100% found this document useful (1 vote)

323 views

Michael Samis Workshop

Risk Management

Uploaded by

xixo1234

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

100% found this document useful (1 vote)

323 views

Michael Samis Workshop

Risk Management

Uploaded by

xixo1234

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

You are on page 1/ 150

Improving Strategic Capital Management

with Integrated Valuation and Risk

Modelling methods
Michael Samis, Ernst &Young LLP
David Laughton, DL Consulting / University of Alberta
Lisa Lin, Ernst & Young LLP

Originally presented March 3, 2017 at PDAC, Toronto, Canada

Current revision date: November 23, 2017

Note: The views reflected in these course notes are the views
of the presenters and do not necessarily reflect the views of
the global EY organization or its member firms.

Photo: Jason Benz Bennee / Shutterstock

Acknowledgements —

► The course presenters acknowledge with gratitude the following professionals for
providing background material and comments to various sections of this course:

Jim Whyte, Ontario Securities Commission

Lawrence Devon Smith, LD Smith Associates
Charles Beaudry, International Explorers and Prospectors Inc.
Rosemary Niechcial, WayPoinT Infrastructure
Graham Davis, Colorado School of Mines
Andrew Tuck, EY
John Steen, University of Queensland
Peter Monkhouse, Monkhouse Consulting

► Any errors or omissions are the responsibility of the course presenters.

Page 2 © Michael Samis and David Laughton

“Of all those expensive and uncertain projects, “As miners and explorers, we need to consider
… there is none perhaps more perfectly ruinous that extreme volatility is the new normal. We
than the search after new silver and gold need to do things differently if we are to
mines.” effectively manage volatility.”
Adam Smith (1776), The Wealth of Nations, Book IV, Paraphrasing a Canadian mining CEO (January, 2017).
Chapter VII, page 610.

Integrated Valuation and Risk Modelling

Modelling commodity price uncertainty

Information gathering – exploration / pilot studies

Management flexibility – staged development

Alternative finance – streaming

Corporate portfolios – country risk effects

Organizational issues
Page 3 © Michael Samis and David Laughton
All rights reserved

Photo: photomatz / Shutterstock

Industry background —
Static cash flow models are widely used in the mining industry

► The mining industry has been criticized for wasting billions of dollars during
the last boom. Much of this is attributed to over-priced acquisitions BUT
static valuation methods may bear some of the blame due to inherent biases.
► In particular, static DCF valuation methods may:
► Incorrectly estimate expected cash flows due to the “Flaw of Averages”1. The
presence of option-like financing / tax structures and management flexibility may
cause static investment models to generate biased cash flow estimates.
► Excessively discount future cash flows which may lead to frontloading capital
through building larger and more expensive projects than is prudent – especially
when staged development is possible.
► Ignore the effects of operating leverage even while adjusting for financial leverage.
The high PE attributed to royalty streams is due to low operating leverage without
adequately recognizing the possibility of cash flows being lower than expected.

► Together, these issues can cause problems when analysing mining

investment opportunities (both project and financial).
1. Savage, S (2002). The Flaw of Averages. Harvard Business Review, November.

Page 4 © Michael Samis and David Laughton

► Dynamic cash flow modelling has been considered as an alternative to static

DCF methods since at least the mid-1960’s for non-financial investment
decision-making.
► Significant advances have been made in the academic literature on
valuation-related issues over the last 25 years:
► Schwartz E.S. (Journal of Finance, 1997) on realistic uncertainty models for
commodity forecasts.
► Longstaff F.A and E.S. Schwartz (The Review of Financial Studies, 2001) on
Monte-Carlo methods for valuing American options.

► Further, recent advances in computing power allows the analysis of

moderately complex flexible project designs and financing arrangements in a
reasonable timeframe.
► Dynamic models will always be a somewhat crude representation of an actual
investment opportunity. There are still important insights to be gained by
considering an investment over a range of possible future business environments.

Page 5 © Michael Samis and David Laughton

► Mining investments are designed, developed, and operated while exposed to

geological, technical, market, political, and social uncertainty.
► Our cash flow models should explicitly recognize these risk exposures while
balancing the need to remain a practical tool.
► a practical analytical tool. Cash flow model
Desirable traits for a cash flow modelling method Static Dynamic
Skills sets needed to perform analysis are widely available √ X
Compatible with current investment decision and risk management
processes √ X
Recognizes the cash flow, value, and risk distortions created by the
interaction of uncertainty and contingent finance / tax / flexibility
X √
Risk exposure can be modelled, measured, and communicated with a range
of methods and formats across an organization
X √
Provides a framework in which to describe forecast uncertainty and how an
investment adapts to forecast changes
X √

Page 6 © Michael Samis and David Laughton

► Corporate acceptance of dynamic cash flow models has been slow even with
its benefits. The slow uptake is the result of:
Poor communication on the part of practitioners about why moving from a
static to a dynamic cash flow analysis is a good idea, and…
The costs of integrating information from a dynamic cash flow analysis
into design and investment decision processes that are built on a static
future view.
► The objective of today`s course is to advocate for the greater use of dynamic
cash flow models by:
► Recognizing the differences between static and dynamic cash flow models.
► Illustrating the range of dynamic cash flow applications in natural resource
industries.
► Making quantitative risk analysis (especially capital investment risk) an integral part
of the analysis supporting an investment decision.
► Discussing the organizational issues linked to dynamic cash flow modeling.

Page 7 © Michael Samis and David Laughton

► Questions to ask when considering a move to dynamic cash flow analysis:

► Should we restrict our investment analysis to using a single forecast of future
conditions or expand our analysis to include how conditions may change?
► Can we realistically describe how our forecasts change over time and the
relationships between these forecasts?
► Do we have the ability to respond to different business conditions in the future by
adapting investment / operating policy or using contingent financing / taxation
structures?
► Is there a particular investment problem type that we should analyse with dynamic
cash flow models? Is there a primary investment strategy for balancing risk and
reward in an uncertain world?
► Should dynamic models be used only in situations in which it will provide a different
conclusion to static analysis or is the expanded perspective of dynamic modelling
enough to justify its use?

Page 8 © Michael Samis and David Laughton

Page 9

Photo: Dmitri Melnik / Shutterstock

Strategic capital management (SCM) —
Managing capital in support of business objectives

Protecting the balance sheet: Optimizing the corporate portfolio:

How to ensure company resilience? How is portfolio performance maximized?
Responsive operations Focused performance metrics
Improved risk monitoring Capture synergies
Adaptable capital structure Strategic Systematic portfolio reviews
capital
management
Investing capital: (SCM) Raising capital:
Which assets support strategy? Is capital structure aligned
Acquisition readiness with strategy?
Structure creatively Divestiture readiness
Leading design / analytical practice Innovative finance
Graphic adapted from EY Capital Agenda

Two questions
The SCMfor challenge
SCM professionals
1. Are we missing relevant insights by relying on static cash flow models?
2. Can we better understand the risk + reward trade-offs of capital management
decisions with dynamic cash flow models?

Page 10 © Michael Samis and David Laughton

► SCM analysis is often performed with static forecasts that are updated
annually for changes in business outlook.
► Commodity price forecasts may be generated using a combination of industry
marginal cost analysis, supply-demand studies, consensus forecasts and financial
market information.

► Effectively describing uncertainty in corporate forecasts requires asking:

► How do spot prices and other variables move around our forecasts?
► How are corporate forecasts revised / updated as business conditions change?
6.00
Long-term copper forecasts from consensus forecasts
(real, December 31, 2016; US$/lb)

5.00

4.00
Copper price

3.00

2.00

1.00

Source: Consensus Economiccs; Reuters; EY analysis

0.00
1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20
Time (date)
Historic spot price Consensus forecast at past forecast date (narrow solid lines) Long-term forecast at past forecast date

Page 11 © Michael Samis and David Laughton

► Static SCM analysis also ignores our ability to manage uncertainty through
investment / operational flexibility and contingent finance.
► Modelling our ability to manage uncertainty requires thinking about:
► Can we approach capital investment and operations such that we reduce the risks
of sunk capital and efficiently adapt operations when the outlook changes?
► Are there contingent finance possibilities that will improve capital investment
efficiency and provide resilient financing structures?
Investment / operations adapting for outlook Financing terms adapting for outlook
140ktpd / 50.4mtpa capacity
25 year horizon
Yes
Legend
Expand capacity to Decision point:
140ktpd / 50.4mtpa in Year 10?

No
110ktpd / 39.6mtpa capacity
Yes 29 year horizon

Expand capacity to
110ktpd / 39.6mtpa in Year 7?

No
80ktpd / 28.8mtpa capacity
36 year horizon
Yes

Expand capacity to
80ktpd / 28.8mtpa in Year 4?

No
50ktpd / 18.0mtpa capacity
53 year horizon

4 7
0 10 20 30 40
Project year

Page 12 © Michael Samis and David Laughton

Three approaches to recognizing uncertainty

Attempt to reduce Passive uncertainty Active uncertainty

forecast error recognition recognition
Focus on improving our ability Annual updating of investment Dynamic modelling of primary
to forecast the future models and forecast. Simple risk exposures and the ability
investment environment. discounting adjustments. to manage uncertainty.
Develop ability to time metal Simple scenario-based risk Adaptive risk adjustments.
price cycles. analysis. Quantitative risk analysis.
Benefit: Little or no risk in Benefit: May be acceptable Benefit: Detailed modelling of
cash flow projection if for some go / no-go decisions. investment problem. Granular
successful. Analytical skills commonly distinctions between
available. Aligns with current investments. Provides risk
corporate decision processes. exposure information.

Cost: Static investment Cost: Requires improved

Cost: Unrealistic and insanely
description. Results can be numerical skills. Corporate
expensive.
biased or misleading. decision processes need to be
adapted.

Page 13 © Michael Samis and David Laughton

► Integrated Valuation and Risk Modelling (IVRM) is a dynamic cash flow

modelling framework that creates a risk dimension for SCM analysis with:
► Finance theory ► Risk management concepts ► Numerical methods
► Decision analytics ► Statistical analysis ► Communication tools

Risk-based
SCM modelling

Contingent Dynamic
Corporate ERM corporate portfolio
Balance
portfolio sheet risk
strategy optimization

Project Flexible Measuring

Contingent Contingent Risk
project value, return,
analysis design capital eff.
finance taxation assessment

IVRM building Models of Numerical Finance Risk Statistical Tools for

blocks uncertainty methods theory measures analysis communication

Page 14 © Michael Samis and David Laughton

► An IVRM analysis is built on:

► A description of the SCM decision – sources of uncertainty, investment structure
and portfolio effects.
► Application of the IVRM analytical toolkit – method of cash flow estimation,
measurement of investment benefit, risk assessment and portfolio analysis.

Description of a SCM decision IVRM analytical toolkit

Static
Cash flow
Type / source Simulation / lattice
estimation
Resolution Uncertainty Decision tree
Correlation
DCF / RO NPV
Value and Return
Cash flow IVRM return Capital efficiency
Investment
Owner options
structure
analytical
Finance / tax Qualitative
framework Risk
Scenario/sensitivity
analysis
Simulation-based
Alternatives
Interdependence Portfolio Optimization
effects Portfolio Single/multiple objectives
Constraints
analysis Efficient frontier

Page 15 © Michael Samis and David Laughton

► Stochastic processes are used to 2500

Price movements without updating
describe commodity price and 2000

Gold price ($/oz)

long-term forecast behaviour in 1500

financial markets. 1000

► A stochastic process describes the 500

possible changes of a variable
through time – a set of uncertainty 0
0 5 10 15 20
distributions indexed by time. Project time (year)
Simulated price from forecast date
► A key feature is updating future Year 0, 5, 10 forecast from specific price 10%/90% forecast confidence bdy
2500
distributions (mean / associated Price movements when there is updating
variance) for recent price moves. 2000

Gold price ($/oz) 1500

► Graphs on the right compare non-
updating vs updating price models. 1000

► There is no forecast updating in 500

the upper graph. 0

0 5 10 15 20
► Which price path better reflects Project time (year)
Simulated price from forecast date
price moves in financial markets? Year 0, 5, 10 forecast from specific price 10%/90% forecast confidence bdy

Page 16 © Michael Samis and David Laughton

► Future operating and investment decisions will be made across a range of

possible future business and financial environments.
► Cash flow and value calculations need to recognize how cash flow structure
and investment / operating policy adapts to business conditions.
► Simulation and optimization (eg lattice dynamic programming) numerical methods
will likely be needed to avoid the “Flaw of Averages”.

Contingent cash flow calculation Contingent value calculation

A mature mine with high costs is renegotiating an A mine design team is assessing a future open pit
existing 6% royalty. A sliding-scale royalty is / underground development decision in a range of
proposed that reduces royalty rates at current commodity price environments. Management
price levels in exchange for higher rates when wants to understand the prices at which the pit
prices are higher. should be deepened or an UG mine developed.
Royalty 
10% RoyRate if AuPrice > $1,800
 8% RoyRate PV develop underground minet ,
if AuPrice: $1,600  $1,800 PV develop open pit pushback ,

AUOz  AuPrice   6% RoyRate if AuPrice: $1,400  $1,600 ValueTime t  Maximum of  t

PV continue mining existing pit t,

 4% RoyRate if AuPrice: $1,200  $1,400
 2% RoyRate Close minet
if AuPrice  $1,200 


1. Savage, S (2002). The Flaw of Averages. Harvard Business Review, November.

Page 17 © Michael Samis and David Laughton

► DCF and Real Option (“RO”) risk adjustments are used for NPV calculations.
► Mining professionals often talk about RO value as being distinct from NPV. It is not.

► RO and DCF cash flow calculations are structurally very similar. RO and DCF
risk adjustment differences can be important when calculating value.

DCF present value calculation RO present value calculation

Price  Metal amount  Revenue Price  RDFMetal  RA Price
 OpCost  Metal amount
Operating profit RA revenue
 CAPEX  OpCost
Net cash flow RA operating profit
 Time & risk adj.  CAPEX
Present Value of net cash flow RA net cash flow
 Time & residual risk adj.
Abbreviations
RDFMetal: Risk discount factor for a specific metal. Present Value of net cash flow
RA: Risk-adjusted

Page 18 © Michael Samis and David Laughton

All rights reserved
Some key features of IVRM —
Ability to consider a much larger number of cash flow scenarios
Cash flow scenario analysis
► Mining investment risk is often High price scenario
Time 0 1 2 … T

assessed with scenario analysis.

Price …
Metal amount
Base case scenario …
Revenue Time 0 1 … 2 … T
Op cost Price … …
Low price scenario
Scenarios are selected in a
Metal amount …
►
EBIT …
Revenue Time 0 1 … 2 … T
Tax …
Op cost Price … …

qualitative manner.
CAPEX …
EBIT Metal amount … …
Net cash flow …
Tax Revenue … …
Discount factor …
CAPEX Op cost … …
PV net cash flow …
Net cash flow EBIT … …

IVRM uses numerical methods

NPV
Tax …
► Discount factor
PV net cash flow CAPEX
Net cash flow
…
… …
…

(e.g. simulation) to generate a

NPV
Discount factor …
PV net cash flow …

very large number of scenarios

NPV

for specific uncertainties such as

price that are consistent with Cash flow database from simulation
assumed behaviour (e.g. price
movements in markets).
► This information can be used to
gain insights about cash flow in
various business environments.

