OVERVIEW OF VALUATION PAPERS PRESENTED TO SME (USA)AND CIM/PDAC (CANADA) CONVENTIONS IN 2000
MICHAEL J LAWRENCE
FAusIMM(CPGeo), FAIG, FIMM(CEng), MMICA, VALMIN Committee Chairman from 2000 and previously AusIMM Council
Representative since its first meeting on 5 April 1991. Also, AusIMM Past President 1999 and Managing Director & Chief Valuer,
Minval Associates Pty Limited (Sydney).

ABSTRACT
There were a number of valuation papers presented to the Annual Meetings of the Society for Mining,
Metallurgy and Exploration Inc (SME) in Salt Lake City (USA) and the joint Prospectors and Developers
Association of Canada (PDAC)/Canadian Institute of Mining, Metallurgy and Petroleum Engineering (CIM) in
Toronto (Canada) in March-April 2000. A brief overview and listing of most of the papers presented and their
Abstracts are covered in this paper.

INTRODUCTION
The Australasian Institute of Mining and Metallurgy's (AusIMM's) Mineral Valuation (VALMIN) Committee1
has had the task of creating and updating a best practice code and guidelines dealing with the technicalassessment and/or valuation of mineral assets and/or securities for inclusion in Independent
Expert/Specialist Reports that are required under the Corporations Law (Reports), since its formation in 1991.
The most recent version, "Code and Guidelines for Technical Assessment and Valuation and/or Valuation of
Mineral and Petroleum Assets and Mineral and Petroleum Securities for Independent Expert Reports"(VALMIN Code, 1998) was approved by Council on 22 November 1997 and issued in February 1998
(together with an aide memoire to assist its interpretation.
As part of this process the work of valuation experts in the US and Canada is regularly monitored. The
author visited to the Annual Meetings of the Society for Mining, Metallurgy and Exploration Inc (SME) in Salt
Lake City (USA) and the joint Prospectors and Developers Association of Canada (PDAC)/Canadian Instituteof Mining, Metallurgy and Petroleum (CIM) in Toronto (Canada) in March-April 2000.
The methods are generally broken down into those based upon market transactions (by far the preferred
method in North America (especially in the US where the real estate mentality prevails, probably due to thehistorical predominance of private mineral rights); those base upon income; and those based upon costs.

OVERVIEW OF SME PAPERS
DCF/NPV MODELLING: VALUATION PRACTICE OR FINANCIAL ENGINEERING?
MJ Lawrence, Minval Associates Pty Limited, Sydney, Australia
ABSTRACT
Independent natural resource Valuers are an essential link between miners and mineral explorers on the one
hand and the finance industry on the other. Investors (and regulators) expect the mining and financial
industries to be vigilant against the use of inappropriate methodology or use of illogical steps within thechosen valuation method. The Australian Corporations Law generally requires an Independent Expert Reportto support mergers and takeovers (as well as for capital raising activities). The introduction of the VALMIN
Code (1998) by The Australasian Institute of Mining as Metallurgy, has meant that such Reports, when
prepared in compliance with it, are now much more comprehensible and reliable than before. This isbecause the key requirements of the Code are for transparency and materiality in the Technical Assessment
and Valuation Reports prepared in connection with the transaction involved. Transparency is particularly
important because it allows the reader to identify and understand the assumptions made to derive a value
and to then form a view as to the reasonableness of the result.

1

Representatives come from AusIMM assessment and valuation practitioner members, Mineral Industry Consultants Association(MICA), Australian Institute of Geoscientists (AIG), Australian Securities and Investments Commission (ASIC), Australian Stock
Exchange (ASX), Minerals Council of Australia (MCA), Petroleum Exploration Society of Australia (PESA), and Securities Institute ofAustralia (SIA).

