GUIDELINES TO EXPLORATION AND MINING INVESTMENT Guidelines to Exploration and Mining Investment 8 11 April 2014 in Stockholm Course Director: Prof Dennis Buchanan For Professionals Involved in the Development of Mining and Natural Resource Projects An IntierraRMG event in cooperation with the Centre for Continuing Professional Development www.miningontop.com/education
Introduction Ore deposits are naturally-occurring concentrations of minerals that can be economically recovered. They are the key assets of the mining industry but their full value can only be realised if exploration is able to identify the extent of the mineralisation, and if effective mining and processing methods are put in place. This work includes proper consideration of mine grade-control procedures, metal reconciliation (from the original block estimates of in-situ grades through mining dilution to run-of-mine grades), an understanding of stockpile retention and plant recovery. The inter-relationship between these elements and investment decisions is crucial if mined grades and operating costs are to be controlled. Securing the necessary funding (whether equity or debt) requires all the relevant technical, permitting, operational and financial components to be presented in an integrated (and transparent) manner. For junior companies, equity funding will normally require the identification of at least a mineral resource (to an internationally-recognised classification). To secure debt (or project) funding will normally require further drilling and feasibility studies to demonstrate the higher level of certainty necessary for ore reserves. This work will add significantly to the value of individual projects as it enables the generation of discounted cash flow models. By calculating the net present value and internal rate of return, at various levels of sensitivity, a project's profitability can be shown to be robust under various scenarios. Course Structure The aim of the course is to provide a guide to understanding the main factors involved in securing the financial support for mining projects through equity, debt, or entering into a joint venture. This involves addressing the underlying technical principles, applying these to mineral projects and demonstrating how these influence the financial modelling. Particular attention will be given to the treatment of key independent variables (such as grade and metal Price), dependent variables (such as grade-tonnage relationships), and the way these influence the rate of mining, associated operating and capital costs, and the optimisation of the NPV of a project. The structure of joint ventures and the role of tax models in enhancing the features of a mineral project will be outlined. The course was launched in Stockholm in November 2004 and has been re-delivered annually ever since.
Who Should Attend? This course will be of particular interest to all professionals who are involved in the funding of minerals projects from exploration through to development and making investment decisions in operating mines. The course will also be of interest to those based within financial institutions as mining analysts, fund and asset managers, or investment bankers. IC-MinEval Use will be made in the workshop sessions of the IC-MinEval software. This is an Excel TM -based spreadsheet programme automating all stages of model production for a wide range of mineral projects. IC-MinEval produces a Balance Sheet, and Profit and Loss account from the cash flows, including tax provisions. The cost of debt is calculated, as is the weighted average cost of capital and the cost of equity. Output includes base case discount cash flows, key financial ratios and performance indicators such as NPV, IRR payback and maximum cash exposure. Sensitivity analysis can be undertaken on key variables. IC-MinEval is delivered over the internet through the Software as a Service (SAAS) system with InfoMine (http://software.infomine.com/) Delegates should bring their own laptop computers and will have wireless access to the internet. There will be the need to install ActiveX in order to access the system, so they will need to have administrative rights on their laptop. Delegates will have access to SaaS a few days before the start of the course. (AppleMac and Firefox users may need some support.) Access to the functionality of IC-MinEval through SaaS will be available for a further four weeks after the course. Beyond that will it be available on subscription. Pre-course E- learning To enable registered delegates to derive maximum benefit from the live sessions, an internet url, user name and password will be supplied prior to the course providing access to a Virtual Learning Environment (VLE) designed for the programme. All the course material covered in the live sessions will be available here prior to the start of the course, together with important course information, including joining instructions. It will also enable participants to post details about themselves and be involved in post course follow-up. For a limited period, participants will be able to access an EduMine e-learning module through the VLE. This gives an introduction to modelling project finance and covers the critical issues associated with the debt financing of mining projects.
Provisional Schedule Day 1. Tuesday, 8 April 2014 08.30 09.00 Registration 09.00 09.30 Welcome and Profile of Participants 09.30 11.00 1.1 Value Creation in Mineral Projects The Life Cycle of mineral projects. Drivers. Stages of planning and execution. Relationship between risk and valuation. Exploration and mining leases. Permitting and environmental impact. 11.30 13.00 1.2 Feasibility Studies Role of a prefeasibility study. Scope of a full technical feasibility study. Role in raising equity. Role in securing debt finance. Engineering, Procurement, Construction and Management contracts. 14.00 15.30 1.3 Formulation of a Joint Venture agreement. Consideration of vend-in conditions and link to valuation. Defining deliverables and the role of the feasibility study. Claw-back agreements. 15.30 15.45 Break 15.45 17.00 1.4 Resource Estimation Drilling technology, sampling and principles of uncertainty and concepts of geological continuity. Grade and volume estimation. Cut-off grades, establishing resources and reserves. Day 2. Wednesday, 9 April 2014 09.00 10.00 2.1 Mine Planning Mine block models. Relationships between costs and scale of mining. Mining dilution and mining recovery. Sampling on the scale of mining. Proven and probably reserve categories in operating mines. Metal reconciliation from in situ reserve estimation to metal produced. 10.00 11.00 2.2 Discounted Cash Flow Analysis - Time value of money. Incremental cash flow model. Discount rates. Optimisation of the scale of mining. NPV, IRR, payback, maximum cash exposure. DCF exercise based on annuity tables. Review of spreadsheet- based solution. 11.30 13.00 2.3 Workshop Session: Botswana Gold Using IC-MinEval 14.00 15.30 2.4 Case History of a Gold Operation Setting up base case. Optimisation of NPV. Determination of cut-off grade. Sensitivity analysis. 15.30 15.45 Break 15.45 16.00 2.5 Analysis of Risk and Uncertainty in Financial Models Monte Carlo simulation. 16.00 17.00 2.6 Base Metal Project Workshop 1 IC-MinEval-based DCF evaluation of nickel metal operations. Setting up the model. Determination of key performance variables. Analysis of relationship between cashflow, maximum cash exposure debt and equity ratios (gearing). Project acquisition cost estimates.
