The valuation of mineral exploration properties generally fall into two broad categories, those with defined mineral resources and those without. The valuation technique used is different in each case and is in all cases dependent upon the level of knowledge regarding the continuity of grade and geology. A valuation is therefore more robust and quantitative as the available data increases in quality and paper writing services quantity.
There are numerous reasons why mineral exploration and mining companies should consider valuation of their projects. This may be for mergers, acquisitions, sales or simply internal project ranking. During periods of “depressed” exploration activity there are good opportunities for funded exploration companies to build portfolios of good exploration assets at minimal cost.
During this process it is important to obtain an independent view of what is a fair and reasonable value for a project and to asses its maximum potential value. Similarly in times of reduced exploration expenditure it is often helpful for companies to review their existing projects and produce a comparative valuation of these. This process helps with important decisions regarding which project should be kept, disposed of, “moth-balled” etc and which projects are likely to provide the best return for your exploration spend.
With many years experience in valuing exploration assets SRK Exploration Services Ltd. (SRKES) has developed a robust technique for this that involves several stages. First and foremost a technical review of each project is conducted. This would include a review of the project geology and exploration target model as well as the historical and planned activities.
Once this has been done we attempt to establish a series of minimum, maximum and technical values utilising a variety of data and interpretive techniques. During this process many of the following are addressed;
o Historical exploration costs – In this technique all monies expended on a lease area are summed to provide an exploration cost to date. Such expenditure may have had little success or may, in some cases, have been unwise, so it is necessary to apply a discount factor to reflect the perceived current market value of the geological data obtained.
o Project status – For the purposes of valuation SRKES considers the progression of an exploration property to comprise five stages; Grass-roots projects; Intermediate projects; Advanced projects; Resource Definition projects; and Full feasibility projects. The chances of successfully realizing the maximum potential value are increased as the property progresses with positive results being obtained.
o Company Fit – The assessment of “company fit” and the relative ability to conduct exploration within a particular country/environment attempts to factor-in the attractiveness of a particular project to a specific company and hence the value.
o Country risk – An assessment of “country risk” whereby the risks involved in conducting exploration in a particular country are quantified.
o Maximum Potential Values – Philosophically, the maximum “potential” value of an exploration property may be linked to the target mineralisation being sought however it is essential to establish a realistic view of the geological potential. SRKES’s approach here is to establish the maximum potential value of the properties based on the currently available geological data and our understanding of the geological models applied.
o Minimum values – Under normal circumstances establishing minimum values for an exploration property is generally the simplest part of a valuation exercise. If a property is purchased, then the purchase price is the minimum value assigned to that property by the purchaser. Historical exploration expenditure is also used to assist in this process.