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Even though many elements of resource asset valuation practice are undeniably subjective, there must be
some basis of objective rationality to it. Where the reasoning is patently illogical or the inputs are chosen toachieve a particular result, the estimated value must be viewed as virtually worthless. Experience,
qualifications, competence and repute are the hallmarks of a professional technical auditor and valuer.
To illustrate how the system may be manipulated, this paper focuses on the derivation of the fair market
value of a mineral property using the DCF/NPV Financial Modelling Method (and its variation, the Expected
Value Simulation Modelling). DCF/NPV techniques, whilst generally better than simple use of comparative
sales to determine value, are also prone to financial engineering. This paper is written from the perspectiveof a technically qualified valuation practitioner, but it concentrates on the financial rather than the technicalassumptions in the modelling. For simplicity it focuses on the merger/acquisition domain, but its conclusions
have general applicability.
Of concern to many is a growing trend for Reports, issued in connection with mergers/acquisitions, to appear
to support a particular side if the transaction is a "hostile" one. Thus, a Report issued in support of the "prey"commonly uses rather more optimistic scenarios and input assumptions, whereas those supporting the"predator" less commonly tend to take a pessimistic position and thereby undervalue the "prey". Whilst this isfine in a corporate advisory sense, if Independent Expert Reports are to retain any credibility, they must be
truly independent and transparent, otherwise it becomes merely an exercise in financial engineering.
This paper concludes that whilst it is preferable for valuations by DCF/NPV modelling techniques to give as
much detail as possible in the derivation of the technical basis of the inputs used and the Discount Rate
selected, it is more important for it to contain a table or graph showing the impact on the valuation of achange of 1% in the Discount Rate, from say zero to 15%pa (in real terms). This allows the reader to truly
test the reasonableness of the valuation by estimating a value based on other Discount Rates. Also, there
are other drivers of value in this methodology (notably assumptions about revenue, operating costs, initial andreplacement capital, etc, but the most arbitrary of them is the Discount Rate used.

THE DIFFERENCE BETWEEN A VALUE ESTIMATE AND AN APPRAISALTR Ellis, Ellis International Services, Inc, Denver, Colorado, USA
ABSTRACTThe vast majority of valuations produced for mineral properties using the net present value method provide
an estimate of Investment Value or Use Value. Such an estimate can be a long way from the price that theproperty would sell at if placed on the market. Indicators from the market need to be used to validate or
modify the net present value calculation. The comparable sales and replacement cost approaches used in
the appraisal of urban buildings generally fail us in the appraisal of mineral properties. Other methods ofsales analysis are introduced. Guidelines for what a minerals appraisal report should contain are presented.

LESSONS LEARNED ABOUT STANDARDS FROM APPLYING BOTH VALMIN AND
USPAP ON A COMPLEX APPRAISAL PROJECTTR Ellis, Ellis International Services, Inc, Denver, Colorado, USA
ABSTRACTThe author attempted to concurrently apply the US Uniform Standards of Professional Appraisal Practice andthe Australian VALMIN Code to a complex mineral property appraisal assignment. This led the author into
many severe difficulties. These difficulties included the high standards needed in the work of others, andinformation and statements needed from the client. The exercise also highlighted many positive features ofboth documents. Some conflicts were found between the two documents. Implications and thoughts
regarding the development of a set of US minerals appraisal standards are discussed.

EXTENTION OF THE GEOSCIENCE MATRIX METHOD OF PROPERTY VALUATION TO
INDUSTRIAL MINERALSHJ Sandri and DJ Abbott, Behre Dolbear and Co Inc, Denver, USA
ABSTRACTThe Geoscience Matrix Method has proven useful for valuing metallic mineral properties lacking delineatedmineral resources or reserves. However, the method explicitly excludes commodity markets from the factors
considered, with marketability being assumed (something it cannot be assumed in the case of industrial
minerals). Market considerations may also significantly affect the standard weightings of geoscience matrix
M J Lawrence, 2000, Overview of Valuation Papers Presented to SME (USA) and CIM/PDAC (Canada) Conventions in 2000, in MICA,
The Codes Forum, Sydney.

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parameters such as the proximity to known deposits. In some cases, such proximity is desirable but in manycases it is undesirable. Application of the Geoscience Matrix Method to industrial mineral properties
therefore requires thoughtful, market-related adjustments to the basic methodology.
In addition, we have made explicit that the various categories and sub-categories of factors described initiallyby Kilburn and which are used in this method, require that they be genetically and/or spatially related to thetype of deposit believed to be on the property being evaluated. Finally, we have shown that for manyindustrial minerals, a valuation using the Geoscience Matrix method must include a weighting factor formarketing. For those minerals, industrial or otherwise, with high unit values and low place values, the market
weighting factor can be 100%, thus meeting the implicit assumption originally made by Kilburn. Explicit
recognition of this assumption, which is common in all types of mineral valuation should be made, even in
those valuations for which the assumption holds.

