3 per cent. rate is evidently based on English conditions before the Boer War. Certainly there is no reference to the Boer war or to English conditions in Mr. Denny's article. M. Howard Burnham, in his admirable work on mine valuation, says': ". For instance, redemption is taken at 3 per cent., because even 4 per cent. represents a greater risk, as is indicated by the purchase of Government paper to bear only 3 per cent., the great desideratum of the .latter being security." . Again, Mr. Burnham says:2 "The tables are calculated on the assumption that the dividends shall accumulate at 3 per cent. only, as in accordance with the general idea set out elsewhere, a rate greater than 3 per cent. involves appreciable risk with which it were inaccurate to saddle the sinking-fund if risks are to be segregated, this being the basis of all the writer's calculations."

Jan 6, 1914

By John C. Smock

THE question of the proper valuation of mines of iron ore was suggested to me by the difficulties experienced in getting answers for the United States Census Office, while I was engaged in the work of collecting the statistics of mines in New Jersey and New York The answers to the questions relating to values of real estate of mine properties varied so greatly that it was necessary to revise them according to some general principles of valuation. Generally the returns of mine proprietors Seemed to be too low. There were, however, examples of what would be termed excessive valuation. The Subject appeared to be of practical importance, and led to the paper here presented. The following table of selected mine statistics is given, prefacing the discussion of the principles of valuation. It is in part made up of census returns and partly of data obtained directly from mine owners and managers. The mines which were Selected for the Several groups and mining districts include nearly all of those from Which the more full and carefully filled returns were received, and are also representative of their respective districts. Hence the averages obtained from them become good types of these groups or districts. The mines of New Jersey appear in Six groups, each containing from three to eleven mines, or, in all, thirty-four mines. The magnetic iron ores of New York are in four well-marked groups, and there are twenty-six mines in them. Then follow the red hematite mines of St. Lawrence and Jefferson counties; and, lastly, the brown hematite groups of Dutchess and Columbia counties, and those of the adjacent parts of Connecticut and Massachusetts. The whole number of mines represented by the table is eighty-eight, of which twenty-eight are hematite mines. The first column gives the value of the real estate; the second that of the plant; the third is the sum of these two, or the capital invested. Then follow the number of men employed, the amount of wages paid during the census year, and the value of materials used in mining and preparing the ores for market.* The seventh column gives the total expendi- * The value of materials is somewhat uncertain in many cases, as royalties are included under this head. Likewise, under wages, the cost of explosives and light is often included. Hence it is impossible to draw the line sharply between these items of expenditure.

Jan 1, 1882