Cash flow
calculation
dimension

Page 19 © Michael Samis and David Laughton

► Dynamic cash flow modelling reduces the biases of static cash flow models
and expands our ability to measure risk and communicate risk exposure.
Static cash flow model IVRM with dynamic cash flow
Investment benefits summarized by… Investment benefits summarized by…

Net present value Profitability index Net present value Profitability index
IRR Payback period Modified IRR Payback period

Risk exposure assessed by… Risk exposure assessed by…

Sensitivity analysis Sensitivity analysis Event probabilities

Conditional expectations Uncertainty measures
Loss thresholds

Analysis communicated with… Analysis communicated with…

Summary statistics Spider diagrams Summary statistics Spider diagrams

Expected CF graphs Expected CF graphs Confidence bdys
Decision trees Decision boundaries
Histograms

Page 20 © Michael Samis and David Laughton

► IVRM helps generate and communicate SCM insights and provides support
for decision-making. It is not:
► A ploy to calculate a higher investment NPV for a favoured but challenged project.
► A substitute for extensive industry experience.

Supports understanding of key project, company, and market

factors that influence value and risk which are not visible with
static SCM analysis. Better
understanding
Provides an excellent means of communicating investment of your
uncertainty characteristics and their impact on value and investment,
corporate risk exposure. more informed
SCM decision
Promotes SCM conversations that you may not have had making.
before.

Page 21
Modelling commodity price uncertainty

Page 22

Photo: Djelen / Shutterstock

Modelling commodity price uncertainty —
The importance of long-range forecasts

► Long-range metal price forecasts and the uncertainty around those forecasts
are a key input into the analysis supporting natural resource SCM decisions.
► Forecasts influence corporate strategy, project design, financing, taxation,
community relations and government policy, among other things.
► Price forecasts are generated with a range of techniques, incorporating insights and
information from market participants and market analysts.

► Unfortunately, with static cash flow models and annual planning cycles, we
often ignore how our SCM decisions are impacted by updates to our long-
range forecasts over the planning cycle.

Page 23 © Michael Samis and David Laughton

► The natural resource industries often recognize long-range forecast price

uncertainty with scenario analysis (price decks).
► Long-range forecast scenarios are sometimes probability weighted to include the
effects of price uncertainty in decision making and valuation. This approach to
uncertainty modelling ignores long-term forecast updating.

Price deck Price deck

Scenario Au price Scenario Au price Probability
The uncertainty
Blue sky $1,500 around the forecast Blue sky $1,500 5%
Higher $1,400 may be taken into Higher $1,400 10%
account by assigning
High $1,300 High $1,300 20%
probability weights to
Forecast $1,200 each scenario Forecast $1,200 30%
Low $1,100 Low $1,100 20%
Lower $1,000 Lower $1,000 10%
Lights out $ 900 Lights out $ 900 5%
Expected price $1,200

Page 24 © Michael Samis and David Laughton

► However, price decks and their associated probability-weights are an

incomplete model of price uncertainty – we still need to recognize forecast
updating over time.
Three features of a complete
Price variability model of forecast uncertainty
describing uncertainty
around a forecast
Forecasts
► The model we use
Price generated by:
generates a price
variability ► Supply / demand
distribution at each
future time point. projections.
► Cost curve models.
► Consensus
forecasts.
Forecast updating Forecast
Price ► Financial market
allowing for dynamic updating
forecast information.
expectations
► Future expectations
change as future prices
change.

Page 25 © Michael Samis and David Laughton

Model selection Parameter selection

Hypothesis testing assesses whether an The econometric modelling techniques to
assumed model of a commodity price estimate inputs for price uncertainty
movements is consistent with historical models from historical market information.
price behaviour. .
Form Mathematical Parameters
description of
commodity price
behavior

Statistical tests performed to identify: Price model types and inputs:

► Behaviour characteristics. ► A wide range of inputs from historic spot
► Whether model choice is reasonable. prices, forward curves, and consensus
forecasts.
► Models can display a range of behavior
where spot prices and forecasts move in
sync, spot prices move around forecasts,
and the possibility of jumps.

Page 26 © Michael Samis and David Laughton

► Non-reverting models are used to describe the price movements of financial

stocks, precious metals, FX and possibly a few base and minor metals.
► Long-term forecasts move in lockstep with spot price movements. A 2% rise in the
spot price results in a 2% increase in the long-term forecast price.
► Uncertainty increases with term (time from today).

► Limitation: Applies only to financial stocks, precious metals and FX rates.

2,500
(real; December 31, 2016; US$/loz)

2,000
Gold price

1,500

1,000

500

0
1/01/75 12/31/84 1/01/95 1/01/05 1/01/15 1/01/25 1/02/35
Time (date)
Historic spot price Year 0, 5, 10 forecast from a specific future spot price
Simulated spot price from forecast date 10% / 90% forecast confidence boundary

Page 27 © Michael Samis and David Laughton

► …
Reverting models describe base metal and energy price movements.
► A constant real or nominal long-term forecast. Spot price varies around and reverts
to the long-term forecast price.
► Uncertainty saturates with term, reducing long-life project cash flow discounting.
► Need to update the long-term forecast for market regime changes.

► Limitation: A single long-term forecast that does not change over time.
200
(real; December 31, 2016; US$/bbl)

150
WTI Oil price

100

Page 28 © Michael Samis and David Laughton

► …
Two-factor models better reflect base metal and energy price movements.
► Both spot price and long-term forecast price are uncertain.
► Uncertainty increases with term. Variability in the long-term forecast can generate
option value for long-life base metal and energy projects.
► Limitation: Parameterization using historical prices results in uncertainty
levels (indicated by confidence intervals) that are unreasonably high.
200
(real; December 31, 2016; US$/bbl)

150
WTI Oil price

100

Page 29 © Michael Samis and David Laughton

All rights reserved
Types of commodity price uncertainty models —
Jumps / high vol periods creating sudden market outlook changes

► Outlook for long-term prices can also change dramatically over short periods.
► The increase in oil demand from China in 2003 had an impact on prices that was
sudden, dramatic, and unexpected.
► The decline in oil prices as a result of increased Saudi production was sudden,
dramatic, and unexpected.

► These sudden price forecast changes may be the result of price jumps or
periods of high volatility. They are random and can happen at any time.
200
WTI oil spot price and quarterly forward-implied forecast from January 1, 2000
(real, December 31, 2016; US$/bbl)

150
Downward move from
WTI Oil price

Increased production
100

50
Upward move from
Increased demand
0
1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20
Time (date)
Historic spot price Forward curve forecast at past forecast date (narrow solid lines) Long-term forecast at past forecast date

Page 30 © Michael Samis and David Laughton

► Two-factor reverting models extended to include a jump factor or high

…
volatility periods for unexpected large changes in long-term forecast.
► Jumps or high volatility periods absorb some of the long-term forecast volatility.
► Simulated price behavior may be closer to what we see in markets.

► Limitation: Increased complexity and simulation time.

200
(real; December 31, 2016; US$/bbl)

150
WTI Oil price

100

Page 31 © Michael Samis and David Laughton

2,500
► Gold is primarily held as an Analyst forecasts – December 31, 2011

(real, December 31, 2016; US$/oz)

2,000
investment asset with few industrial
uses.

Gold price
1,500

► Range of business outlooks at both 1,000

dates. Analyst price forecasts much 500

more divergent 5 years ago after a 0

Source: Consensus Economics; Reuters; M Samis analysis

large run up in prices. 1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15

Time (date)
1-Jan-20 1-Jan-25 1-Jan-30

Historic spot price Analyst forecast (narrow solid lines)

Long-term forecast price ($/oz; 30/12/16) Forward curve forecast
Consensus forecast
2,500
Analyst Calculated / market

(real, December 31, 2016; US$/oz)

Forecast Analyst forecasts – December 31, 2016
Low High Consensus Forward 2,000
date

Gold price
31-Dec-11 837 2,117 1,230 1,670 1,500

31-Dec-16 915 1,576 1,222 1,143 1,000

► Forward market long-term forecast 500

Source: Consensus Economics; Reuters; M Samis analysis

had a greater change over 5 years 0
1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20 1-Jan-25 1-Jan-30

than consensus long-term forecast. Time (date)

Analyst forecast (narrow solid lines)
Historic spot price
Consensus forecast Forward curve forecast

Page 32 © Michael Samis and David Laughton

2,500
► Consensus forecasts display Consensus forecast

(real, December 31, 2016; US$/oz)

anchoring – forecast updates are 2,000

less reactive to spot market 1,500

Gold price
movements than forward-implied 1,000

forecast. 500

Source: Consensus Economics; Reuters; M Samis analysis

► Forward-implied forecasts respond 0

1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20

quickly to market movements as Time (date)

Consensus curve forecast at past forecast date (narrow solid lines)
long-term forecasts move upwards Historic spot price Long-term forecast at past forecast date

and downwards in a parallel 2,500

Forward-implied forecast

(real, December 31, 2016; US$/oz)

fashion. 2,000

Gold price
1,500
► Analyst forecasts rely on information
from non-market participants and 1,000

may have limitations compared with 500

the actual financial trades 0

Source: Reuters; M Samis analysis

embedded in forward contracts. 1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15

Time (date)
1-Jan-20

Forward curve forecast at past forecast date (narrow solid lines)

Historic spot price Long-term forecast at past forecast date

Page 33 © Michael Samis and David Laughton

► Gold prices are modelled as a non-reverting process around an updating

long-term forecast. Consistent with gold being a store of perceived value.
► Volatility is estimated using either historical prices or implied from option prices.
► No statistical evidence of reversion in spot prices and forward prices.
► The stochastic model here assumes a flat forecast in real dollars at each date. The
model can have upward or downward trending forecasts at each date.
2,500
(real; December 31, 2016; US$/loz)

2,000
Gold price

1,500

1,000

500

Page 34 © Michael Samis and David Laughton

50
Silver has mainly industrial uses with Analyst forecasts – December 31, 2011

(real, December 31, 2016; US$/oz)

►
40
some investment interest. It is mainly

Silver price
produced as a by-product and as a 30

result it is less responsive to supply / 20

demand signals. 10

► A range of analyst long-term price 0

Source: Consensus Economics; Reuters; M Samis analysis

forecasts at both dates suggesting 1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15

Time (date)
1-Jan-20 1-Jan-25 1-Jan-30

divergent business outlooks. Historic spot price Analyst forecast (narrow solid lines)
Consensus forecast Forward curve forecast
Long-term forecast price ($/oz; 30/12/16) 50
Analyst forecasts – December 31, 2016

(real, December 31, 2016; US$/oz)

Analyst Calculated / market 40
Forecast
date Low High Consensus Forward
Silver price
30

31-Dec-11 16.50 31.52 23.75 27.02

20
31-Dec-16 13.30 23.71 18.60 14.07
10

Source: Consensus Economics; Reuters; M Samis analysis

► Analysts were more in agreement in 0
1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20 1-Jan-25 1-Jan-30
2016 than in 2011 (less spread). Time (date)
Historic spot price Analyst forecast (narrow solid lines)
Consensus forecast Forward curve forecast

Page 35 © Michael Samis and David Laughton

50
►
► Consensus
<< uses >> forecasts again display Consensus forecast

(real, December 31, 2016; US$/oz)

► anchoring
<< – forecast
consensus commentupdates
>>. are 40

less reactive to spot market>> 30

Silver price
► << forward forecast comment
movements than forward-implied 20
► …
forecast. 10

Source: Consensus Economics; Reuters; M Samis analysis

► Forward-implied forecasts move 0

1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20

with spot prices with some Time (date)

Consensus curve forecast at past forecast date (narrow solid lines)
backwardation in high price Historic spot price Long-term forecast at past forecast date

environments. 50
Forward-implied forecast

(real, December 31, 2016; US$/oz)

40
► Forward markets may be revealing
either non-reverting prices or weak Silver price
30

long-term reversion to a price of 20

approximately $20/oz. 10

Source: Reuters; M Samis analysis

0
1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20
Time (date)
Forward curve forecast at past forecast date (narrow solid lines)
Historic spot price Long-term forecast at past forecast date

Page 36 © Michael Samis and David Laughton

► Silver prices are modelled as a non-reverting process around an updating

long-term forecast. This is reflective of by-product production as some
production is less responsive to price signals.
► Volatility is estimated from historic price data.
► The stochastic model here assumes a flat forecast in real dollars at each date.
► Past econometric analysis could support weak reversion.
60
(real; December 31, 2016; US$/loz)

40
Silver price

Page 37 © Michael Samis and David Laughton

6.00
► Copper spot price trend influenced Analyst forecasts – December 31, 2011

(real, December 31, 2016; US$/lb)

5.00
by supply and demand adjustments 4.00

Copper price
over time. These adjustments create 3.00
a long-term price within a narrow 2.00
band. 1.00
Source: Consensus Economics; Reuters; M Samis analysis
0.00
Long-term forecast price ($/lb) 1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20 1-Jan-25 1-Jan-30
Time (date)
Analyst Calculated / market
Forecast Historic spot price Analyst forecast (narrow solid lines)
Low High Consensus Forward Consensus forecast Forward curve forecast
date
6.00
31-Dec-11 1.91 3.20 2.62 3.23 Analyst forecasts – December 31, 2016

(real, December 31, 2016; US$/lb)

5.00
31-Dec-16 1.93 3.01 2.56 2.30

Copper price
4.00

3.00
► Long-term analyst forecasts appear
2.00
to show reversion while forward-
1.00
implied forecasts are responsive to Source: Consensus Economics; Reuters; M Samis analysis
0.00
current price levels. 1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20 1-Jan-25 1-Jan-30
Time (date)
Historic spot price Analyst forecast (narrow solid lines)
Consensus forecast Forward curve forecast

Page 38 © Michael Samis and David Laughton

6.00
► Reversion exhibited by both Consensus forecast

(real, December 31, 2016; US$/lb)

5.00
consensus and forward-implied 4.00

Copper price
forecasts. 3.00

► Note the regime change (jump / high 2.00

volatility period) in 2005, where the 1.00

long-term forecast changed in both 0.00

Source: Consensus Economics; Reuters; M Samis analysis

1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20

consensus and forward-implied Time (date)

forecasts. Consensus curve forecast at past forecast date (narrow solid lines)
Historic spot price Long-term forecast at past forecast date

► As of Jan 2016, analysts were more 6.00

Forward-implied forecast

(real, December 31, 2016; US$/lb)

optimistic than forward-implied 5.00

forecasts. 4.00

Copper price 3.00

► Difference may reflect copper
2.00
market risk premium embedded in
1.00
analyst forecasts. Source: Reuters; M Samis analysis
0.00
1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20
Time (date)
Forward curve forecast at past forecast date (narrow solid lines)
Historic spot price Long-term forecast at past forecast date