SHOULD DISCOUNTED CASH FLOW PROJECTIONS FOR THE DETERMINATION OF
FAIR MARKET VALUE BE BASED SOLELY ON PROVEN AND PROBABLE RESERVES?
RD. Lawrence, Watts Griffis and McOuat Limited, Toronto, Canada
ABSTRACT
Suggestions have been made that the appraisal of mining assets using discounted cash flow techniquesshould be based solely on proven and probable reserves in reliance upon the widespread internationalrecognition of uniform resource definitions. Following a review of general accepted valuation principles, asurvey of the literature and, most importantly, a review of real transactions in the open market, it is clear thatvaluators should not be constrained by the growing acceptance of modern mineral resource codes. On thecontrary, valuation practitioners should be encouraged to examine all classes of mineralisation and, after
making due allowance for risk, to utilise all mineral resources as a basis for determining fair market value.

USE OF A PROBABILISTIC APPROACH TO PRICE DETERMINATIONIN VALUATION ANALYSISHJ Sandri and WF Jennings, Behre Dolbear and Co Inc, Denver, USA
ABSTRACTThe use of a probabilistic approach based on commodity prices for advanced stage deposits and operations
can provide a reasonable method of valuing a mineral asset. It is a variation on the standard net present
value of cash flow approach. The method is applicable for a project/operation with identified
reserves/resources, a mine plan, no doubt in technical feasibility, but the property is un-economic at current
prices. Utilizing the standard cash flow model, a desired return on investment is chosen, dependent upon therisks involved at the current state of development of the project. The price of the commodity required toachieve that desired return is then determined. This is essentially the reverse of standard cash flows, where
prices are known and the cash flows, the net present values, and the internal rate of return are determined.
Once a price is determined, the net present value for a specified discount rate is then reduced by theprobability of the commodity achieving that price in the foreseeable future. This approach should be used in
combination with other approaches described below and it should not be used for early stage or pre-feasibility
properties since it relies on the same information as the Income Approach.
The Income Approach values operating mining assets as an ongoing business. This approach calculates theannual cash flow from the operations and discounts the net present value of the cash flow stream at an
appropriate after-tax discount rate. This approach incorporates the concept that an operation will continue
until ore reserves are depleted, and/or the cost of extraction and recovery are no longer economically viable.
The Comparable Sales Approach values a mining asset/operation on the basis of the asset’s recent salewithin a designated period, or the sale of related/comparable assets within the designated period. The Cost
Basis Approach is based on the replacement cost of the operation, less depreciable plant and equipment.
Other items requiring valuation include inventories and supplies, financial assets, land, and the mineraldeposit. Valuation of the mineral deposit tends to be on the basis of the unwritten-off exploration
expenditures and undepleted mineral value, using the cost depletion calculation for the recoverable minerals
in the proven and probable reserves

M J Lawrence, 2000, Overview of Valuation Papers Presented to SME (USA) and CIM/PDAC (Canada) Conventions in 2000, in MICA,
The Codes Forum, Sydney.

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VALUATION OF COMPLEX METALLURGICAL PLANTS
Leons Kovisars, MET Research Corporation, Denver, USA
ABSTRACTStandard DCF/NPV modelling is the preferred method to use. The current value thus equals the net present
value of the expected income stream from the plant. One needs to conduct a detailed examination of therevenues and expenses (especially contract treatment details, operating coat components, overheads,
financial coast and taxes). There must be an explicit evaluation of uncertainty and risk using Monte Carloanalysis. Common errors include use of mixed basis for the model’s inputs, with constant values for some(costs and prices) and inflated or current values for others (eg hurdle rates and interest rates); failure toconsider opportunity costs; and evaluation of projects on a stand alone basis whereas it may be preferable tolook at the impact on an enterprise.

