1 / 26

CANADIAN (CIMVal) STANDARDS AND GUIDELINES FOR VALUATION OF MINERAL PROPERTIES

CANADIAN (CIMVal) STANDARDS AND GUIDELINES FOR VALUATION OF MINERAL PROPERTIES. Keith N. Spence, Co-Chairman Canadian Institute of Mining, Metallurgy and Petroleum Special Committee on Valuation of Mineral Properties (CIMVal) President and CEO, Alliance Pacific Resources Inc .

ivo
Download Presentation

CANADIAN (CIMVal) STANDARDS AND GUIDELINES FOR VALUATION OF MINERAL PROPERTIES

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CANADIAN (CIMVal) STANDARDS AND GUIDELINESFOR VALUATION OF MINERAL PROPERTIES Keith N. Spence, Co-ChairmanCanadian Institute of Mining, Metallurgy and Petroleum Special Committee on Valuation of Mineral Properties (CIMVal) President and CEO, Alliance Pacific Resources Inc Presentation to Ministry of Lands and Resources (MOLAR) , Beijing China November 30, 2005

  2. Items to be Discussed • Background on Keith N. Spence • Valuation vs Evaluation • International Scene • What is Canadian CIMVal • Scope and Limitations • Definition of Value • Valuation Principles • Qualification of Valuators • Valuation Reports • Key Issues • Valuation Approaches and Methods • Some Problems with Valuations

  3. Background on Keith N. Spence • Co-Chairman & Co-Developer of Canadian Valuation Standards • President and CEO of Alliance Pacific Resources, an exploration company with operations in Xinjiang, China • Geologist - Hons BSc, MBA; Both University of Western Ontario, London, Canada • Investment Banker for 14 years, specializing in Mining Finance, Project Finance and Corporate Finance. • Investment Banker at Royal Bank, Bank of Montreal, Bank of Nova Scotia and Export Development Bank • Financed or evaluated projects in Chile, Peru, Argentina, Bolivia, Mexico, USA, Africa, Australia, Thailand, Indonesia, China and Canada. • CIM Distinguished Lecturer • CIM Fellow Award • President, Mineral Economics Society • Board of Directors, PDAC (Canada) • International Advisory Board , CHINA MINING CONFERENCE

  4. Valuation vs. Evaluation of a Mineral Property • Valuation - estimation of the value or worth of the mineral property in dollars or equivalent- “Question – What is the value or worth of the Property ?” • Evaluation - economic assessment of the mineral property generally for an investment decision, for example, a feasibility study – “Question – Is this project econonically viable ? Is it economic to develop this project?”

  5. The International Scene • Canadian CIMVal Standards & Guidelines • Developed and maintained bv Canadian Institute of Mining, Metallurgy & Petroleum (CIM) • CIM also maintains the rules for Classification of Reserves; eg Inferred Resources to Reserves • Required by Toronto Stock Exchange (TSX-V) • Australian VALMIN Code - Similar to CIMVal, supported by AusIMM • South African proposed SAMVal Code • Similar to CIMVal, supported by SAIMM

  6. The CIMVal Document • The document consists of two parts: • Standards (mandatory) • Guidelines (highly recommended)

  7. Scope and Limitations • Reasons for valuation: mergers and acquisitions, non arm’s length transactions, IPO pricing, listing support, support of audited financial statements, support for property agreements, fairness opinions, determination of vendor considerations, litigation, expropriation, insurance claims • Valuations of mineral properties are required by regulatory bodies under certain circumstances. CIMVal Standards is recommended to be followed, for valuations of mineral properties required by regulatory bodies • Fairness Opinions based on valuation of mineral properties should also be governed by the CIMVal Standards

  8. Scope and Limitations Cont’d • Limited to valuation of mineral properties, but do not cover valuation of corporations that hold the mineral properties • Mineral property means surface/subsurface mining rights; including various types of claims, development or mining licenses, prospecting permits, mining leases • Cover valuation of metallic and non-metallic mineral properties, including industrial minerals, placers, aggregates, coal, oil sands and uranium • CIMVal Standards do not cover oil and gas properties (Separate Standards for Valuation)

  9. Definition of Value • Fair Market Value (FMV) is the standard of value. • Key elements of FMV are as follows: • Both seller and buyer are willing and not under compulsion to act • The transaction is at arm’s length • Both seller and buyer are informed or have reasonable knowledge of the relevant facts • Valuation should be based on a given point in time • Other types of value include; replacement value, salvage value, book value, depreciated value, net asset value, assessed value, insured value, etc. - But not recommended for CIMVal purposes.