Day 3. Thursday, 10 April 2014 09.00 11.00 3.1 Base Metal Project Workshop 2 - Project Finance. Capital Asset Pricing Model. Relationship between cost of debt, taxation, Balance Sheet, Profit and Loss account and cash flow. Calculating the cost of debt and equity. Determining the weighted average cost of capital and optimum level of gearing. Debt performance indicators (debt service coverage and ratios such as loan life, project life, reserve tail, interest cover, principal cover and residual cover). 11.30 13.00 3.2 Underground Operation. Engineering concepts behind block caving mining method. Technical risks of the side-wall failure in the open pit on dilution in subsequent block caving operations. Implications for the reserve tail and project finance. Multi-partner scenario analysis determining relative return for different stakeholders as a function of investment contribution. 14.00 15.30 3.3 Scenario Analysis Industrial Minerals Iron ore. Chemistry of primary minerals. Price based on dry metric tonne units as a function of iron content. Product specifications and penalties. Beneficiation and yields as a function of iron content. Infrastructure Power, transport of ore (rail and slurry pumping) and port facilities. 15.30 15.45 Break 15.45 17.00 3.4 Scenario Analysis Industrial Minerals Workshop session - Iron ore Use of financial modelling to optimise investment decisions using the interrelationship between pricing of product and plant recovery yield curves. Day 4. Friday, 11 April 2014 09.00 10.00 3.4 Scenario Analysis - Energy Workshop session. Coal Geology and classification. Evaluation. Coking Coal. Role of volumetrics in setting up a financial model. 10.00 11.00 4.1 Surface coal operations. Justification of an investment in equipment. Set up IC-CoalEval open pit scenario. Funding based on debt and equity. Sensitivity analysis. 11.30 13.00 4.2 Underground Coal Operation - Long wall mining. Set up IC-CoalEval underground mine base case. DCF evaluation exercise demonstrating relationship between efficiency and profitability. Introduction to EduMine course. 14.00 15.00 4.4 SEDEX Project workshop IC-MinEval-based zinc-lead-silver deposit 15.00 15.30 4.5 Mineral Sands Mineralogy of mineral sands. Mining methods, environmental impact and optimisation of NPV. 15.30 16.00 4.6 Bauxite Value chain from bauxite through to alumina and then aluminium. Environmental impact of bauxite mining.
Course Director and Presenter Professor Dennis Buchanan Emeritus Professor of Mining Geology & Senior Research Fellow, Imperial College London Professor Buchanan works jointly between the Department of Earth Science and Engineering and the Business School at Imperial College London and will act as the Course Director. Professor Buchanan s current research interest lies in addressing the underlying technical principles applying to mineral projects and demonstrating how these influence financial modelling. He has 45 years experience teaching mining geology, mineral exploration and mineral project appraisal and is responsible for the MSc in Metals and Energy Finance. This is a new joint degree between the Department of Earth Science and Engineering and the Business School at Imperial College. Professor Buchanan has worked as a Mining Geologist in both gold and platinum mines in South Africa and had wide experience as a consultant to industry, as an expert witness and in designing and delivering short courses for industry.
Registration, please contact: General Information Important information to all delegates prior to attending the course: Delegates will be expected to have their own PC laptop computers with Windows 95/NT 4.0 (or newer version) and Excel 97 (or better) already installed. If you are using MAC please notify Kiram Sundblad. In both cases you should have administrative rights to install software. Delegates will be given access to the IC MinEval SAAS-software a few days prior to the course and this will be administered by Infomine, based in Canada. Blackboard access will be administered by Imperial College London, by Miss Stephanie O'Mahony (s.omahony@imperial.ac.uk) who will then send delegates their usernames and passwords. All delegates are expected to log on to both Blackboard and the SAAS software when they receive their login details, to make sure that everything works properly prior to the course. Course location: Stockholm, City Conference Centre, Norra Latin, Drottninggatan 71 Fee: Registration - 25,500 SEK. Please register before 1st March 2014. All prices are excluding Swedish VAT if applicable. This includes all course materials, coffee & lunch. Other meals and hotel accommodation are not included. Limited number of spaces on the course, so places are offered on a first come first served basis. Kiram Sundblad Mining On Top E-mail: kiram.sundblad@miningontop.com Phone: +46 8 55 77 9315 www.miningontop.com/education The organisers reserve the right to cancel this course at their discretion. Cancellations received later than four weeks before course beginning will not be refundable.