WHITNEY BENEFITS: A CASE STUDY OF A MINERAL RIGHTS APPRAISAL IN
ASSOCIATION WITH A REGULATORY TAKINGRL Bate, John T Boyd Company, Denver, USA
ABSTRACT
Whitney Benefits, Inc owned a surface coal property in the Powder River Coal Basin in Wyoming, but leased
the operation to Peter Kiewit Sons Co in 1974. The US government halted the development in 1977 by thepassage of an Act (SMCRA) that prohibited surface coal mining within irrigated alluvial valley floors in theWestern US. The owners litigated, with the trial being held in 1986 and final settlement being reached
between the parties in 1995. The main point of this case was that it involved the unjust regulatory taking of
economic value by imposing a regulatory burden on one or more property owners. The case also turned onwhether the Income Approach (rather than the Market or Comparable Sales Approach) could be used in the“highest and best use “ valuation and whether or not the operator’s interest was a compensable property
interest 9and which value was based upon the property value for coal or on its present ‘business profits”. The
Court found that the Income Approach could be used; that the operator’s interest was compensable; andthat the valuation could be based upon a larger operation (consistent with the Reserves) than currently
existed. This was a case that generally broke new ground. It also determined that Discount Rates should not
be risk-adjusted, but that the valuation should risk-adjusted.

PDAC/CIM PAPERS OVERVIEWTHE VALMIN CODE - THE AUSTRALIAN EXPERIENCE
MJ Lawrence, Minval Associates Pty Limited, Sydney, Australia
ABSTRACTThe VALMIN Code was developed and formally adopted by The Australasian Institute of Mining andMetallurgy (AusIMM) in 1995 and a revision was issued in 1998. The VALMIN Code applies to all relevant
reports under the Australian Corporations Law, including submissions to the Australian Stock Exchange(ASX) and the Australian Securities and Investments Commission (ASIC).
The VALMIN Code and Guidelines sets standards for the preparation and commissioning of independent
assessment and/or valuation reports on mineral and petroleum assets or mineral and petroleum securities.
It is mandatory for AusIMM's members to follow this Code in these relevant circumstances and failure to do
so will result in serious sanction of the member by the AusIMM's Ethics Committee. Public support for theuse of this Code has been given by regulators (ASX/ASIC) and market participants (eg, major accountancy
firms). It is also endorsed as a guide to general best practice in project assessment and valuation.
This paper discusses how the VALMIN Code has worked in practice over the past few years. It also
examines areas where the Code could be improved and how it could form the basis of a new Canadian Codefor mineral property valuation.

M J Lawrence, 2000, Overview of Valuation Papers Presented to SME (USA) and CIM/PDAC (Canada) Conventions in 2000, in MICA,
The Codes Forum, Sydney.

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THE U.S. MINERAL PROPERTY VALUATION. PATCHWORK OF REGULATIONS AND
STANDARDS.
TR Ellis, Ellis International Services, Inc, Denver, Colorado, USA
ABSTRACTThe valuation of mineral properties in the U.S. is only partially regulated. Much of the regulation which does
exist, appears to be the result of unintended consequences. Court case history can also be important. The
combined results are a mixture of bad and good, with important lessons to be learned.
Since 1981, the Securities and Exchange Commission has prohibited U.S. listed companies from reporting
quantitative estimates of mineralization and the value of mineralization, other than proven and probablereserves. This results in the minerals appraiser (valuator) working with a shortage of data in his everyday
work, both on the subject property and in sales analysis.
Approximately ten years ago, all 50 states and essentially all Federal agencies adopted the Uniform
Standards of Professional Appraisal Practice (USPAP) for real property appraisals (valuations). The major
appraisal societies also require their members to abide by USPAP. A significant portion of minerals
appraisals must now follow these standards. The paper discusses the content of USPAP. It also provides avery good framework for the valuation of a minerals property or a mine, both as real property and as abusiness. However, the credentialing for appraisers is now prohibitive for minerals appraisers.