Page 39 © Michael Samis and David Laughton

► Copper prices modelled with a two factor + jump process to describe forecast
uncertainty and forecast shocks.
► Short-term price volatility and long-term forecast volatility is estimated from historic
spot price and forward price information.
► Model jumps interpreted to reflect demand shocks such as increased demand from
developing countries (2005) and GFC (2008).
6.00
(real; December 31, 2016; US$/lb)

5.00
Copper price

4.00

3.00

2.00

1.00

0.00
1/01/75 12/31/84 1/01/95 1/01/05 1/01/15 1/01/25 1/02/35
Time (date)
Historic spot price Year 0, 5, 10 forecast from a specific future spot price
Simulated spot price from forecast date 10% / 90% forecast confidence boundary

Page 40 © Michael Samis and David Laughton

200
Oil / diesel is often an important cost Analyst forecasts – December 31, 2011

(real, December 31, 2016; US$/oz)

►
component of mining operations 150

WTI Oil price

which creates uncertainty about 100
future operating costs levels.
► Analysts forecasts are less scattered 50

than in 2011. 0
Source: Consensus Economics; Reuters; M Samis analysis

1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20 1-Jan-25 1-Jan-30

Long-term forecast price ($/lb; 31/12/16) Time (date)
Historic spot price Analyst forecast (narrow solid lines)
Analyst Calculated / market Consensus forecast Forward curve forecast
Forecast
200
date Low High Consensus Forward Analyst forecasts – December 31, 2016

(real, December 31, 2016; US$/bbl)

31-Dec-11 81.74 127.05 104.08 88.81 150

WTI Oil price

31-Dec-16 46.52 68.41 58.43 51.11
100

► Energy costs have fallen along with 50

metal prices.
Source: Consensus Economics; Reuters; M Samis analysis

► Costs and revenues tend to move in 0

1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20 1-Jan-25 1-Jan-30
tandem. Time (date)
Historic spot price Analyst forecast (narrow solid lines)
Consensus forecast Forward curve forecast

Page 41 © Michael Samis and David Laughton

200
Long-term forecasts affected by oil Consensus forecast

(real, December 31, 2016; US$/bbl)

►
price rise in 2008. Even after the 150

WTI Oil price

2008 financial crisis, long-term 100
forecasts reverted to a higher oil
price level. 50

► Reversion exhibited by both 0

Source: Consensus Economics; Reuters; M Samis analysis

1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20

consensus and forward-implied Time (date)

forecasts after 2008. Consensus curve forecast at past forecast date (narrow solid lines)
Historic spot price Long-term forecast at past forecast date

► Consensus long-term forecasts and 200

Forward-implied forecast

(real, December 31, 2016; US$/bbl)

forward-implied forecasts are in 150
broad agreement.
WTI Oil price 100

Source: Reuters; M Samis analysis

0
1-Jan-00 31-Dec-04 31-Dec-09 1-Jan-15 1-Jan-20
Time (date)
Forward curve forecast at past forecast date (narrow solid lines)
Historic spot price Long-term forecast at past forecast date

Page 42 © Michael Samis and David Laughton

► WTI oil prices modelled with a two factor + jump process to describe forecast
uncertainty and forecast shocks.
► Short-term price volatility and long-term forecast volatility is estimated from historic
spot price and forward price information.
► Model jumps interpreted to reflect supply and demand shocks such as shale oil
technology (2007), Saudi production ramp up (2014) and OPEC supply cuts (2017).

200
(real; December 31, 2016; US$/bbl)

150
WTI Oil price

100

Page 43 © Michael Samis and David Laughton

► The mining industry is often skeptical of inferring forecasts from forward

curves. Mean Percentile Error (MPE) of quarterly “naïve” spot price, forward-
implied and consensus forecasts from January 1, 2000 suggests:
► Consensus tends to have largest long-term forecast MPE for each commodity.
► Gold, silver, WTI oil have lowest MPE with spot and forward-implied forecasts.
50% 50%
Gold forecast MPE Copper forecast MPE
Mean percentage error

Mean percentage error

40% 40%

30% 30%

20% 20%

10% 10%

0% 0%
0 1 2 3 4 5 0 1 2 3 4 5
-10% -10%
Forecast term (years) Forecast term (years)
Spot forecast Forward-implied forecast Consensus forecast Spot forecast Forward-implied forecast Consensus forecast

50% 50%
Silver forecast MPE WTI oil forecast MPE
Mean percentage error

Mean percentage error

40% 40%

30% 30%

20% 20%

10% 10%

0% 0%
0 1 2 3 4 5 0 1 2 3 4 5
-10% -10%
Forecast term (years) Forecast term (years)
Spot forecast Forward-implied forecast Consensus forecast Spot forecast Forward-implied forecast Consensus forecast

Page 44 © Michael Samis and David Laughton

► Single factor and more complex stochastic uncertainty models can be used to
describe price forecast uncertainty when reasonably parameterized. Relying
on scenario decks to describe future price uncertainty:
Over simplifies how price forecasts may change in the future, which leads to…
An inadequate description of future price behaviour, which generates…
Lower quality value and risk information on which to base a SCM decision.

► These descriptions of commodity price behaviour can be incorporated into

cash flow models to better understand how our investments will perform and
can be best managed across a range of business environments.

Page 45 © Michael Samis and David Laughton

Page 46

Photo: Adwo / Shutterstock

Creating value from exploration
Making money from exploration is difficult

► Exploration is characterized by large levels of uncertainty about:

► What is actually there,
► If the mineral occurrence can be mined (social license / technical issues),
► When it will be mined,
► The development and operating costs required to exploit the occurrence, and
► Actual metal price levels if mined.

► Industry observations reflect this characterization:

► Large number of junior exploration companies listed on the TSX with a much
smaller number of operating mines.
► There may be more than 20 years of upfront exploration and development expense
before generating a $1 of income from major precious and base metal deposits.
► For new deposits, most value is created by finding Tier 1 and 2 type deposits.
► Higher “bang-for-buck” from brownfields exploration than greenfields exploration.

Page 47 © Michael Samis and David Laughton

► An exploration investment will usually have a negative NPV when assessed

with a traditional static cash flow model.
Simple exploration example:
Consider a mineral occurrence that has been identified through an initial
exploration program. The VP Exploration believes the following:
► A 25% probability of a large deposit generating $6 billion of operating profits.
► A 75% probability that there is no economic deposit (Operating profits = 0).
► It will cost $4.4b to complete exploration, project design and development.

The value of this exploration / development approach is –$2.4 billion.

WC deposit Exploration Outcome Branch value Weighted value
25% $6 billion
outcome probability ($ million) ($ million)
Positive exp results /
Spend $4.4 billion to explore, 25.0% 3,600 900
Build+operate
design and develop deposit
Negative exp results /
75.0% -4,400 -3,300
75% Build+close
No deposit
$0 Expected project value ($ million) -2,400

0 2 4 6 8 10

Page 48 © Michael Samis and David Laughton

► Create a 4 Year exploration program costing $400 million with one or more of
the following information-gathering objectives:
► Refine knowledge of metal amount ► Improve production profile
► Refine cost estimates ► Improve cost profile

► Information provided by the exploration program is imperfect but it can help

us update our view about the possibility of having a large deposit.
Revised deposit probabilities ► There is a risk that positive or
Chance of positive with positive exploration result
exploration result: 27.5% Positive exploration + large
negative exploration results are
deposit: 72.7% misleading (false positive /
Initial chance of large Positive exploration + no false negative) and lead to an
deposit: 25%
deposit: 27.3% ill-advised investment decision.
Spend Explore
$400 million results ► Quality of information from
Initial chance of no Revised deposit probabilities exploration is important.
deposit: 75% with negative exploration result
Negative exploration + large ► The appendix details the
Chance of negative deposit: 6.9% calculation behind these
exploration result: 72.5%
Negative exploration + no
probabilities
0 2 4 deposit: 93.1%

Page 49 © Michael Samis and David Laughton

► Use the information from the exploration program to create a two-staged

compound option:
Stage 1: A 4 year exploration program costing $400 million, followed by
Stage 2: A 6 year design + build option costing $4.0 billion if exploration is positive.

► Expected project value is now $100 million instead of –$2.4 billion.

► Remember the importance of information quality. There is a 7.5% chance of a
positive exploration result when there is actually no deposit (false positive).
72.7% WC deposit
Exploration Outcome Branch value Weighted value
$6 billion
Yes; outcome probability ($ million) ($ million)
$1.8 billion Positive exp results /
No deposit 20.0% 3,600 720
Positive of value 27.3% $0 Build+operate
Spend
explore Positive exp results /
$4.0 billion to design and
27.5% 7.5% -4,400 -330
develop the deposit? Build+close
Spend
Negative exp results /
$0.4 billion No development, $0 72.5% -400 -290
Negative close
to explore.
explore 72.5% Expected project value ($ million) 100
$0

0 2 4 6 8 10

Page 50 © Michael Samis and David Laughton

► Advance targets through pipeline from identification stage to a deposit

reserve statement supporting mine development.
► Use a combination of geological and economic measures to rank and
prioritize targets for advancement. Reject or sideline targets with lower
rankings.

Operating mine /
Project development Reserves

Measured / indicted
Project feasibility Reject resources
Resource / reserve definition Inferred resource

Exploration Reject Advanced targets

targets Follow-up targets

Geological Reject
Target identification
anomalies

Page 51 © Michael Samis and David Laughton

► Pilot testing involves building / operating a small continuous processing plant

to gain information about the commercial scale performance of a technology.
► Pilot plants appear expensive if their risk management role is not understood.
► How much would you pay to know your mill operates on the blue curve and so
avoid investing capital in a mine and mill that operates on the purple curve?

Plant ramp-up curves:

McNulty Ramp‐Up Curves
120% Type 1: Mature technology; extensive pilot testing for
risky unit operations.
100%
Type 2: Some prototype technology; severe
% of Design Capacity

80%
conditions; incomplete pilot testing.
Type 3: Same as 2 but with very limited pilot
60% testing; incomplete knowledge of feed
Type 1
characteristics.
40%
Type 2 Type 4: Same as 3 but complex flowsheet and
20% Type 3 misunderstood chemistry; pilot testing for
Type 4
product quality but not process parameters.
0%
0 12 24 36
Months After Start‐Up

Page 52 © Michael Samis and David Laughton

Issue: Solution:
A CCS facility is being considered to prevent Assess value and build / operate policy by
CO2 emissions from an undeveloped NatGas considering market and technical risk exposures
field. Is the CCS facility’s ability to manage combined with ability to decide when and how to
gas and carbon price uncertainty valuable? build and operate the CCS plant.

► In 2005, a petroleum company (“O&GCo”) is developing a new off-shore

natural gas field that is expected to emit 1 million tonnes of CO2 per year from
production start in 2009 to expected closure in 2055.
► Global warming will likely result in CO2 emissions incurring a carbon tax (possibly
significant) at some time during the field operation.

► CO2 emissions at the field can be mitigated by building a Carbon Capture and
Sequestration (“CCS”) facility to inject carbon in a nearby depleted reservoir.
► Senior project management has asked for a detailed analysis of the policy
and investment implications of building and operating a CCS facility so they
can make recommendations to the Board’s Investment Committee.

Page 53 © Michael Samis and David Laughton

► The CCS facility requires a year to build at a cost of $120m.

► Once built, the facility costs $1m to operate and consumes an expected 0.7
Gcf of NatGas field production to compress/transport/inject carbon into the
storage reservoir.
► The CCS facility can be temporarily closed at an annual $0.5m maintenance cost.

► Two competing CCS facility designs:

► Basic design: Capital and operating costs as stated above.
► Enhanced design: Increase capital costs by $5m and reduce NatGas consumption
by 10% to expected 0.63 Gcf.

► The CCS facility may create value for O&GCo by avoiding the cost of emitting
CO2 into the atmosphere. The cash flow calculation when operating is:
Net cash flow  CO2 not emitted x CO2 Price
 NatGas consumed x NatGas price
 Fixed operating cost

Page 54 © Michael Samis and David Laughton

► There is uncertainty about the storage reservoir porosity that impacts the
amount of NatGas consumed to inject CO2.
► Prior knowledge about the depleted reservoir and similar geological
formations elsewhere suggest the following annual NatGas consumption
outcomes once the CCS facility is running:
High consumption: 25% probability that annual consumption is 0.875 Gcf.
Base consumption: 50% probability that consumption is 0.7 Gcf.
Low consumption: 25% probability of 0.525 Gcf of NatGas consumed.

► Management can wait to resolve this uncertainty or they resolve this

uncertainty now before building the CCS facility with a 1-Year reservoir study
costing $5m.
► Performing the reservoir study also has a design benefit in that improving the
understanding of reservoir porosity reduces NatGas consumption by 10%
regardless of consumption outcome.

Page 55 © Michael Samis and David Laughton

► From the perspective of 2005, NatGas prices are expected to revert to a

$7.50/mmcf expected long-term forecast tied to LNG supply price.
► Single factor reverting model with a volatility of 20% and uncertain restoring
force with a 3 year time scale.
► A two factor model may be a better representation of market behaviour. A one-
factor model provides simplicity and we compensate by using a higher volatility.
12.50
(real; September 30, 2005; US$/mmcf)

10.00
NatGas price

7.50

5.00

2.50

0.00
1/01/90 1/01/00 1/01/10 1/02/20
Time (date)
Historic spot price Year 0, 5, 10 forecast from a specific future spot price
Simulated spot price from forecast date 10% / 90% forecast confidence boundary

Page 56 © Michael Samis and David Laughton

► A one factor model reflecting rising carbon price to a median of $30/tonne in

2030 before flattening from backstop technology.
► Parameters determined based on expert panel analysis of interplay of physical
system uncertainty, technology, economics and politics
► Longer reversion time scale (4 years), greater short-term uncertainty
► Maximum short-term uncertainty in 2025 at 32.5%

Page 57 © Michael Samis and David Laughton

► Risk discounting accomplished by using distributions centred around forward

prices (red lines in graph below for gas and previous page for CO2).
► Risk discounting in gas forward prices 3% per year for each 10% annual
uncertainty, 4% for CO2

Page 58 © Michael Samis and David Laughton

► Carbon and NatGas price movements are not perfectly correlated.

► Initially, carbon and Nat gas price correlated as increasing carbon prices drive
greater fuel switching from coal / oil to NatGas.
► After 2045, negative correlation as tighter constraints and higher carbon prices lead
to new technology that is cleaner than NatGas. Increases in carbon prices lead to
reduced demand for NatGas.
Correlation between carbon
and NatGas prices

Page 59 © Michael Samis and David Laughton

► Construction of the NatGas field platform contains an initial development

decision point for the CCS facility.
► Project managers have an option to spend $10m to extend the platform
during construction to provide space for the CCS facility if it is built later.
► It will cost $30m to retrofit the platform for the CCS facility if an extension is not
initially built for CCS.

Construct platform with CCS extension

CCS facility / reservoir
appraisal decision
Yes space
Pay $10m now to extend platform for CCS
facility in order to avoid a $30m retrofit if
CCS built later?