  10. Valuation Principles • Materiality - inclusion or omission of information that might result in different conclusion of value • Transparency - information used (or excluded), the assumptions, methodology etc, must be set out clearly, along with the rationale • Independence -the valuator must to be independent of the commissioning entity

  11. Valuation Principles Cont’d • Competence -the valuator must be appropriately qualified and experienced to conduct the required valuation • Reasonableness -other appropriately qualified and experienced valuators would value the property at approximately the same range

  12. Qualifications of Valuators • Concept of Qualified Valuator (QV) : • Professional individual with at least 5 years mineral property valuation experience • Experience relevant to the subject property • Member of an approved self-regulatory professional organization, such as Professional Engineers or Geoscientists, or CICBV • Commissioning entity must establish that the QV is qualified, competent and independent

  13. Qualifications of Valuators Cont’d • QV is responsible for the overall valuation and the valuation report • QV may be assisted by Qualified Persons (QP), as defined in Canadian Securities Regulations • All technical input to the valuation is subject to data verification by a QP

  14. Valuation Reports • A QV is ultimately responsible for: • preparation of the Valuation Report and its conclusions • adhering to the principles of materiality, transparency and reasonableness including technical input • An approved technical report can be appended to the valuation report • All mineral reserve and mineral resource estimates must be disclosed and discussed in the valuation report

  15. Valuation Reports Cont’d • List factors, critical issues, key risks and assumptions • Discuss all valuations within the last 24 months • Certificates of Qualifications for QV and QP(s) • Statement that the valuation complies with the Standards and Guidelines in their entirety • Site visit should be undertaken or explain why not • Effective date of the valuation

  16. Valuation Standards- Key Issues • CIMVal Standards mandatory • The Standards are considered to be mandatory but the guidelines are highly recommended, and allow for professional judgement • How much valuation experience should a QV have? • The Standards state five years’ valuation experience • Is a business entity allowed to sign the Valuation Report or just an individual QV? • The CIMVal Standards allow a business entity as well as an individual to sign the report but a QV must sign a Certificate of Qualifications

  17. Choice of Valuation Approaches and Methods • QV has responsibility for choice of valuation approaches and methods with explanation • All three generally accepted valuation approaches must be considered and more than one should be used (at least two must be used) • Valuation must be reported as a range of values to reflect subjectivity and uncertainty of the valuation process

  18. Valuation Approaches Three generally accepted approaches: • Income approach - based on principle of anticipation of benefits, usually DCF • Market approach – based on principle of substitution (also called Sales Comparison or Comparable Transactions) • Cost approach – based on principle of contribution to value • Valuation approach depends on the stage of exploration or development of the property

  19. Valuation Approaches and Stages of Mineral Properties

  20. Primary Valuation Methods • Income Approach • Discounted Cash Flow Method - very widely used • Real Options Method – not widely used but gaining rapidly in acceptance (some experts suggest it’s an Approach on its own) • Market Approach • Comparable Transactions Method – widely used • Option Agreement Terms – widely used • Cost Approach • Appraised Value Method – widely used but not accepted by all regulators • Geoscience Factor Method (developed by Kilburn) – not widely used – too subjective

  21. Secondary Valuation Methods • Market Approach • Value per unit of metal – widely used rule of thumb. Used to normalize or cross - check comparables • Market Comparables – Market capitalization of company holding the mineral property – Each property must be examined individually. Similar Properties ; similar Value.

  22. Mineral Resources and Reserves • Mineral Resource - a mineral deposit for which quantity (tonnes) and quality (grade) can be estimated. But not demonstrated to be economic. • Measured - highest confidence category • Indicated • Inferred - lowest confidence category • Mineral Reserve - that part of the mineral resource that can be extracted economically. • Proven - higher confidence category • Probable - lower confidence category

  23. Use of Mineral Resources in Income Approach Generally Acceptable Practices • Use of all proven and probable mineral reserves • Use of measured and indicated mineral resources in the following circumstances: • Mineral resources are current and confirmed by a QP • Mineral reserves are mined ahead of resources in DCF • QP estimates or confirms technical parameters in DCF • QP states that the mineral resources in the DCF are likely to be economically viable • Recognize higher risk of using mineral resources by adjusting appropriately (eg: probability factors)

  24. Use of Mineral Resources in Income Approach Cont’d • Use of inferred mineral resources: • With great care, but • Not if they are the dominant resource category • Inferred resources should not be used to make the property economically viable • Any use must be justified in the valuation report and treated appropriately for the substantially higher risk and uncertainty • Reserves and other resource categories are mined ahead of inferred resources in the DCF model • Use of potential or hypothetical “resources” is not acceptable

  25. Some Problems with Valuations • Use of unacceptable or dubious methods • Misapplication of acceptable methods • No explanation or justification for methods used • Lack of transparency • Statement of CIMVal compliance when actually not compliant Thank you !!

  26. CANADIAN CIMVal STANDARDS AND GUIDELINESFOR VALUATION OF MINERAL PROPERTIES Keith N. Spence, Co-ChairmanCanadian Institute of Mining, Metallurgy and Petroleum Special Committee on Valuation of Mineral Properties (CIMVal) President and CEO, Alliance Pacific Resources Inc Presentation to Ministry of Lands and Resources (MOLAR) , Beijing, China November 30, 2005

More Related