A CRITIQUE OF VALUATION METHODS FOR EXPLORATION PROPERTIESAND UNDEVELOPED MINERAL RESOURCES
IS Thompson, Derry, Michener, Booth & Wahl Consultants Ltd, Vancouver, Canada
ABSTRACT
Exploration properties form a continuum from grass roots to those with favourable geology, geochemical
and/or geophysical anomalies, mineralization, showings (prospects), and finally to those with defined mineraldeposits. Often properties exhibit a composite of these categories. The most problematic to value areproperties or deposits that are not economically exploitable at the time of the valuation, due to a lack of
exploration, insufficient grade or tonnage, poor mining conditions, or the imposition of socio-economic,
environmental, or legal constraints. Various acceptable methods of valuing the range of all such mineralproperties or deposits are reviewed. Some inappropriate methods are also discussed.
The Fair Market Value of exploration properties and undeveloped mineral resources can be determined byfour general approaches: Geoscience Factor; Cost; Market; or Income. For properties without mineral
resources, the Income approach is not appropriate. The Market Approach and Appraised Value methods, inmy opinion, are the most defensible of the methods.
The British Colombia Securities Commission (BCSC) does not approve the application of a premium to past
costs. They would prefer the valuator to use a different method to value what they called “spectacular”
exploration properties. The BCSC accepts the Comparable Properties Method, but with many reservations,however they generally do not accept the Probabilistic Method or the Geoscience Factor Method since theirsubjective nature contravenes established policy. Sometimes they accept the Metal in Situ Method, but only
as a check on other methods.
The Vancouver Stock Exchange (VSE) policy is that valuations based on Appraised Value, or Geoscience
Factor or the Conceptual Ore Body (Probabilistic) Methods are generally not acceptable. Valuations basedon a Premium or Discount on Costs, or Comparable Transactions, or Value of Metal in Situ, or on Option
Terms, appeared to be the most useful in support of the issuance of a significant number of free trading
shares, as a portion of the consideration for resource property acquisitions. A recent 1999 VSE opinion isthat prior expenditures must be judged on their value to the purchaser and that in most cases the VSE does
not consider proposed future expenditures to be a valid basis for establishing Fair Market Value. I agree withthe first comment, but not the second. A proposed policy for the new Canadian Venture Exchange (CDNX) is
currently in the discussion stage.
The valuation should be a range of values, if possible, rather than an absolute, and should be time andcircumstance specific. This will leave the seller and the buyer room for negotiation, and, if a transaction
results, a fair market value. The valuation is an subjective estimation and can be challenged. However,independent and responsible geologists should be able to value exploration properties within the samegeneral range, say plus or minus 50%. The fundamental feature, however, in all valuation methods is theworthiness of future exploration; that is, the cost and extent of an achievable program is a measure of theesteem in which a property is held by others. Properties that are not explored do not increase in value unless
M J Lawrence, 2000, Overview of Valuation Papers Presented to SME (USA) and CIM/PDAC (Canada) Conventions in 2000, in MICA,
The Codes Forum, Sydney.

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mineralization exists in the property and the price of the commodity, or the potential of the area, changes
dramatically. Valuations are affected by the maturity of the country government and infrastructure is variable,with North America, Western Europe and Australia meriting higher unit values than those of developing
countries

VALUATION OF MINERAL PROPERTIES WITHOUT MINERAL RESOURCES: A REVIEW OF MARKETBASED APPROACHES
RD. Lawrence, Watts Griffis and McOuat Limited, Toronto, Canada
ABSTRACT
Comparable transaction analysis is the best known of the market approaches to valuation of explorationstage mineral properties. The analysis of option and farm-in agreements can also provide useful guidance tovaluators. While such approaches can be distorted by incomplete analysis, market-based methods arecapable of providing consistent, credible results when carried out carefully with due consideration paid to all
factors which buyers and sellers consider when dealing in the real market.
Mineral properties without defined resources present one of the most challenging tasks to the mineralvaluator. You will hear from others at this conference about the use of cost and income approaches to the
problem of valuing exploration properties. This paper will concentrate on market-based approaches. These
approaches are based on the principle of substitution and include such techniques as:•••

Comparable transaction analysis (sometimes referred to as sales comparison analysis).
Farm-in commitment analysis
Rules of thumb

In Canada there are no valuation standards that apply to the valuation of mineral assets or securities. This2
problem is being addressed by the CIMVal Committee . Further, the recently established Canadian
Association of Mineral Valuators will be giving consideration to the adoption of valuation standards. Australia
has the best developed standard, known as the VALMIN Code, which has been adopted by the Australasian
Institute of Mining and Metallurgy. This code was updated in 1998 and has now achieved widespread
acceptance in Australia. While the Code may be given consideration in other jurisdictions, the VALMIN Codeis directed toward Australian securities and corporate law matters. As a result, it has limited application inother jurisdictions without considerable revision.
In the US, the Uniform Standards of Professional Appraisal Practice (USPAP) was written in 1999 especiallyfor the real estate sector. It is widely applied to the American mineral sector as a result of the peculiarities of
US mineral title practice and the licensing of valuators by State Boards. The USPAP concepts are useful for
American mineral valuations generally, but also need modification. The overall standard, in both theAustralian and American codes, is that the selection of valuation methods to be used for any valuation issolely the responsibility of the valuator.
It is important to emphasize that the valuator must consider all appropriate valuation approaches in reaching
the valuation conclusion. Indeed, if there is one strong conclusion to be drawn from a consideration of
VALMIN and USPAP, it is that all three general methodologies must be considered. If one or two of them are
excluded, the reason for exclusion has to be provided. The valuation conclusion must be considered within
the context of other values obtained using other methods that may be found to cluster about a particularvalue range.