No CCS facility / reservoir

Construct platform without CCS extension
appraisal decision
space

to 2055
2005 2006 2007 2008 2009 2010

Page 60 © Michael Samis and David Laughton

► From 2010, project managers have 4 options for building the CCS facility.
1) Don’t build the CCS facility; release CO2 into the atmosphere and pay carbon tax.
2) Build a Basic CCS facility for $120m ($90m with pre-built platform extension).
3) Build an Enhanced CCS facility to reduce NatGas consumption by 10% for $125m
($95m with pre-built platform extension).
4) Perform 1-Year reservoir study for $5m to resolve porosity uncertainty. Then make
the CCS facility development decision (Don’t build / Basic / Enhanced).
Build basic CCS
for $125m ($95m)
Don’t build CCS Run reservoir study for Build basic CCS
$5m and decrease for $120m ($90m)
NatGas consumption by 10% Wait CCS facility
decision
CCS facility / space
CCS facility / reservoir Wait
reservoir decision
decision space Build basic CCS space
for $120m ($90m)

Build enhanced CCS for $125m ($95m)

to 2055
Time t-1 year Time t Time t+1 year Time t+2 year

Page 61 © Michael Samis and David Laughton

► The DCF and RO NPVs for the CCS facility and initial development policy:

CCS facility NPV

Risk adjustment approach ($ million) Investment policy
DCF (10% discount rate) 10.0 Don’t extend platform for CCS
RO (forward curve + RF rate) 13.6 Extend platform for CCS

► Both DCF and RO NPV calculations show that the CCS facility adds value.
► However, the two NPV calculations have different initial investment policies.
► The DCF calculation recommends not extending the NatGas field platform for CCS
(ie retrofit later at a higher cost) while the RO calculation recommends that the
option to extend the platform for the CCS facility should be exercised.
► RO recommendation is driven by a larger value of future capital cost savings:
1) occurs earlier,
2) discounted at a lower rate.

Page 62 © Michael Samis and David Laughton

► Simulation used to estimate value and delineate operating policy.

► The following plots show DCF and RO investment / operating policies for a
large number of NatGas and carbon price simulation outcomes in 2010.
► DCF suggests wait - CCS value is too low.
► RO suggests 1) build Enhanced at high CO2 price, 2) appraise at middle prices
(gas savings are important), and 3) wait at low CO2 prices.
RO

Page 63 © Michael Samis and David Laughton

► With DCF, higher CO2 required to build CCS facility.

► Enhanced CCS with reduced gas use is only supported at very high NatGas prices.

► RO suggests investing in CCS at lower CO2 prices as the present value

(“PV”) of future CO2 costs are greater.
► Present value of future gas costs are also greater with RO so more likely to
introduce the Enhanced CCS design. Small possibility of testing porosity first.
RO

Page 64 © Michael Samis and David Laughton

► With both DCF and RO, Enhanced CCS facility becomes less likely as there
is less time to amortise the initial CCS plant cost. Gas savings are also
generated over a shorter period.
► RO more likely to suggest building a CCS facility during 2022 as PV of future
CO2 cost stream is greater.

Page 65 © Michael Samis and David Laughton

► Near end of potential operation, less value for CO2 under RO risk valuation.
► DCF risk premium is 7% per year.
► RO short-term CO2 risk premium: (0.4 * 0.25 per year = 10% per year
► Price of CO2 risk = 0.4 annualized
► Short term CO2 price uncertainty = 0.25 annualized
RO

Page 66 © Michael Samis and David Laughton

► Probability of DCF CCS build recommendation is greatest after 15 years of

NatGas field life when carbon prices have increased.
► Probability of doing a porosity test is highest for RO early in NatGas field life
when the investment in cost certainty can be offset against a longer period of
reduced costs.
Probability

DCF CCS build decision

RO porosity test for basic design

RO porosity test for enhanced design

Page 67 © Michael Samis and David Laughton

► This example has shown that complex sequential decisions can be analysed
quantitatively in order to gain useful insights about how a project could be
developed across a range of business environments.
► The approach to applying a risk adjustment also matters to the analysis.
► The use of an aggregate DCF discount rate can result in undervaluing the future
costs related to carbon capture and reduced gas consumption so that there is less
incentive to invest in cost saving technologies.
► RO picks up the effects of natural gas and CO2 price reversion on risk discounting
and places a higher value on future natural gas and CO2 costs. As a result, cost
saving technologies such as CCS and the enhanced design are more likely to be
developed.

► Modelling complex decision processes requires skill and industry experience.

Analysis of future actions is an approximation of the actual problem and will
require future revisions as new information becomes available.

Page 68 © Michael Samis and David Laughton

Page 69

Photo: deadmeat234 / Shutterstock

Benefiting from flexibility —
Flexibility: The value of avoiding loss and extending gains

► Flexibility is a value benefit as it allows management to limit operating

losses during adverse situations and amplify the cash flow effects of
positive business conditions over the project’s lifetime.
► There are two factors affecting the value of flexibility. These are:
► Response to new information: Management can change development or
operating policy in response to new information.
► The characteristics of uncertainty: Flexibility can be very valuable when new
information equally affects the full term structure of a forecast. Flexibility is often
worth more at a gold mine due to gold’s non-reverting behavior than at copper
mines where the copper price may exhibit reversion.
► Some examples of flexibility include:
► Investment deferral ► Compound deposit development
► Early closure / temporary closure ► Expand / reduce capacity
► Raise / lower cutoff grade ► Change processing technology
► Information gathering (exploration)

Page 70
Benefiting from flexibility —
An example of responding to new information (price change)

► Consider a gold mine which produces 100k ozs per year for 10 years at a
cost of $1,000 per oz with a current gold forecast of $1,250 per oz.
► A simple estimate of cumulative expected net cash flow with a Static CF
model is $250 million. Here are a couple of questions:
1) What is the hidden assumption behind a Static CF model?
2) How does a mine shutdown option affect the cash flow estimate?

140

Cash flows from static and

120
NOFLEX / FLEX simulated models Cash flows histograms from NOFLEX / FLEX models
Operating net cash flow (US$ million)

100

0
0 2 4 6 8 10
-20

-40

-60
Project year
Static cash flow Simulated NOFLEX expected CF Simulated FLEX expected CF
90% CB (NOFLEX + FLEX) 10% CB (NOFLEX) 10% CB (FLEX)

Page 71
Benefiting from flexibility —
An example of reverting vs non-reverting price effects

► Consider an undeveloped copper project that costs $275 million to develop.

Building now has a DCF NPV of ─$32.1 million based on a long-term copper
forecast of $3.00/lb. The final build decision can be deferred for 6 years at
which time one of five price forecasts may occur with equal probability.
► A couple of questions:
1) Is the deferral option valuable and why?
2) How does reverting / non-reverting price behaviour affect option value?
4.50
NPV ($ million)
4.00 Scenario 1 Copper price Year 6 Scenario No flexibility Build flexibility
scenario copper price probability Scenario Weighted Scenario Weighted
Copper price ($/lb)

3.50 Scenario 2

Non-reverting 3.00
Deferral Scenario 3 1 3.90 20% 479.9 96.0 479.9 96.0
period 2 3.45 20% 223.9 44.8 223.9 44.8
price forecast 2.50 Scenario 4 3 3.00 20% -32.1 -6.4 0.0 0.0
2.00 Scenario 5
4 2.55 20% -288.1 -57.6 0.0 0.0
5 2.10 20% -544.1 -108.8 0.0 0.0
1.50
0 2 4 6 8 10 12 14 16 Future expected value -32.1 140.8
Project year

4.50
NPV ($ million)
4.00 Scenario 1 Copper price Year 6 Scenario No flexibility Build flexibility
scenario copper price probability Scenario Weighted Scenario Weighted
Copper price ($/lb)

Scenario 2
Reverting
3.50
Deferral Scenario 3 1 3.90 20% 20.2 4.0 20.2 4.0
3.00

price forecast period 2 3.45 20% -1.6 -0.3 0.0 0.0

2.50 Scenario 4 3 3.00 20% -32.1 -6.4 0.0 0.0
2.00 Scenario 5
4 2.55 20% -53.1 -10.6 0.0 0.0
5 2.10 20% -84.4 -16.9 0.0 0.0
1.50
0 2 4 6 8 10 12 14 16 Future expected value -30.2 4.0
Project year

Page 72 © Michael Samis and David Laughton

► The current approach to mine design often ignores the flexibility of mining
projects. Design is treated as a set of mutually exclusive choices rather than
sequential interrelated development decisions.
► Consider the following example:
Management at an UG mine is considering how to extend mine life. There are three choices:
1) Develop Existing Reserves for $160m
2) Develop Existing Reserves and a recently discovered Middle Zone for $265m.
3) Develop Existing Reserves, the Middle Zone and a down-dip Deep Zone for $350m.

Design choice with static models Design choice with IVRM decision tree
Yes Existing reserves+
Existing reserves ($160m) Middle Zone+Deep Zone
Develop
Yes Deep Zone?
Existing reserves / Middle Zone ($265m)
Develop No Existing reserves+
Middle Zone? Middle Zone
Existing reserves / Middle Zone / Deep Zone ($350m)
Existing reserves
No

0 2 4 6 8 10 12 14 0 2 4 6 8 10 12 14

Page 73 © Michael Samis and David Laughton

Issue: Solution:
A mining company is considering three Compare the three designs based on capital risk
design alternatives for a gold project with exposure and development flexibility. Generate
similar NPVs but different upfront CAPEX. risk and policy information by simulating metal
How do you choose between the designs? prices and linking results to design features.

► A mining company (“MinCo”) is studying the development of a gold project

with a high-grade open pit (“HG Pit”), a low-grade pushback (“LG Pushback”
or “LGP”) and an underground extension (“UG Zone”).
► A combined resource of 112.4 million tonnes containing a payable 6.5 million ozs.

► Three design alternatives are being studied with a maximum mill capacity of
18,000 tpd. Each design has a unique capital investment pattern ranging
from frontloaded investment to a staged investment profile.
► Total lifetime capital expenditure is $1,225 million for all designs.

► There is no clear choice as the three designs have seemingly similar NPVs
with a long-term gold forecast of $1,200/oz.

Page 74 © Michael Samis and David Laughton

► Standard investment analysis considers each design alternative separately.

► Frontloaded CPX: Develop HG Pit and UG Zone together for $1,125 million. ROM capacity is
18ktpd. Develop LG Pushback in Year 13 for $100 million. ROM capacity for LG Pushback is
18ktpd. Mine life is 21 years.
► Staged CPX (1): Develop HG Pit for $775 million. ROM capacity is 18ktpd. Combine LG
Pushback and UG Zone development in Year 10 for $450 million. ROM capacity for Combined
LG Pushback and UG Zone is 18ktpd. Mine life is 21 years.
► Staged CPX (2): Develop HG Pit for $775 million. ROM capacity is 18ktpd. Develop LG
Pushback in Year 10 for $100 million. ROM capacity is 18ktpd. UG Zone developed in Year 16
for $350 million. ROM capacity for LG Pushback is 7ktpd. Mine life is 25 years.
Frontloaded CPX: Combine HG Pit / UG Zone + Late LG Pushback
B1
D1 Staged CPX (1): HG Pit + Combine LG Pushback / UG Zone
NF
B2
Staged CPX (2): Sequential HG Pit + LG Pushback + UG Zone
B3

0 5 10 15 20 25
Project time (year)
Investment decision timing point B1 Full project development branch

Page 75 © Michael Samis and David Laughton

► The cash flow information generated by a static cash flow model is limited.
► Amount and timing of cash flow is provided but risk is communicated with simple
measures linked to sensitivity analysis.
► Risk measures difficult to generate with a static cash flow model.

Frontloaded CPX Staged CPX (1) Staged CPX (2)

Net cash flow and

800 800 800

Cash flow amount ($ million)

Cash flow amount ($ million)
capital profile

600 600 600

400 400 400

200 200 200

0 0 0
0 5 10 15 20 25 0 5 10 15 20 25 0 5 10 15 20 25
-200 -200 -200

-400 -400 -400

-600 -600 -600

Project year Project year Project year
Capital expenditure Operating profit Capital expenditure Operating profit
Capital expenditure Operating profit

500 500 500

Average annual cash flow

Average annual cash flow
Cash flow risk

400 400 400

($ million)

($ million)
($ million)

300 300 300

200 200 200

100 100 100

0 0 0
600 800 1,000 1,200 1,400 1,600 1,800 600 800 1,000 1,200 1,400 1,600 1,800 600 800 1,000 1,200 1,400 1,600 1,800
Gold price ($/oz) Gold price ($/oz) Gold price ($/oz)
Overall HG + UG LG Overall HG LG+UG Overall HG LG UG

Page 76 © Michael Samis and David Laughton

► Conventional cash flow analysis

Investment benefit
suggests the Frontloaded CPX
Design NPV(5%) Profitability
design generates the most value.
alternative ($ million) index
► Capital investment efficiency of the
Staged CPX (1) design is slightly Frontloaded CPX 535 0.511
higher (7.5%) reflecting delayed Staged CPX (1) 526 0.549
capital expenditure Staged CPX (2) 495 0.545

► Frontloaded CPX design is

preferred for the project when gold D1 NF: Design choice and gold price sensitivity
prices are above $1,170/oz. The 2,500

Staged CPX (1) design is preferred 2,000 Staged CPX (1) Design
HG Pit and then Combined
at prices below this point. NPV ($ million)
1,500 LG Pushback / UG Zone
development

► All designs appear to have similar 1,000

sensitivity to changes in gold price. 500 Frontloaded CPX Design

Combined HG Pit and UG Zone
development
0
600 800 1,000 1,200 1,400 1,600 1,800
Gold price ($/oz)

Page 77 © Michael Samis and David Laughton

► Gold price uncertainty is modelled with a non-reverting distribution with an

initial long-term forecast of $1,200/oz.
► Key features include:
► Long-term forecasts move in lockstep with spot price movements. A 2% rise in the
spot price results in a 2% increase in the long-term forecast price.
► Uncertainty increases with term (time from today).
2,500
(real; December 31, 2015; US$/loz)

2,000
Gold price

1,500

1,000

500

Page 78 © Michael Samis and David Laughton

► The introduction of a gold price uncertainty model provides a greater range of

cash flow information.
► Cash flow amounts are supplemented with a range of risk information such as cash
flow variability and level of uncertainty.

Frontloaded CPX Staged CPX (1) Staged CPX (2)

Net cash flow and

800 800 800

Cash flow amount ($ million)

capital profile

Cash flow amount ($ million)

600 600 600

400 400 400
200 200 200
0 0 0
0 5 10 15 20 25 0 5 10 15 20 25 0 5 10 15 20 25
-200 -200 -200
-400 -400 -400
-600 -600 -600
Project year Project year Project year
Capital expenditure Expected operating profit Capital expenditure Expected operating profit Capital expenditure Expected operating profit
90% cash flow CB 10% cash flow CB 90% cash flow CB 10% cash flow CB 90% cash flow CB 10% cash flow CB

500% 500% 500%

Cash flow risk

Cash flow CoV (%)

400% 400% 400%

300% 300% 300%

200% 200% 200%

100% 100% 100%

0% 0% 0%
0 5 10 15 20 25 0 5 10 15 20 25 0 5 10 15 20 25
Project year Project year Project year
Annual cash flow CoV Annual cash flow CoV Annual cash flow CoV

Page 79 © Michael Samis and David Laughton

All rights reserved
Example: Managing capital investment risk
Investment benefits and risk exposure (no future design choice)

► Investment benefits are unaffected by modelling gold price uncertainty.

