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Mining Valuation Model


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I have been working on an advanced Excel mining valuation model. I have an odd interest in these quantitative financial things, probably because I am not particularly fond of the TV.


Anyhow, I wanted to refine it, and was hoping for some guidance from those who really know how to put a financial statement together, and know what can be offset against what.


I find a a company may sound like it's a great story, and give all the 'IR talk', but it's not until you work with the numbers (capex, cashflow, costs, debt, warrants, reserves etc...) and project the future growth does it really become apparent what you are buying. This can be very time consuming, especially if you want to throw in a load of different variables.


More often than not, it's the boring stuff which I find really takes off, where I suspect many investors have overlooked as it failed to excite. Nonetheless, the numbers work very well.


The end result should give us a model which will separate the wheat from the chaff ... the one which will turn into a cash machine, verses the one which will turn into a cash furnace.

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Questions -


1. Option and warrants as a sum of Enterprise Value


Method one - Black Scholes value deducted from EV?


Or Method two - Value(s) if exercised deducted from EV?


There's no standard, either seems acceptable, depending on what literature you read. What rationale is there to choose one over the other?



2. In the case of miners, what can be offset against profit before tax?


I assume this may vary from one country to another. The mines themselves are generally created as subsidaries in the country of operations, of a parent company where its shares are traded. Double taxation?



Capital expenditures to build a new mine?


Can exploration expenditure really be offset? (I struggle with this one, must be so much room for abuse)!


Debt - paying down the principle of debt, can this be offset against profit?


Profit before Tax is generally summarised as Changes to working capital + operating profit - interest - other expenses - Depreciation & Amortization. Correct?


P.s - I don't intend to get into the real nitty gritty of the financial statements of this model, as that would undermine the whole point of creating it. But a better understanding of putting financial statements together is crucial.



3. Taxation


If anyone can provide or point me to where I can find the country specific rates and bands I would be most grateful!

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1. Options/Warrants: I just calculate the exercise value; i.e. the cash that the company will receive. Then I use the fully diluted share count in per share valuations.


2. Profits: I don't calculate profit. Cash is what's important. Profits are just an accounting gimmick. My guiding principle is that a company is worth a sum of its future free cash (which could be distributed to shareholders), with the sum being discounted somewhat for risk & time preference.


3. Taxes - I call or email individual companies to get this info. It varies widely.

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Have you seen the CHIP thread on AVDFN by Chipperford + Fordtin on the same thread has a very useful spreadsheet also.

Suggest take a look at those for starters

Am not trying to send you away from GEI far from it but is probably directly relevent to your quest

Can send you a link if needed

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