DISCOUNTED CASH FLOW ANALYSIS:INPUT PARAMETERS AND SENSITIVITY
CR Lattanzi, Micon International Limited, Toronto, Canada
ABSTRACT
Discounted cash flow analysis provides a means of relating the magnitude of expected future cash profits tothe magnitude of the initial cash investment required to purchase an asset or to develop it for commercial
production. The objectives of discounted cash flow analysis are to determine:
The net present value of a stream of expected future cash revenues and expenditures.
The rate of return which the expected future cash flows will yield on a given level of initial cash investment.
2
Canadian Institute of Mining, Metallurgy and Petroleum has established an ad hoc committee within the Mineral Economics Society
with the objective of providing standards for the valuation of mineral properties in Canada. The goal of CIMVal is to complete its workby the end of 2000.

M J Lawrence, 2000, Overview of Valuation Papers Presented to SME (USA) and CIM/PDAC (Canada) Conventions in 2000, in MICA,
The Codes Forum, Sydney.

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In the case of mineral properties, discounted cash flow analysis is generally accepted as the preferred
method of valuation, whenever sufficient data are available to permit its reasoned application. Sufficient data
are required to support estimation of all of the individual elements of cash revenue and cash expenditure
which will be associated with the development and operation of the property, up to the end of its estimatedlife. It is the accuracy of these input estimates which determines the validity of the resulting determinations ofprofitability and rate of return on invested capital. In undertaking any discounted cash flow analysis, it isimportant to recognize certain fundamental attributes of the mining industry:
The basis of any mineral development is the existence of an ore reserve.
Costs are determined by the number of tonnes mined and processed, while revenues are determined by the
number of pounds or ounces of metal produced. The two are related by the recovered grade of the ore.
Profit is typically more sensitive to changes in revenue than it is to changes in cost.
Commodity price is a principal determinant of revenue, but it is also the factor with which is associated thegreatest level of financial risk.
In the end, of all of the factors which must be considered in the discounted cash flow valuation of a mineralproperty, the most significant are the reliability of the reserve estimate, particularly with respect to recovered
grade, the price at which the product is to be sold, and the risk of not maintaining the projected level of price.

VALUING MINERAL OPPORTUNITIES AS OPTIONSRT McKnight, Pincock Allen & Holt Ltd, Denver, USA
ABSTRACT
Traditional techniques for valuing resource projects companies have been primarily based on discounted
cash flow methods (DCF) or by comparison to similar projects with an apparent market capitalization. Many
resource projects are really forms of options to invest rather than a future cash flow stream. Employing the
DCF method to value a resource project which is really an option to invest, can dramatically underestimate
the real value of the project. The analytical tools required to evaluate options, while more complicated thanthe usual spreadsheets used for DCF, are becoming more easily available and usable by managers. This
paper will discuss the background of options valuation and some of the tools which will make it easier for
managers to estimate the value of projects and companies which have significant real option values.
Option theory provides a powerful framework for analysing a multitude of business problems, including
valuation of investment opportunities, research and development expenditures, capital structure, divestment
decisions, timing of investments and open/closure decisions. Mining valuation work covers a broad spectrumof projects from early stage exploration with little information and a wide range of possible outcomes, tovaluations relating to project developments, acquisitions and divestment. Options theory has most direct
applicability to the latter end of the valuation spectrum, when there is reasonably good information about
resources, capital and operating costs. While options theory is a valuable additional to the valuator’s toolbox,
it is not applicable in every situation; it complements, rather than replaces, other valuation methods.
Options are the right, but not the obligation, to buy, sell or invest at a known price for a specified period oftime. While more commonly known in the finance world, more complex options form part of businessdecisions in many industries. Understanding option theory will help valuators and managers make better
judgments and business decisions.
“Real options” is a term that has become popular in recent years to describe the types of complex options
occurring the “real world” of business. The knowledge and use of real options has exploded in the last few
years and has gained wide acceptance amongst practitioners in a number of other industries. Mining has
been seemingly slow to adopt new valuation technologies over the years. The reason for this is not entirely
clear. One possible reason is the level and types of risks in mining. Not only are these risks high, but they
are also more numerous and involve natural risks (i.e. mother nature) compared with other industries. Thisshould not excuse industry practitioners from making themselves familiar with, and using, the best and mostappropriate valuation techniques available. Real options analysis as applied to valuation work is most directly
applicable to advanced minerals projects with a mineral resource and reasonably well understood capital andoperating costs, and especially for projects which may be marginal or uneconomic at current metal prices.