► Other projects may have different static and dynamic NPVs from non-linearities.
► Risk information from simulation suggests project designs are risky.
► Conditional profitability index (PI) losses are high. Expect to lose $1.10 for every
$1.00 of capital invested if NPV negative.
► Conditional NPV loss for each design is also high at $1.1 billion if NPV is negative.
► Risk levels seem excessive at this point in our analysis.
Profitability PI risk exposure
NPV / risk exposure map index (PI) PI loss PI gain

Frontloaded 0.51 -1.14 2.07

Dy namic cash f low /

CPX Expected loss Expected NPV Expected gain

no design choice

-$1,170 $535 $2,200

Staged 0.55 -1.18 2.29

CPX (1) Expected loss Expected NPV Expected gain
-$1,138 $527 $2,219

Staged 0.55 -1.16 2.29

CPX (2) Expected loss Expected NPV Expected gain
-$1,062 $495 $2,084

-2,000 -1,500 -1,000 -500 0 500 1,000 1,500 2,000 2,500 3,000 3,500
NPV outcomes ($ million)

Page 80 © Michael Samis and David Laughton

► Future design flexibility can be reinterpreted as a decision tree which maps

decision timing (yellow boxes) and project closure (grey boxes).
► Multiple possible development paths are grouped into Frontloaded CPX and
Staged CPX (1) & (2) designs.
Frontloaded CPX design LG Pit
B1
Combine HG Pit + UG Zone Develop LG Pit for $100 million
D2 or exhaust HG Pit+UG Zone reserves?

X1
D1 Develop HG Pit+UG Zone for $1,125 million
Flex or develop HG Pit for $775 million? Combine LG Pit + UG Zone Staged
B2 CPX (1)
HG Pit UG Zone
D3 B3
At D3, choose between:
1. Develop LG Pit+UG Zone for LG Pit Develop UG Zone for $350 million
$450 million,
D4 or exhaust LG Pit reserves?
2. Develop LG Pit for $100 million,
3. Exhaust HG Pit reserves. X2 X3 Staged CPX (2)
design

0 5 10 15 20 25
Project time (year)
D1 Design decision point X1 Early closure point B1 Full project development branch

Page 81 © Michael Samis and David Laughton

All rights reserved
Example: Managing capital investment risk
Future design flexibility also impacts the initial investment decision

► Recognizing future design flexibility 2,500

D1 NF: Initial design choice with static model
can alter your initial investment
2,000 Staged CPX (1) Design
decision. HG Pit and then Combined

NPV ($ million)
1,500 LG Pushback / UG Zone
► A static cash flow model suggests development

the Frontloaded CPX design is 1,000

preferred when the Time 0 gold 500 Frontloaded CPX Design

Combined HG Pit and UG Zone
price is above $1,170/oz. development
0
► When future design flexibility is 600 800 1,000 1,200 1,400 1,600 1,800
Gold price ($/oz)
recognized, the Frontloaded CPX
D1 Flex: Initial design choice with flexibility
design is preferred only if the Time 2,500
0 gold price is above $1,525/oz.
2,000 Staged CPX (1) & (2) Designs
► The presence of flexibility tends to NPV ($ million)
HG Pit and then choose
LG Pit / UG Zone development policy
1,500
delay investment – the preference
here is to defer capital investment 1,000
Frontloaded
until later unless gold prices are 500 CPX design

high. 0
600 800 1,000 1,200 1,400 1,600 1,800
Gold price ($/oz)

Page 82 © Michael Samis and David Laughton

D2: Design flexibility in Year 13 of Frontloaded CPX

► Design flexibility allows investment 2,500
risk to be managed. Exhaust Develop LG Pushback
2,000 Combined HG Pit by investing $100 million
and UG Zone
For Frontloaded CPX, the choice in

NPV ($ million)
► 1,500
Year 13 is whether to invest $100
1,000
million or close the mine early.
500
Gold price Development action
0
Above $1,030 Develop LG Pushback 600 800 1,000 1,200 1,400 1,600 1,800
Below $1,030 Exhaust HG Pit + UG Zone Gold price ($/oz)

D3: Design flexibility in Year 10 of Staged CPX

► For Staged CPX (1) & (2), the choice 2,500

in Year 10 is invest $450 million or 2,000

Exhaust
HG Pit
LG Pushback
and then UG Zone by
$100 million or nothing (close early). NPV ($ million)
investing $100 million
(and then $350 million)
1,500
Gold price Development action
1,000 Combine LG Pushback
Combine LG Pushback and and UG Zone by
Above $1,350 investing $450 million.
UG Zone 500

$900 - $1,350 LG Pushback then UG Zone 0

600 800 1,000 1,200 1,400 1,600 1,800
Below $900 Exhaust HG Pit
Gold price ($/oz)

Page 83 © Michael Samis and David Laughton

All rights reserved
Example: Managing capital investment risk
Investment benefit and the risk levels of flexible development

► Recognizing design flexibility provides the following analytic refinements:

► Value increases by 60% (≈$500m to $850m) and capital efficiency increases by
50% (≈$0.55 to $0.81). Preferred design is now staged development.
► Risk levels are much lower (about 50% lower) with staged development as capital
is only invested if business environment is favourable.
Profitability PI risk exposure
NPV / risk exposure map
index (PI) PI loss PI gain
Frontloaded
0.51 -1.10 2.07
Dy namic cash f low /

CPX Expected loss Expected NPV Expected gain

no design choice

-$1,170 $535 $2,200

Staged 0.55 -1.18 2.29

CPX (1) Expected loss Expected NPV Expected gain
-$1,138 $527 $2,219

Staged 0.55 -1.16 2.29

CPX (2) Expected loss Expected NPV Expected gain
-$1,062 $495 $2,084
f low+decision tree

Frontloaded 0.60 -0.97 2.03

Dy namic cash

CPX Expected loss Expected NPV Expected gain

-$982 $639 $2,153

Staged CPX 0.81 -0.76 2.21

Expected loss Expected NPV Expected gain
-$537 $845 $2,100

-2,000 -1,500 -1,000 -500 0 500 1,000 1,500 2,000 2,500 3,000 3,500
NPV outcomes ($ million)

Page 84 © Michael Samis and David Laughton

► This IVRM case study highlights the importance of recognizing uncertainty

and its impact on design choices. In this instance, ignoring flexibility by using
a static cash flow model to support the investment decision:
Undervalues the ability to stage project development, which leads to…
Front-loading of capital investment at $1,200/oz gold, which creates…
Reduced investment efficiency and needless capital risk for your investors.

► There are a number of extensions to this example:

► Cost uncertainty ► Geological uncertainty
► Intermediate timing of the UG Zone ► Early closure
► Capacity increases ► Satellite deposits
► Exploration planning ► Project / corporate risk budgeting

Page 85 © Michael Samis and David Laughton

Page 86

Photo: Roman Bodnarchuk / Shutterstock

Financing in the mining industry
Cash flow distortions from changing business conditions

► Mining companies are increasingly using a mix of traditional and alternative

finance to manage industry volatility while building a foundation for growth
and the execution of corporate strategy. Governments are also participating
in mining projects through alternative non-tax arrangements.
► Examples of alternative finance / government participation include: .
► Commodity-linked debt ► Sliding-scale royalties
► Earn-outs ► Off-take agreements with quotation periods
► Streams ► Capital repayments from carried interests
► Windfall / profit-sharing taxes ► Finite tax-loss carry forward periods
► It is curious to note that many of the above financial assets are analysed with
dynamic cash flow models for financial reporting purposes but not in other instances.

► Dynamic cash flow analysis is required to better understand how the interaction
of equity, traditional + alternative finance, and government interests distributes
value and risk in a volatile industry.
► Static cash flow models may introduce misleading estimates of cash flow and risk
when financing and tax agreements contain contingent cash flow structures.
Page 87 © Michael Samis and David Laughton
All rights reserved
Financing mining projects —
Debt with embedded commodity price derivatives

400

► The high coupon rates for debt Contingent bank payment on each

Contingent payment per oz delivered ($)

350
gold ounce delivered
issued by single-asset companies 300

building a mine may be reduced by 250

an option giving the debt holder 200

exposure to higher metal prices.

150

100

Example: MinCo issues a debt package that 50

also delivers a small amount of gold to a bank 0

700 800 900 1000 1100 1200 1300 1400 1500 1600

in exchange for paying a much lower coupon Gold price ($/oz)

Contingent payment per AU oz delivered
rate. The package includes a provision in
which the bank pays the mining company up to 30
$300/oz when gold prices are above $1,000/oz. Bank net cash flow on gold delivery

Bank Co. net cash flow

25
► Hidden issue: Cap on bank gold payment 20
restricts Mining Co’s exposure to high gold
($ million) 15
prices on future gold delivery.
10
► Dynamic CF model is needed to see impact.
A static model estimates the finance cost is 5

11% and cash outflow to the bank is $95m. 0

0 1 2 3 4 5
Finance cost is 16% and outflow to the bank Year
is $105m with a dynamic model. Simulated cash flow Static cash flow model

Page 88 © Michael Samis and David Laughton

25%
► Mining
… companies can raise capital Sliding royalty rate schedule

NSR payout rate (%)

20%
by pre-selling production through
royalties and streams. Embedded 15%

options may cause unanticipated 10%

shifts in risk and return. 5%

0%
Example: MinCo negotiates with RoyCo a

900
950
1,000
1,050
1,100
1,150
1,200
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
1,650
1,700
1,750
1,800
lower base rate on an existing 6% royalty in
Gold price (US$/oz)
exchange for higher rates if gold prices Base NSR Sliding scale NSR
increase. Immediate impact is to lower mine
costs in a $1,200 gold price environment.
60
Hidden issue: The possibility of much higher Expected royalty cash flows –

Cash flow (real; US$ million)

►
50 static vs dynamic models
royalty rates may result in a hidden value
40
transfer to RoyCo.
30
► A dynamic CF model may reveal a hidden
20
value transfer. A static model forecasts
average annual RoyCo cash flows of $6.4m 10

while a dynamic model forecasts RoyCo 0

0 2 4 6 8
cash flow of $13.4m with average 10% Time (year)
confidence boundary of $43m. Expected RoyCo NSR cash flow 90% confidence bdy
10% confidence bdy Static RoyCo NSR cash flow

Page 89 © Michael Samis and David Laughton

► …
Buyer / seller value differences in 80
Total earn-out payment
Earn-in payment (static cumulative cash flow + Cash flow range:

Total earn-in payment (US$ million)

M&A can sometimes be bridged by static contingent payment) = $67.5 million) Above $140m, earn-in
payments capped
linking part of the purchase price to 60 Cash flow range: $95m to $140m
50% of after-tax cash flows
at $67.5m

to MINCO
future performance. Dynamic 40
Cash flow range: $50m to $95m
models are most likely required to 100% of after-tax cash flows
20
account for contingent payments. Cash flow range: Below $50m,
after-tax cash flows to JUNIORCO
0
Example: MinCo is selling a mature high cost 0 25 50 75 100 125 150 175

mine to JuniorCo. There is disagreement on Cumulative after-tax cash flow (US$ million)
Total earn-in payment
value so MinCo asks for an earn-out based on
cumulative cash flow to capture the possibility 50 100%

Earn-in cash flow ($ million)

of higher gold prices and mine cash flows. Earn-in cash flow + closure probability

Cumulative probability
40 80%

of early closure
► Hidden issue: A cap on earn-out payments
30 60%
and the possibility of early closure may cause
lower earn-out cash flows than expected. 20 40%

► A dynamic CF model shows that expected 10 20%

earn-out cash flows are indeed lower than a 0 0%

static forecast. Total earn-out CFs are 0 1 2 3 4 5 6 7
Year
$67.5m with the static model while a dynamic Earn-in cash flow - static Earn-in cash flow - simulated
model forecasts earn-out CFs of $34m. 90%/10% cash flow CB
Cum. early closure probability
90%/10% cash flow CB

Page 90 © Michael Samis and David Laughton

Issue: Solution:
Owners of a developing gold project are Test the stream’s impact on the project over a
considering a stream agreement to improve range of gold prices with simulation to obtain
their financial position. How does the stream unbiased cash flows estimates and an indication
impact project viability and risk exposure? of risk exposure.

► A mining company (“MinCo”) is developing a new gold project and needs to

improve its financial position due to a decline in metal prices. Reducing the
remaining project capital requirements is one possibility.
► The company has rejected raising equity or increasing debt but would consider a
streaming deal as it is considered non-dilutive.

► A streaming company (“StreamCo”) has offered staged upfront payments to

the project during construction in exchange for the future delivery of gold at
25% of the spot price.
► MinCo’s board views the stream proposal as generally favourable but would
like more clarity about the risk effects of the stream.

Page 91 © Michael Samis and David Laughton

► The gold project is planned as a combined open pit / underground operation

with a reserve base of 3.9 million ozs. The project has a 14 year operating
life of which the last 2 years are processing a low-grade stockpile.
► Annual mill through-put is 7.7 million tonnes with annual payable gold
production of 310 thousand ozs (“koz”) during operation and 74 koz when
processing the stockpile.
► Average annual mining / milling / G&A / TCRC costs of $578/oz when operating
and $870/oz during the last two years of processing.
► Annual sustaining CAPEX is $103/oz for the first 11 years and $45/oz afterwards.

► Project is one year into a three year build program. Total CAPEX is $887
million (“m”) with the balance of $788m incurred over the next two years.
► The government participates in the project through corporate income tax
levied at a rate of 25% on both mine and stream taxable income.
► Development CAPEX is depreciated with a simple 10-year straight line schedule.
► Stream deliveries during operations are not tax-deductible for MinCo.

Page 92 © Michael Samis and David Laughton

► StreamCo will make upfront payments totaling $160m — $95m in Year 1 and
$65m in Year 2.
► During mine operations, StreamCo will pay 25% of the spot gold price for
7.5% of gold production to a maximum gold delivery amount of 300 koz.
► Thereafter, StreamCo receives 3.75% of gold production at 25% of the gold price.

50
Cumulative stream gold deliveries
Gold delivered to StreamCo (million oz)

Stream cash flow at

0.40
average annual gold production of 310 koz
40

Cash flow (US$ million)

0.30
30

0.20 20

0.10 10

0
0.00
900
950
1,000
1,050
1,100
1,150
1,200
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
1,650
1,700
1,750
1,800
0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

Cumulative gold production (million oz) Gold price (US$/oz)

7.75% production share 3.75% production share Total stream revenue Stream delivery payment

Page 93 © Michael Samis and David Laughton

► A limited amount of information is generated by a static cash flow model.

► Amount and timing of cash flow is provided but cash flow risk is communicated with
simple measures linked to sensitivity analysis.

