Valuing a mine – how (and why) to value a coal mine gas outage

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Extractive industries are unique in some respects: Once a mining resource is sufficiently established from a technical perspective and its economic viability is verified with a feasibility study, the processes to extract the ore and produce the commodity are well-known. wb state electricity board bill pay Costs, therefore, can be estimated with a reasonable degree of precision. electricity physics formulas Furthermore, the product usually has a ready end market (global or regional) so revenues can be forecast using publically available forward pricing curves. k electric jobs 2016 Market-based approach

With this approach, the value is inferred from publically available information about transactions and trading prices comparable with the target mine. gas guzzler tax While each mining project may have its own singular characteristics, value data from reasonably similar mines can be used to determine a range of fair market values or to reaffirm the reasonableness of value conclusions reached by other methods, including the income-based approach. Cost-based approach

In a cost-based approach, the value is based on the principle that a notional purchaser would not spend more on an asset than it would cost to actually construct the asset. electricity tower vector Such costs would include the development costs of the property. gas quality The value calculated thisway may be thought of as a “floor”value, as it would not include any expected future rate of return or cash flows from the investment.

It is important to take great care in choosing a primary valuation approach for a target mine (or mines). When valuing a number of licenses or coal properties (for example, at an auction), the valuation analyses may need to be done on a block-by-block basis, as each block likely will be different in the characteristics of the resource and its stage of development. Where appropriate and feasible, it usually is best to apply more than one methodology so final conclusions can be cross checked. (The Central Mine Planning & Design Institute’s recent suggestion to ascertain total value of a block by assessing the block’s net present value based on an income approach (that is, DCF) appears to be consistent with the above standardsand guidelines.) More to Mining than Markets and Money

For example, when assessing the value and attractiveness of a particular coal block, bidders likely will take into account market power, portfolio effect (a single buyer, for instance, might ascribe a higher value to a block than if it was sold to several buyers), ownership caps promulgated by the government, and specific end-use limitations that may reduce the number of potential bidders and, thereby, affect the value ascribedto the mine.

Mining, as we’ve noted, has long been perceived as a risky business — and with good reason. Risks that are difficult to calculate precisely include regulatory hurdles (such as the time and cost of procuring approvals and producing the necessary documentation to commence exploration, development and operations of a mine) and other market and project risks that may affect cash flows (such as the realizable coal price). Before inferring the value of a property, it behooves companies and investors to assess these risks as thoroughly as possible.

The valuation of a coal project is a vast undertaking. It requires knowledge of the overall mining process, a sound recognition of the property or properties under consideration from both a technical and a financial perspective, and command of the appropriate valuation standards and guidelines. Proper valuation also demands a deep appreciation of the risks specific to the geography and project. gas laws definition chemistry Above all, it requires an understanding of the context of the valuation and experience with standard valuation and financial concepts and approaches.