M J Lawrence, 2000, Overview of Valuation Papers Presented to SME (USA) and CIM/PDAC (Canada) Conventions in 2000, in MICA,
The Codes Forum, Sydney.

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VALUATION OF MINERAL EXPLORATION PROPERTIES USING THE COST APPROACHWE Roscoe, Roscoe Postle Associates Inc, Toronto, Canada
ABSTRACT
Mineral exploration properties are those on which an economically viable mineral deposit has not yet been
discovered. Such properties are bought, sold, optioned and joint ventured on the basis of their perceived
potential for the existence and discovery of a viable mineral deposit. The intrinsic value of an exploration
property is therefore based on the exploration potential. One measure of the exploration potential is theamount that can be justified to spend on exploration for a viable deposit.
At present there are no comprehensive regulations or guidelines in Canada that specify what approaches andmethods to use for the valuation of mineral properties. The purpose of this paper is to describe a cost
approach to the valuation of mineral exploration properties and to provide some valuation examples. The
particular cost approach described is the Appraised Value Method, which is best applied to mineral properties
at the exploration stage. It is based on the premise that an exploration property is worth the meaningful past
exploration expenditures plus warranted future costs to test remaining exploration potential. Results of past
exploration work are analysed in order to retain only those past expenditures that are productive in terms ofidentifying remaining potential. Warranted future costs comprise a reasonable exploration budget to test that
potential.
One of the important concepts in this definition that is critical to mineral properties is the effective date ofvaluation. This is because mineral property values vary over time, depending on events on neighbouring
properties, market interest, commodity prices, etc. For an expropriation, insurance claim or litigation, theeffective date may be a contentious issue in that the property owner may perceive that the property will be
more valuable in the future when market conditions improve, and that the expropriation or legal issue forcesthe valuation in a time of poor market conditions.

THE VALUATION OF ADVANCED MINING PROJECTS & OPERATING MINESC Roberts, National Bank Financial, Toronto, Canada
ABSTRACT
While various methods are available to estimate a mining project’s value, value is only established through atransaction. Comparable methods allow the value estimated for a mining project to be benchmarked against
mining project values established in the market. Comparable methods thus are a key tool for ensuring value
estimates are congruent with what the market would actually pay. For example, if the value estimated for amining project using discounted cash flow analysis differs significantly from the value implied using
comparable market methods, the valuator may be using metal price or discount rate assumptions that differ
significantly from those the market is currently willing to pay for.
The paper provides an overview of market comparable valuation approaches, and discusses some of the
difficulties and limitations that arise in using these approaches. The types of market values that are typicallyutilised are discussed, including asset sale prices, share prices (market capitalisations), and values
established in corporate mergers and acquisitions. Topics discussed include methods used in estimating a
mining project’s value based on the market value of the company that holds the asset, and limitations thatarise because of unique features of mining projects and of companies that hold them.
It is concluded that market comparable and fundamental (eg, NPV) approaches to project valuation should
not be viewed as alternative approaches to estimating project value, but rather can and should be integrated
to derive a single value estimate based on both market and fundamental data. A method for integratingthese approaches is discussed, and illustrated by example.

CONCLUSIONS
It is through development of professional standards and guides to best practice in various areas affecting aprofessional's working life that AusIMM plays its part in ensuring the globalisation of the minerals industry isdone in a rational way and in the interests of the individual professional, the company and the community.
The promotion of the use of logical, transparent and defensible valuation practice is one specific way AusIMM
can assist this process. The collection and minor editing of the above recently presented papers at
SME/PDAC-CIM has been provided to assist the timely dissemination of international views on valuation
practice.

M J Lawrence, 2000, Overview of Valuation Papers Presented to SME (USA) and CIM/PDAC (Canada) Conventions in 2000, in MICA,
The Codes Forum, Sydney.