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Event Agenda
Day 1
Background
- Course outline and introduction of participants
Financial Accounting Reports as a Source of Information for Cash Flow Modeling of Mining Projects
- Corporate financial objectives
- Differences between Financial Accounting on an accrual basis and Cash (Management) Accounting
- Understanding financial accounting statements
- Assets, asset lives and depreciation of mining assets
- Elements of mining taxation: mineral royalties, corporate income tax and capital gain tax
- Converting the Profit and Loss statement into the corresponding Net Cash Flow for the period
Practical Exercise 1: Capturing the effect of common transactions on the Balance Sheet of a mining company and on its cash balance
Discounted Cash Flow (DCF) Analysis – General Concepts
- Cash in-flows and out-flows: Capital expenditure, and recurrent revenue and expenses
- Inflation – real and nominal dollars terms
- Time value of money, discounting rates and periods
- DCF criteria of value: Net Present Value (NPV), Internal Rate of Return (IRR), payback etc.
Practical Exercise 2: Constructing simple DCF models in both nominal and real dollar terms.
Day 2
Practical Exercise 3: Building a simple mining project model under assumption of certainty and of 100% equity and of instantaneous capital investment
- “Whole-of-life” Cash Flow (CF) model structure
- Single-point, “expected value” of inputs
- Working capital
- Completing the base case mine model
- Interpreting the results
Funding a Mineral Project: The Role of Equity and Debt
- Sources of equity funds
- Estimating the cost of equity with the Capital Asset Pricing Model (CAPM)
- Debt, leasing, project finance, financial leverage and financial risk
- The Weighted Average Cost of Capital (WACC)
- Determining an optimal debt: equity ratio
Practical Exercise 4: How to introduce borrowing and interest expenses in the simple gold mine DCF model
Practical Exercise 5: Evaluating a financial lease
Day 3
Practical Exercise 6: Estimating the Net Smelter Return of a base metal mine
- Resources and reserves: dilution and recovery
- Determining an optimal mine life
- Concentrates transport, smelting and refining charges and Net Smelter Returns (NSR)
Practical Exercise 7: Modifying model 3 to include a 2-year pre-production development and construction stage
- Accurate inflation and escalation of initial and sustaining capital expenditure
- Useful life and depreciation rules for various categories of assets
- Determination of depreciation charges and of written down value of assets
- Salvage value and capital gain/loss
Day 4
Risk Analysis – Identifying and quantifying risk
- Sensitivity and scenario analysis
- Spider and Tornado diagrams
- The nature of probabilities and probability distributions
- Monte Carlo simulation
Practical Exercise 8: Identifying and assessing the project and financial risk of the simple gold mine
Decisions under Uncertainty
- Uncertainty, expected value (EV) and risk
- Risk-neutral decisions and risk of Gambleris ruin
- Preferences (utilities) and risk attitudes
- Certainty Equivalents (CE), the price of risky investments and risk-averse decisions
Practical Exercise 9: Determination of EVs and CEs using decision trees
- Example of exploration drilling decision
- Choosing between two projects with the same EV and
- Determining optimal joint venture participation given a specific risk attitude and tolerance
An introduction to real option valuation (ROV)
- General principles and methodologies
