Valuation of Metals and Mining Companies

Question

Hey everyone,

I just thought that I'd share a great resource for information on the basics of valuing metal and mining companies. The pdf doesn't cover everything by all means but it is a quick beginning step for one to build out their model. It also has links to about 10-15 other PDFs that cover the topic. I wish the best to all of you!

Regards,

TexasTim

NorthSider · Accepted Answer

Can't send you anything unfortunately, but I can give you the basic schematics:

-Run a tab with reserves by commodity and grades, then project out production numbers until you have fully depleted the company's reserves
-Drop in a price deck for each commodity; thereafter, assume only inflation affects pricing
-Typically you model in freight costs to get to your realized net revenue per ton
-Drive cash costs off of production tonnage (i.e. create a cash cost per ton forecast)
-Examine the company's historical DD&A per ton average to get an idea of how capital intensive the industry is.

Valk · Answer

Completely agree with NorthSider's post - great overview of a typical mine DCF model

I'd also add a few things, depending on how detailed you want to get:
- Best practice is deplete the ore body as opposed to the actual mineral, since it's more accurate to project out the head grade per year as opposed to assuming a flat grade across all years (i.e. the grade they disclose for their reserves)
- Not sure how detailed you want to get, but typically you'll produce most if not all of the Proven and Probable reserves, and then a % of the resources (M&I and inferred).

TorontoMonkey1328 · Answer

Yes for historical data. But on a forward looking basis (assuming the company you are modeling is a producer), you'll have to come up with an educated view on operational level details and translate that into financial statements.

TexasTim · Answer

RGE, you're right that it might be old. It is a shame that the primer list was taken down. Mhurricane, I'll put you in my perspective and that is to learn everything that you can that is applicable in an efficient manner. This whole guide is a concise source of information for you to learn quickly and use as a tool for whatever project comes your way.

I'm new to the game and probably not qualified to give you an answer, but I think it is essential for you to create a scenario analysis in your model for future prices.

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Valuation of Metals and Mining Companies

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Valuation of Metals and Mining Companies

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