Equity / no stream Equity with stream Stream

Net cash flow and
capital profile
Cash flow risk

Page 94 © Michael Samis and David Laughton

► Equity NPV has a small decline from Investment benefit

entering the streaming deal while
NPV Profitability
capital efficiency increases by 20%.
Stakeholder ($ million) index (PI)
► Equity profitability index (PI)
Equity / no stream (DR=7%) 372 0.52
increases from 0.52 to 0.63 from the
$160 million upfront payment. Equity with stream (DR=7%) 356 0.63
Stream (DR=5%) 18 0.12
► Equity NPV more sensitive to gold
price changes than Stream NPV. Static NPV gold price sensitivity
► Equity and Stream NPVs are
negative when gold prices are below
$1050/oz.

Page 95 © Michael Samis and David Laughton

► Gold price uncertainty is modelled with a non-reverting distribution with an

initial long-term forecast of $1,250/oz.
► Key features include:
► Long-term forecasts move in lockstep with spot price movements. A 2% rise in the
spot price results in a 2% increase in the long-term forecast price.
► Uncertainty increases with term (time from today).
2,500
(real; December 31, 2015; US$/loz)

2,000
Gold price

1,500

1,000

500

Page 96 © Michael Samis and David Laughton

All rights reserved
Example: Stream financing at a gold mine
Cash flow information from a dynamic model with no early closure

► The introduction of a gold price uncertainty model and simulation provides a

greater range of cash flow information.
► Cash flow amounts are supplemented with a range of risk information such as cash
flow variability and the level of uncertainty.

Equity / no stream Equity with stream Stream

Net cash flow and
capital profile
Cash flow risk

Page 97 © Michael Samis and David Laughton

► Modelling gold price uncertainty reveals a small tax non-linearity.

► Dynamic Equity NPVs are 12% lower than static NPVs.
► Stream NPV less affected by non-linear tax effects.

► Risk information suggests the Stream absorbs risk from Equity.

► Lower 10% NPV confidence boundary moves from –$733m to –$676m. Equity
NPV conditional loss declines from –$490m to –$454m.
► Stream also reduces the benefits of higher gold price environments for Equity.
Profitability PI risk exposure
NPV / risk exposure map
index (PI) PI loss PI gain
Equity / no 0.46 -0.69 1.26
Dy namic cash f low /

stream Expected loss Expected NPV Expected gain

no early closure

-$490 $327 $896

Equity with 0.55 -0.80 1.47

stream Expected loss Expected NPV Expected gain
-$454 $311 $833

Stream 0.11 -0.22 0.38

Expected loss Expected gain: $57
-$32 Expected NPV: $17

-800 -600 -400 -200 0 200 400 600 800 1,000 1,200 1,400 1,600
NPV outcomes ($ million)

► Early closure flexibility limits cash Early closure boundaries

flow losses due to low gold prices.

► Early closure price set to All-In-
Sustaining-Cost (“ASIC”) during
production.
► Closure price increases after Yr 11
due to low grades / stockpile ops.
► Cumulative probability of early
close is 29% to Yr 10 and 58% for
Life-of-Mine (“LOM”). Cumulative early closure probability

► Stream financing increases chance

of early closure.
► The early closure price increases
on average by $45/oz.
► Cumulative probability of early
close increases to 34% by Yr 10.

► Early closure has minimal impact Equity with stream

on Equity cash flow uncertainty to

Year 10 and then generates a
greater reduction of uncertainty
during later years.
► Average annual cash flow CoV for
the first 10 years is 106% with no
close and 102% with early closure.

► Stream cash flows become more Stream

uncertain when early closure is

recognized.
► Average annual cash flow CoV
increases from 49% to 90% after
recognizing early closure.

All rights reserved
Example: Stream financing at a gold mine
Equity investment benefits and risk levels of early closure
► Equity NPV increases by 12% after recognizing the effects of early closure.
Capital efficiency also improves.
► The combined influence of early closure and streaming reduces Equity capital
risk exposure to low gold price environments at the cost of some upside.
► NPV 10% confidence boundary improves from –$733m to –$479m.
► Expected NPV loss improves from –$490m to –$331m.
Profitability PI risk exposure
Equity NPV / risk exposure map
index (PI) PI loss PI gain
Dy namic cash f low Dy namic cash f low /

0.46 -0.69 1.26

no early closure

No stream
Expected loss Expected NPV Expected gain
-$490 $327 $895

Stream 0.55 -0.80 1.47

Expected loss Expected NPV Expected gain
-$454 $311 $832

0.49 -0.61 1.26

with early close

No stream
Expected loss Expected NPV Expected gain
-$391 $368 $893

Stream 0.60 -0.67 1.47

Expected loss Expected NPV Expected gain
-$331 $360 $833

-800 -600 -400 -200 0 200 400 600 800 1,000 1,200 1,400 1,600
NPV outcomes ($ million)

► Stream NPV becomes negative after recognizing the possibility of early

closure. PI also becomes negative.
► The NPV risk range expands with early closure.
► Risk exposure to low gold prices is greater. 10% NPV confidence boundary
declines from -$50m to -$113m. Expected loss declines from -$32m to -$67m.
Profitability PI risk exposure
Stream NPV / risk exposure map
index (PI) PI loss PI gain
Dy namic cash f low Dy namic cash f low /
no early closure

0.11 -0.22 0.38

Expected loss Expected Expected gain
-$32 NPV $17 $52
with early close

-0.05 -0.51 0.40

Expected loss Expected NPV Expected gain
-$67 -$3 $60

-125 -100 -75 -50 -25 0 25 50 75 100 125

NPV outcomes ($ million)

► This IVRM case study highlights the importance of recognizing uncertainty

and its impact on financing arrangements. In this instance, using a static
cash flow model ignores Equity’s ability to respond to price uncertainty which:
Obscures the risk transfer mechanism between Equity and Stream interests over a
range of metal price environments, which leads to…
Lower investment efficiency and higher capital risk exposure for StreamCo.

► There are a couple of future extensions to this case study:

1) Exploration upside: The possibility of discovering additional resources that extends
the Life-Of-Mine beyond its current 14 years.
2) Revenue support program: Reduce the risk of early closure from low gold prices
through financial contracts (eg. costless collars, forward put options). A small
support program may have large risk management benefits.

Page 104

Photo: Vladislav Gajic / Shutterstock

Strategic portfolio analysis —
Disciplined capital allocation at the corporate level

► Volatile industry environment creates additional challenges when allocating

capital within a corporate portfolio.
► Biases in static cash flow analysis at a project level may be compounded when
making portfolio decisions as the benefits of deferring and redirecting capital
investments are greater for portfolios.

► Protecting and increasing shareholder value requires informed portfolio

choices about “where to play”, when and how to invest / exit from projects.
► As one Canadian mining company CFO commented:
“It is not the industry ups and downs that worry me – this is the business risk that we
signed up for. What worries me are the hidden biases in our approach to capital
allocation that compounds across projects and through time and which could be
silently eroding shareholder value.”

► Country risk refers to a wide range of possible business uncertainties due to

the investment’s specific location. These may include:
► Transfer risk ► Political risk
► Security risk ► Expropriation risk
► Resource nationalism ► Commercial risk

► The net effect of country risk is the possibility that investment cash flows are
different than expected due to government changes to taxes, royalty rates, or
carried interests.
► Country risk is often recognized in mining investment valuation by increasing
an investment’s discount rate with an additional risk premium.
► Country risk premiums may be estimated through sovereign bond credit spreads,
equity risk premiums, or credit default swap spreads.

► One problem with a country risk premium is it is a value effect and not a cash
flow effect and so provides little insight into how geographical location affects
a project’s and company’s risk profile.

► Recognizing country risk through a risk premium requires calculating a

Country Risk Discount Factor (“CRDF”) for each future period. The CRDF for
a cash flow occurring next year is:
1
1-Year CRDF 
1  CRP
where:
CRDF  Country risk discount factor. CRP  Country risk premium.

► A risk premium can be transformed into Country Risk Loss ("CRL") model by
recognizing the 1-Year CRDF is equal to two probability-weighted outcomes:
► The possibility that no event occurs next year and there is no cash flow loss.
► The possibility that a political event does occur and there is a cash flow loss.

► The 1-Year CRDF calculated by the CRL model is:

CF if event occurs CF if no event occurs
1-Year CRDF  ProbE   $1.00 - CFLoss   1  ProbE   $1.00
where:
ProbE  Probability of a politcal event occuring CFLoss  Cash flow loss from a political event.

► With some algebra, we can link the CRL model and the country risk premium
through the CRDF such that:
CRP
ProbE  CFLoss 
1  CRP
► This relationship can be further modified such that the actual cash flow loss
given a political event is uncertain with the possible loss varying between 0%
and 100%. The revised relationship is:
CRP
ProbE  E  CFLoss  
1  CRP

► The above relationship allows the CRL model to be tuned so that it returns a
1-Year CRDF equal to the 1-Year risk premium CRDF. This is done by
selecting pairs of ProbE and E[CFLoss] such that the above equation holds.
► Note that the CRL and risk premium models will have the same value effect when
this relationship to holds.

► This model can be extended across multiple periods if annual event

probabilities and CF loss distributions are independent between periods.
Page 108 © Michael Samis and David Laughton
All rights reserved
Modelling country risk as an CRL model —
So why is this interesting?

► The CRL country risk model outlined in this section is not very exciting if
mining investments are analysed with a Static CF model since the risk
premium approach provides an equivalent result with much less effort.
► However, the CRL country risk model is more interesting within an IVRM
framework because:
1) It has the ability to model country risk as the result of uncertainty related to the
timing of a political event (frequency) and the size of cash flow loss (severity).
2) It allows investments in different geographical regions to be compared based on the
level of cash flow uncertainty generated by location in addition to value. This is
likely important for portfolio analysis at a global mining company.

Issue: Solution:
Perform an analysis using simulation that
Mining Co. is reviewing its global asset
recognizes the effects of commodity price and
portfolio to better understand their risk
country risk on project cash flow and its
exposure at both project and portfolio levels.
translation into project and portfolio uncertainty.

► Mining Co’s board is reviewing their copper / gold project portfolio and
acquisition targets to assess risk exposure at both project and corporate
levels. They are particularly interested in how geographic location affects risk
exposure.
► Previous portfolio reviews were based on Static CF models and did not measure
risk exposure except through sensitivity analysis and qualitative scenario analysis.

► The main strategic investment decisions confronting Mining Co are:

1. Development of a long-life project in Central America that costs $5.9
billion to build. Three financing alternatives exist with different risk levels.
2. Two acquisition targets located in North America and South America. The
Board is concerned about how each affects overall corporate risk.
Page 110 © Michael Samis and David Laughton
All rights reserved
Example: Mining company portfolio analysis
Mining Co’s project portfolio and acquisition targets

Mining Co project portfolio and Country risk model

acquisition targets Risk premium Expropriation
Euro-2 Region (%) probability (%)
Nam-1 Euro-3 Australia 0.4 0.4

Euro-1 Europe 0.6 0.6

ME-1
Middle East 3.3 3.2
Cam-1 WAfr-1
West Africa 6.8 6.3
SAfr-1
Southern Africa 6.8 6.3
SAfr-2
North America 0.4 0.4
Project status Sam-1
Operating Aus-1 Central America 2.8 2.8
Development
Acquisition South America 3.8 3.7

Project information
Project Metal NPV ($ milllion) Life (years) Project Metal NPV ($ million) Life (years)
Aus-1 Cu 509 31 SAfr-1 Cu / Au 3,262 13
Euro-1 Cu / Au 479 30 SAfr-2 Cu 1,715 16
Euro-2 Cu 431 13 CAm-1 Cu / Au 2,156 39
Euro-3 Cu 111 12 SAm-1 Cu / Au 442 31
ME-1 Cu 361 13 NAm-1 Cu / Au 465 26
WAfr-1 Cu / Au 471 18

► Projects in regions of medium and high country risk make an important

contribution to corporate earnings (left graph). Projects in low risk countries
only provide a quarter of Mining Co earnings.
► Most projects have a similar level of NPV variability when country risk is
incorporated into the discount rate (right graph).
► All projects have an NPV CoV of between 40% and 60%.
3,500 3,500
Project cash flow Project NPV (8% + CRP) and sensitivity
3,000 3,000 level using a Country Risk Premium
Project earnings ($ million)

2,500 2,500

Project NPV ($ million)

2,000 2,000

1,500 1,500

1,000 1,000

500 500

0 0
1 6 11 16 21 26 31 36 0% 50% 100% 150%
Time (year) Project NPV CoV (%)
Aus-1 Euro-1 Euro-2 Euro-3 ME-1 WAfr-1 SAfr-1 SAfr-2 CAm-1 Debt SAm-1 NAm-1 Aus-1 Euro-1 Euro-2 Euro-3 ME-1 WAfr-1 SAfr-1 SAfr-2 CAm-1 Debt

► Recognizing country risk in the discount rate is a value effect. Simulating

country risk translates this exposure into a cash flow effect.
► The following two graphs show how average annual cash flow, cash flow
uncertainty, and NPV uncertainty changes when country risk is simulated.
► Long life projects in high-risk countries are affected most as a country risk event
that affects cash flow and value is more likely to occur over the project life.
1,200 6,000
Effect on cash flow from select projects Effect on NPV of select projects
1,000 5,000
Project cash flow ($ million)

Project NPV ($ million)

800 4,000

600 3,000

400 2,000

200 1,000

0 0
0% 50% 100% 150% 0% 50% 100% 150%
Cash flow CoV (%) NPV CoV (%)
Euro-1 Euro-2 WAfr-1 SAfr-1 SAfr-2 CAm-1 Debt Euro-1 Euro-2 WAfr-1 SAfr-1 SAfr-2 CAm-1 Debt

Project NPV and risk when country risk is a rate premium. Project NPV and risk when country risk is simulated (no outside ring).

► Using a country risk premium can also cause Total Shareholder Return
(“TSR”) uncertainty to be understated.
► Modified TSRs used to allow analysis of full range of projects and cash flows.
► Left graph shows how simulating country risk reduces TSR and increases
uncertainty. Blue histogram in the right graph shows the negative return tail
created by simulating country risk.
20%

Effect on TSR of select projects

18%

15%
Project TSR (%)

13%

10%

0%
0% 50% 100% 150%
TSR CoV (%)

Euro-1 Euro-2 WAfr-1 SAfr-1 SAfr-2 CAm-1 Debt

Project TSR and risk when country risk is a rate premium.

Project TSR and risk when country risk is simulated (no outside ring).

12,500
► Simulating country risk results in Effect on portfolio NPV

Project NPV ($ million)

10,000
higher portfolio NPV uncertainty.
Portfolio NPV CoV increases from 7,500

39% to 64%. 5,000

► Portfolio TSR declines and TSR 2,500

uncertainty increases when country 0

risk is translated from a value effect 0% 50% 100% 150%
NPV CoV (%)
into a cash flow effect. 20%
Effect on portfolio TSR
16%

Portfolio TSR (%)

12%

0%
0% 50% 100% 150%
TSR CoV (%)
Portfolio NPV/TSR and risk when country risk is a rate premium.
Portfolio NPV/TSR and risk from simulating country risk.

