NAV model
Would somebody be able to explain what a NAV model is, its key components and how it's derived?
Thanks!
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yeah, thats the different between a NAV calculation and just an unlevered DCF on the forecasted cash flows on the mine's life? If I do an operating model on the mining company and have operating profit before tax, is it just less tax, add noncash, - capex/increase in NWC and then PV of all of that?
Is NAV short for something?
NAV=Net Asset Value, it's useful when most of the asset and liability values on the balance sheet can be assumed to be close to fair value or easily adjusted to fair value-for example, most mutual funds are analyzed on an NAV basis because their assets and liabilities are mostly financial and usually non-controlling.
Key components are: 1) Fair Value of Assets 2) Fair Value of Liabilities Equity= 1)-2)
bump. this is specifically wrt a mining company.
For a mining company, NAV usually refers to the value of their reserves. Figure out what they're reserves are, grade them by quality/probability of recovery and use comps to get a price. Multiply reserves by this market price and you will get an NAV for the company based on its reserves. Mining equipment minus liabilities on mining equipment would also be included in the calculation, but usually this is relatively minor and ignored.
NAV model help (Originally Posted: 05/19/2014)
I understand the gist of the model. You are valuing the company at the asset level instead of the corporate level. The NAV model I’m talking about assumes zero reserve replacement and then you calculate the cash flows from the oil extracted from the reserves, not the multiple one. At the end you get a NAV/share which is suppose to be the fair value.
What I don’t understand are the following:
Why do most models I see use a cash tax-rate of 12%?
Isn’t it super unrealistic to assume zero reserve replacement, as this would drastically undervalue the company.
Thanks.
you're right in that you would get a value lower than what is realistic--treating your NAV as a "base case" and then making some assumptions about future exploration efforts (some % future reserve growth, very conservative) is one way to go about it.
you might be able to look at a company's undrilled properties that they own (which is disclosed) and then compare those geographically to other companies that drill in the same area(s) to get a sort of "current reserves + expected future reserves" number.
but the crux of the model for oil/gas is that there is no infinite supply of either of these resources--eventually reserves will run out, so having the NAV as a sort of valuation floor a firm with explanation as such might make sense too.
i'm no expert and i'm sure there are more qualified people out there with answers, but that's my take
the second thing capricorn said is correct..typically you're not just valuing their 'proved' reserves, but also their unproved reserves. yes, valuing proved reserves alone would usually understate the value of the company pretty significantly.
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