► The development of the CAm-1 Project is the most immediate strategic

decision for Mining Co. There are three financing choices:
► Debt finance: Arrange a $1.2 billion facility with an interest rate of 6% and a
repayment period of 15 years.
► Gold stream: Add a gold stream deal to the above debt finance package. The gold
stream will provide an additional $900 million in development funds for the annual
delivery of 128,000 Au ozs at a delivery price of $400/oz. Stream IRR is 10%.
► Joint venture: Sell 45% of the project to another copper producer for $600 million.
Proceeds will pay down existing corporate debt. Development costs decline from
$5.9 billion to $3.3 billion. An additional project debt facility of $660 million at 6%
interest will be arranged later to finance construction.

► There are also decisions about whether to acquire either SAm-1 or NAm-1, or
to acquire both projects.

► The various CAm-1 financing strategies and portfolio combinations create

different levels of portfolio risk.
► The JV Strategy lowers portfolio risk by 10% with a small overall reduction in portfolio NPV.
► Acquiring SAm-1 lowers portfolio risk through diversification. Acquiring NAm-1 lowers portfolio
risk through both lower CR and diversification.
► Portfolio NPV CoVs are approximately 40% if we do not simulate country risk.
Comparison of corporate strategy on value and risk basis
Streaming

Debt financing
Joint venture

► Country risk is most often recognized in a cash flow model by attaching a

specific risk premium to the discount rate. However, in this example, treating
country risk as a value effect rather than a cash flow effect:
Conceals actual project risk exposure due to location, which results in…
Incorrectly representing the interplay between country risk and project-specific
characteristics such as development capital and mine life, which can lead to…
Poor alignment between a company’s global investment portfolio and its stated
investment strategy and risk guidelines.

► There are a couple of future extensions to this case study:

1) Describing cash flow effects as a distribution: This case study looks only at
expropriation in order to simplify the modelling and computing requirements.
Future work will have a cash flow loss / gain distribution for country risk.
2) Project-specific risk adjustments: Each project in this example uses the same
discount rate (WACC) to risk adjust project cash flows. Future models will use
project-specific discount rates implied from a (real) option-based approach to risk
adjustment.

Page 119

Photo: Rob Bayer / Shutterstock

Organizational issues —
Dynamic cash flow modelling needs a consistent approach

► Dynamic cash flow modelling should be consistent across an organization so

that there is a common view of:
► Modelling uncertainty.
► Analysing the ability to manage uncertainty.
► Interpreting the investment benefit and risk exposure information
► Communicating information to senior management

► Introducing dynamic cash flow modelling is a company-wide effort.

Common company approach to
simulation and risk-based SCM

Project / Corporate Treasury: Financial

operations: development: reporting:
Design Acquisition Derivatives/hedging ESOP
Exploration Divestment Financing Derivatives/hedging
Mine planning Long-term strategy Risk management Financing

Acceptance of Dynamic Cash Flow Modelling

Financial reporting

Treasury

Corporate development

Project / operations

0Low High
1.05

► High acceptance in Financial Reporting and Treasury.

► Penalties from securities regulators, professional regulatory bodies and auditors if
derivatives and other contingent cash flows are not valued with these methods.

► Lower acceptance in Corporate Development and Project / Operation due to:

► Perceived complexity ► Misunderstood (you just want a large NPV!)
► Historical; not the industry norm ► Where`s the “fire”?
► How do you measure success? ► Organizational issues
Page 121
Organizational issues —
Organization challenges to implementing IVRM

A typical failure story

A business analyst or a project / site manager conducts a once-off investment
analysis of a favoured but challenged project using IVRM methods in the hope
of improving project economics. The findings from this analysis are ‘pushed
upwards’ to an audience that is unfamiliar with IVRM methods and the analysis
is ignored for being inconsistent with company procedures.
The result is the project’s IVRM analysis does not gain traction and is
inevitably rejected without senior level support and valuation consistency.

► Organizational issues have traditionally been a major impediment to IVRM

adoption. Key issues include:
► Introduced ‘bottom-up’.
► Inadequate control of information and models.
► Problems developing internal capabilities.
► Communicating results to senior management.
► Positioning of IVRM skill sets.

Page 122
Organizational issues —
Introducing IVRM into your organization

► IVRM methods have a wide

Applications? range of applications
► Which are most relevant to us?

Introducing IVRM
into your Capability ► In-house vs. outsource vs.
organization: key requirements? hybrid?
considerations

Implementation ► Narrowly focused vs a wide

considerations? reaching program?

Page 123
Organizational issues —
Applications: IVRM in the natural resources industries

IVRM applications across a natural resources company

Projects / operation Corp. development Financing Taxation / royalties
• Exploration economics • Investment decisions • Streams / royalties • Profit-sharing taxes
• Pilot studies • M&A • Off-take agreements • Windfall taxes
• Design flexibility • Portfolio analysis • Commodity linked debt • Sliding scale royalties
• Capital risk exposure • Corporate strategy • Earn-outs • Limits on depreciation

Financial reporting Treasury Portfolio analysis ERM

• Derivatives • Derivatives • Asset risk contribution • Quantitative risk
• ESOPs / PSUs • Liquidity assessment • Efficient frontier • Risk budgeting
• Impairment • Credit downgrades • Country risk exposure • Risk management
• Contingent cash flows • Commodity risk through flexible design

► Collaboration between departments will be important when building an internal

capability to use dynamic cash flow models.
► Technical expertise can be shared across departments.

Page 124
Organizational issues —
Capability: Requirements for different organizations

Senior producer considerations

IVRM capability needs assessment
1) Development of internal capability to run
IVRM models.
H Senior 2) Use of advanced analysis in various
corporate groups
Volume of potential IVRM
applications across the

Mid-tier / junior considerations

organization

1) Insufficient number of projects to support in-

house capabilities.
2) Requirement for external consultants to
develop IVRM models.
Junior
L 3) Development of internal capabilities to utilize
output.
L Breadth of potential IVRM
applications across the H
organization
4) Use of advanced analysis on an ad-hoc
basis.

Page 125
Organizational issues —
Implementation: Control of information and models

► Information requirements for IVRM models are similar to those of a Static DCF
model. Some situations may require greater levels of analysis.
Asset managers and senior executives
Must have a conceptual understanding of the IVRM information being given them and enough
knowledge about the modeling process to be able to direct it.

Corporate economics team Investment team

Provides information on forecast uncertainty Provides information on asset level technical
for output and input prices, FX rates, and geological uncertainty, design, operating
inflation, and risk-free rates, and relevant risk performance, development + operating input
adjustments. Advanced modelling may amounts. Advanced modelling may include
include developing stochastic price models decision trees with multiple mine designs,
and estimating economy-wide risk technical / geological uncertainty, and using
adjustment information. economic uncertainty and the valuation
models from the corporate economics team.

► Peer and external review of investment-level efforts are often needed to

ensure quality and consistency.
Page 126
Organizational issues —
Ensuring a successful implementation

► Introducing IVRM analysis to a mining company is a non-trivial exercise. A

number of conditions are needed to support a successful implementation:

Introducing IVRM with these pre-conditions…

A clear corporate need

Senior management support for change
A realistic understanding of the benefits and
costs associated with using IVRM methods
A team with sufficient resources and
personnel to conduct analysis full time
An internal training program for senior
management and support professionals

… increases the likelihood of a successful implementation.

Page 127
Organizational issues —
Some final thoughts…

► There are many challenges associated with the organization change, particularly
change that involves new and challenging concepts.
► Companies often use a phased approach when introducing IVRM modelling into
their organization with the following in mind:
► There is a clear corporate need for IVRM methods with the benefits (and investment
requirements) well understood.
► Adoption of these methods is championed from the top … patience is paramount.
► An initial step is usually a once-off internal pilot project supported by the Investment
Committee to:
► Demonstrate how advanced valuation analysis improves decision-making,
► Highlight whether the reporting of economic analysis needs to be modified, and
► Suggest what new valuation and risk management concepts must be introduced to
executives.

► Change does not happen overnight, however we believe the benefits are worth the
investment.

Page 128
Course wrap-up

Page 129

Photo: dragunov / Shutterstock

Course wrap up —
What we covered today…

► We started the day discussing the limitations of using static cash flow models
to support SCM decisions. The limitations are tied to ignoring:
► How corporate forecasts are updated over time, and
► The ability of company managers to alter their investment / operating decisions and
to use contingent financing structures to adapt to changes in business environment.
► IVRM was introduced as a framework in which to perform dynamic cash flow
analysis in support of SCM decisions. This does two things:
► Improve the analytical description of an SCM decision.
► Reduces cash flow estimation errors and communicates risk exposure.
► We introduced stochastic processes as a means of describing commodity
prices in financial markets and how corporate forecasts are updated.
► Gold and silver were modelled with NREV processes. Base metals and energy were
modelled with two-factor process with jumps.
► We showed that these models can be used to reasonably describe future commodity
price movements and forecast updates when appropriately parameterized.

Page 130
Course wrap up —
What we covered today…

► The application of IVRM in the mining industry was illustrated through a series
of case studies including:
► Exploration and technical uncertainty involving CCS plant at a NatGas field.
► Staged development at a gold mine.
► A streaming deal at a gold mine.
► The corporate portfolio of global copper-gold mining company.
► Considered the organizational implications of introducing IVRM to a mining
company.

Page 131
Course wrap up —
Some things to think about…

► How important is it for SCM decisions to consider:

► The behaviour of commodity prices in financial markets?
► The ability of to manage uncertainty through investment and operating decisions?
► Contingent payouts embedded in financing or taxation?
► A quantitative assessment of project risk exposure?
► Pulling a quantitative measure of project risk up to the corporate level?
► Your course presenters are curious about:
► After this course, do you think differently about the factors influencing a SCM
decision?
► Does dynamic cash flow analysis provide beneficial insights that increase your
comfort with your SCM decision?

Page 132
Appendix:
Demonstration of differences between
DCF and RO discounting

Page 133
Re-examining DCF risk adjustments –
Extending Static DCF with Dynamic DCF and RO NPV

► RO and Dynamic DCF extend a Static DCF model while avoiding its limitations.
However, both RO and Dynamic DCF are still methods of calculating project NPV.
► Mining professionals often talk about RO value as being distinct from NPV. It is not.
► Dynamic DCF refers to the use of stochastic Monte Carlo simulation within a DCF model and
differentiates the results from those of a Static DCF model.
► RO and DCF have the same theoretical foundation. These techniques are
differentiated primarily by how each method applies a cash flow risk adjustment.
► Valuation articles about RO often suggest that this method’s recognition of management
flexibility is the key differentiator. This is incorrect as flexibility has been incorporated into DCF
calculations since the mid-1960s (though it rarely is).
► RO applies an adjustment to the uncertainty assumptions based on pure risk characteristics and
filters this through to the net cash flow stream.
► Dynamic DCF uses an aggregate risk adjustment representing the interaction of all uncertainties
and flexibilities.
► The choice between single-rate DCF and RO valuation methods is a matter of selecting
the method that is best able to recognize the unique risk characteristics of a particular
investment given your valuation circumstances.
► A Static DCF model is always your starting point in an investment economic analysis.

► A conventional DCF method calculation of NPV applies an aggregate risk

and time adjustment to net project cash flows in each period.
► A risk and time adjustment that is based on a constant discount rate may not be
sensitive to changes in risk over the project’s operating horizon.
► This calculation can be extended with Monte Carlo simulation to model cash flow
uncertainty. We call this extension Dynamic DCF.

E0 S t   Prodt  E0 Revenue t 

 OpCost t
Operating profitt
 CAPEX t
Net cash flow t
An aggregate risk and time adjustment is
applied to the net cash flow (i.e. discounting  Time and risk adj.
with a Risk-Adjusted Discount Rate or WACC).
Present Value of net cash flow

Page 135
Re-examining DCF risk adjustments –
Valuing uncertainty: RO risk-adjustment

► The Real Option NPV calculation applies a risk adjustment to the source of
uncertainty. An adjustment for the time value of money and a possible
residual risk adjustment is applied to the risk-adjusted net cash flow.
► The benefit of the RO method is the unique risk characteristics of the cash flow are
recognized in the effective discounting of the net cash flow.

E0 S t   RDFt  Prodt  RA E0 Rev t 

The expected commodity price is adjusted for risk
by applying a market-based risk discount factor.
 OpCost t
Risk - adj. operating profitt
 CAPEX t
Net cash flow is adjusted for the time value of Risk - adj. net cash flow t
money (i.e. discounting at the risk-free rate). An
adjustment for residual cash flow risk may also be
 Time adj. & residual risk t
applied at this point. Present Value of net cash flow

Page 136
Re-examining DCF risk adjustments –
The DCF discounting formula

► Standard DCF method of adjusting cash flow for time, uncertainty and risk is
through a discounting formula combining both time and risk adjustments:
1
DCF time and risk discount factor 
(1  R f  RP)t
where:
R f  risk-free interest rate (%); RP  risk premium (%); t  time (years)

► This discrete DCF formula can be roughly divided into formulas representing a
Risk Discount Factor (RDF) and Time Discount Factor (TDF):
1 1 1
DCF time and risk discount factor     RDF  TDF
(1  R f  RP)t (1  RP)t (1  R f )t
where:
1 1
RDF  TDF 
(1  RP)t (1  R f )t

► With DCF models, investment risk is most often discussed in terms of a Risk
Premium where greater risk is accounted by a larger risk premium.
► We don’t often think of the risk premium and associated RDFs in terms of how much
an investor is willing to pay per dollar of uncertain cash flow.

► The follows graph displays the time and DCF risk discount factors for a dollar
of uncertain cash flow as well as the combined time + risk discount factors
applied to a stream of cash flows in an DCF NPV calculation.
1.20

1.00
$1 cash flow
Dollar amount ($)

0.80
TDF(2%)
0.60
DCF RDF (6%)
0.40

0.20
TDF x DCF RDF (8%)
0.00
0 5 10 15 20
Project time (year)
$1 of risky cash flow Time discount factor
DCF risk discount factor DCF time and risk discount factor

Page 138
Re-examining DCF risk adjustments –
Matching risk adjustments with cash flow risk levels

► When re-examining DCF risk-adjustments, we want to start by re-thinking the

interpretation of the RDF and its associated risk premium so that they are
clearly linked to cash flow risk characteristics by calculating a Risk Penalty.
► A Risk Penalty is the difference between $1 and the RDF. It represents the
compensation an investor requires for bearing risk.
1.20

$1 cash flow
1.00
Dollar amount ($)

0.80
DCF Risk
0.60
Penalty

0.40

DCF RDF (RP= 6%)

0.20

0.00
0 5 10 15 20
Project time (year)
$1 of risky cash flow DCF risk discount factor

► The assumption of investor risk aversion requires that the Risk Penalty
change with variations in project cash flow uncertainty.
► Increases in uncertainty should be followed by an increase in Risk Penalty and
vice versa.

► Question: How often have you compared the pattern of Risk Penalties to
project risk level to ensure consistency between risk adjustments and
project risk? 1.00
DCF Risk Penalty = 1 – DCF RDF
► Question: What should we conclude 0.80
about the DCF risk discounting
formula if the DCF Risk Penalty

Dollar amount ($)

0.60

grows through time in a well-behaved

manner but project uncertainty 0.40

changes in an erratic and dynamic

0.20
fashion?
0.00
0 5 10 15 20
Project time (year)
DCF risk penalty

Long-life copper projects are one

6.00
► Historic copper prices in nominal and real terms
class of mining investment where 5.00

questioning the standard discounting

Copper price ( US$\lb )

4.00

approach is necessary because of the 3.00

behaviour of copper prices in financial 2.00

markets. 1.00

► In this example, copper price 0.00

31-Dec-65 30-Jun-72 29-Dec-78 28-Jun-85 27-Dec-91
Date
26-Jun-98 24-Dec-04 24-Jun-11

movements were modelled as a Copper Nominal Copper Real (31-Dec-2012 base)

reverting process in which copper 7.00

Simulated copper price path with updated forecasts
prices tend to move back toward a
6.00

Constant dollar copper price ($/lb)

5.00

long-term equilibrium level after a 4.00

price shock. 3.00

► A key characteristic of the reverting 2.00

copper model is the saturation of price

Long-term expected price = $3.40/lb
1.00

uncertainty with term. Reversion 0.00

01-Jan-2012 31-Dec-2021 01-Jan-2032

Project time (year)

31-Dec-2041 01-Jan-2052

causes price uncertainty to stabilize One simulated stochastic copper price path.
Expected CU price at 1/1/12 CU price of $4.10/lb. 10%/90% confidence bdy for 1/1/12 forecast CU price.

after initially increasing.

Expected CU price at 1/1/22 CU price of $4.89/lb. 10%/90% confidence bdy for 1/1/22 forecast CU price.
Expected CU price at 1/1/32 CU price of $2.64/lb. 10%/90% confidence bdy for 1/1/32 forecast CU price.

► The previous DCF CAPM RDF formula is valid for non-reverting assets such
as stock prices and precious metals.
► Reversion and its influence on long-term uncertainty of base metal / energy
prices requires the RDF formula to be reconstructed to reflect reversion.
► Continuous discounting CAPM RDFs for non-reverting / reverting assets are:
Non-reverting asset: RDFNRev  exp  PRisk Mkt  ρMkt, Inv  σInv  t 
 PRisk Mkt  ρMkt, Inv  σInv 
Reverting asset: RDFRev  exp  

 
 1  e  t 
 
where: ρMkt, Inv  correlation coefficient between market and investment returns.
σInv  standard deviation of investment return uncertainty (%).
  strength of reversion.
► The first term in the reverting exponential function is the reverting RDF when
uncertainty levels have stabilized.
► The second term provides a transition between Time 0 and when uncertainty levels
have saturated. The term e  t goes to ZERO as term grows large.

Page 142
Re-examining DCF risk adjustments —
Copper uncertainty characteristics and risk adjustment

► A reverting copper price uncertainty model may generate an uncertainty structure, as

delineated by the Coefficient of Variation in the Left Graph, where uncertainty grows in
the short term and then slows in the long term as the effects of reversion increase.
► EY recently performed a statistical analysis of historic copper prices to confirm price reversion
and generate “best-fit” parameters for a copper uncertainty model.

► The “Price of Risk” CAPM can then be used to generate RDFs and associated Risk
Penalties (Right Graph) for pure copper price uncertainty.
► Note that the Risk Penalties stabilize as copper price uncertainty saturates after Year 5.
50% 0.50
Structure of pure copper price uncertainty Pure copper price risk penalty

40% 0.40
Coefficient of Variation (%)

Dollar amount ($)

30% 0.30

20% 0.20

10% 0.10

0% 0.00
0 5 10 15 20 25 30 35 40 0 5 10 15 20 25 30 35 40
Project time (year) Project time (year)

Copper uncertainty Copper risk penalty

► The previous copper price uncertainty model can be built into a project cash flow
analysis using the RO NPV method.
► Remember both RO and DCF calculate project NPV. They have the same theoretical foundation
but are differentiated by the approach to risk adjustment.
► A long-life copper project with a 35% profit margin that falls to 20% in Year 20 has
following structure of cash flow uncertainty (Left Graph) due to copper reversion.
► The RO method produces a cash flow Risk Penalty that is a better match with project
cash flow uncertainty than the DCF risk penalty (Right Graph).
175% 1.00
Structure of cash flow uncertainty DCF / RO cash flow risk penalties
150%

Risk penalty dollar amount ($)

0.80
Coefficient of Variation (%)

125%

0.60
100%

0.40
75%

50% 0.20

25%
0.00
0 5 10 15 20 25 30 35 40
0% Project time (year)
0 5 10 15 20 25 30 35 40
Cash flow RO price risk penalty Cash flow RO price + 3% RRP risk penalty
Project time (year)
Cash flow DCF risk penalty (Risk premium: 10%) Cash flow DCF risk penalty (Risk premium: 8%)
Project cash flow uncertainty Cash flow DCF risk penalty (Risk premium: 6%) Cash flow DCF risk penalty (Risk premium: 4%)

Page 145
Creating value from exploration
Refining deposit probabilities with Bayesian updating

► Bayesian updating can calculate the impact of information gathered through

exploration and its quality on our probabilities of having a large or no deposit.
The following information is required for the calculation:
► Initial probabilities of having a large deposit or no deposit.
► Probabilities of positive and negative exploration result given a large deposit and
given no deposit (measure of information quality; false positive and false negative)

Revised
deposit probabilities 
Bayes theorem (binary) : P Ei 1,2 A or B  
 
P A or B Ei 1,2  P Ei 1,2 

Positive result P E1
  
P A or B E1  P E1   P A or B E2  P E2  
P 27.5 where:
P E1   initial probability of a large deposit  25%
P E2   initial probability of no deposit  75%
P Eଵ
Spend Explore
 
P A E1  given large deposit (E1 ), probability of positive exploration result (A) = 80%
$400 million results P  A E   given no deposit (E ), probability of positive exploration result (A) = 20%
2 2

P Eଶ Revised P B E   given large deposit (E ), probability of negative exploration result (B) = 10%
1 1

deposit probabilities P B E   given no deposit (E ), probability of negative exploration result (B) = 90%
2 2
P E1
Negative result P E A   given positive exploration result (A), probability of large deposit (E )
1 1

P E A   given positive exploration result (A), probability of no deposit (E )

P 72.5
2 2

P E B   given negative exploration result (B), probability of large deposit (E )

1 1
0 2 4 P E B   given negative exploration result (B), probability of no deposit (E )
2 2

Page 147
Michael Samis, Ph.D., P.Eng.
Associate partner
Valuation & Business Modelling
Tel: +1 416 943 4487
Mobile: +1 416 527 3421

Email: [email protected]

Dr. Michael Samis, P.Eng. is a leading Integrated Valuation and Risk Modelling practitioner in the natural resource industries with more
than 25 years of mining experience. He has extensive professional experience valuing base and precious metals, diamond, and
petroleum projects with complex forms of flexibility and risk. His assignments have ranged from exploration stage to late-stage capital
investments and have also included the analysis of project financing and contingent taxes. Mike has presented more than 30
professional courses on advanced valuation at universities, natural resource companies, and professional organizations world-wide and
has published or presented numerous valuation papers about flexible pushback development, multi-stage exploration programs,
windfall taxes, and the economic impact of project finance and hedging. Dr Samis is a registered Professional Engineer in Ontario,
Canada, and a qualified person for project valuation under NI43-101 guidelines. In 2013, the Canadian Institute of Mining and
Metallurgy awarded Mike with the Robert Elver Award for his contributions to the Canadian mining industry in the field of mineral
economics. He holds a Ph.D. from the University of British Columbia that combines the fields of mining engineering and finance.

Dr Samis is currently an Associate Partner (Valuation and Business Modelling) in the Toronto office of Ernst and Young’s Transaction
Advisory Service where he and his team also value complex financial securities such as employee stock options, convertible debt with
embedded derivatives, contingent contracts, and interest rate, commodity, and foreign exchange derivatives.

Professional background and qualifications:

University of British Columbia, Ph.D. in Mining Engineering and Finance
University of the Witwatersrand, MSc. In Mineral Economics
University of British Columbia, BSc. in Mining Engineering
Professional engineer registered in Ontario, Canada
Qualified person for project evaluation under NI43-101 guidelines
Member of the 2012 Review Committee for CIM Val Guidelines
Presented with the 2013 Robert Elver Award by the Canadian Institute of Mining and Metallurgy

Page 148
David Laughton, Ph.D.
Adjunct Professor, University of Alberta
Tel: +1 303 273 3550
Mobile: +1 720 409 2500

Email:

For over 30 years, Dr. Laughton has been one of the leading consultants helping major corporations around the world to improve their
capacity to make better real asset decisions. In particular, he shows his clients how to use dynamic models of uncertainty to value risk
and flexibility so that they are better able to avoid common biases such as the undervaluation of long-term assets. Dr. Laughton’s
focus has been on extractive industries, and, in this context, he has also worked with government agencies, showing them how to do
asset-level analysis to improve their understanding of appropriate fiscal and regulatory policies for these industries.

This consulting is based on his extensive applied research, initially as a key participant in the seminal research programmes in this field
at the MIT Center for Energy Policy Research and at the Canadian Department of Finance. He has also helped to supervise the research
of students at several prominent universities and has been asked by various professional organisations to organise meetings and edit
journal issues on this topic.

Professional background and qualifications:

MIT, Ph.D. in Finance
MIT, MS in Management
Princeton, PhD in Physics
Toronto, BSc in Mathematics and Physics

Adjunct Professor of Finance, University of Alberta

Adjunct Professor of Mining and Petroleum Engineering, University of Alberta
Visiting Scholar, MIT Center for Energy and the Environment
Visiting Member, Institute for Advanced Study

Page 149
Lisa Lin, Ph.D.
Senior analayst
Valuation & Business Modelling, EY
Tel: +1 416 943 4487
Mobile: +1 416 527 3421

Email: lisa [email protected]

Lisa Lin is a Senior Analyst in the Transaction Advisory Services practice of Ernst & Young LLP. She has a strong education and
research background specialized in Economic Analysis and Financial Econometrics. Before joining EY, she finished her PhD thesis on
risk forecast of financial returns with daily limits. She exhibited extensive research and data analytics skills through the completion of
multiple research papers and seminars. Lisa has a strong quantitative foundation from her undergraduate degree in Mathematics and
Economics at the University of Toronto, St. George Campus. She obtained a broad range of economic knowledge from finishing theses
on housing prices, environment economic policies, and real option decision making regarding the optimal timeframe of oil field
development in her Master’s degree at University of Waterloo. Her responsibilities at EY include valuation and scenario analysis of
option pricing, building stochastic processes using multiple factor models, providing statistical assistance across departments, and
performing independent credit risk researches. Lisa has a diverse work experience and education from almost all spectrums of
Economics and Statistics.

Professional background and qualifications:

University of Waterloo, Ph.D. in Financial Econometrics
University of Waterloo, MA. in Economics
University of Toronto, Hon. BSc. in Mathematics and Economi

Page 150

Mining Economics Explained
From Everand
Mining Economics Explained
Craig Hutton
5/5 (3)
5 Behavioral Biases That Trip Up Remote Managers
No ratings yet
5 Behavioral Biases That Trip Up Remote Managers
7 pages
BOOK - Cut-Off - Grades PDF
No ratings yet
BOOK - Cut-Off - Grades PDF
311 pages
The Mining Valuation Handbook 4e: Mining and Energy Valuation for Investors and Management
From Everand
The Mining Valuation Handbook 4e: Mining and Energy Valuation for Investors and Management
Victor Rudenno
5/5 (1)
The Use and Abuse of Metal Equivalents
No ratings yet
The Use and Abuse of Metal Equivalents
7 pages
012 CIMVal
No ratings yet
012 CIMVal
20 pages
Quick Guides To The Evaluation of Ore Bodies
100% (1)
Quick Guides To The Evaluation of Ore Bodies
13 pages
Creating Wealth and Competitivenes in Mining
No ratings yet
Creating Wealth and Competitivenes in Mining
23 pages
Webinar 2019 Mining Financial Model Valuation
100% (2)
Webinar 2019 Mining Financial Model Valuation
30 pages
Wallbridge-Broken-Hammer-PFS-Report-SEDARen Ingles PDF
No ratings yet
Wallbridge-Broken-Hammer-PFS-Report-SEDARen Ingles PDF
199 pages
The Business of Mining A brief non-technical exposition of the principles involved in the profitable operation of mines
From Everand
The Business of Mining A brief non-technical exposition of the principles involved in the profitable operation of mines
Arthur J. Hoskin
No ratings yet
The Complete Guide To Mining Stocks
No ratings yet
The Complete Guide To Mining Stocks
24 pages
Valuation of Mineral Exploration Properties Using The Cost Approach
No ratings yet
Valuation of Mineral Exploration Properties Using The Cost Approach
11 pages
Minerals Economics
100% (1)
Minerals Economics
4 pages
Geometallurgical Block Model Vs Geometallurgical Units: BCH, Ing, MSC, Samuel Canchaya
No ratings yet
Geometallurgical Block Model Vs Geometallurgical Units: BCH, Ing, MSC, Samuel Canchaya
10 pages
Mining Economics and Technology
No ratings yet
Mining Economics and Technology
10 pages
Investment Strategy For Mining Projects: 2.5.1.5 Profile
100% (1)
Investment Strategy For Mining Projects: 2.5.1.5 Profile
6 pages
2022-A New Maximum Entropy Method For Estimation of Multimodal Probability Density Function
100% (1)
2022-A New Maximum Entropy Method For Estimation of Multimodal Probability Density Function
16 pages
Mining Cutoff Grade Strategy To Optimise NPV Based On Multiyear GRG Iterative Factor
No ratings yet
Mining Cutoff Grade Strategy To Optimise NPV Based On Multiyear GRG Iterative Factor
7 pages
Simplified Cost Models For Prefeasibility
100% (1)
Simplified Cost Models For Prefeasibility
50 pages
JORC Online Learning Brochure Digital
No ratings yet
JORC Online Learning Brochure Digital
4 pages
Kear 2004 - Mine Project Life Cycle
No ratings yet
Kear 2004 - Mine Project Life Cycle
4 pages
Use of Simulations For Mining Applications
No ratings yet
Use of Simulations For Mining Applications
9 pages
Assessing Uncertainty With Drill
No ratings yet
Assessing Uncertainty With Drill
10 pages
Box Cut
No ratings yet
Box Cut
66 pages
Drilling Grid Analysis For Defining Open-Pit and Underground Mineral Resource Classification Through Production Data
No ratings yet
Drilling Grid Analysis For Defining Open-Pit and Underground Mineral Resource Classification Through Production Data
16 pages
Geostatsrdv2013 - Riotinto - Marat Abzalov - Optimization Grade PDF
100% (1)
Geostatsrdv2013 - Riotinto - Marat Abzalov - Optimization Grade PDF
40 pages
Economics of Mine Planning and Equipment Selection
No ratings yet
Economics of Mine Planning and Equipment Selection
9 pages
Volumen I Economics and Markets
100% (1)
Volumen I Economics and Markets
396 pages
H Parker Finex PDF
No ratings yet
H Parker Finex PDF
72 pages
Kanmantoo Copper Mine Ore Reserve Estimate
No ratings yet
Kanmantoo Copper Mine Ore Reserve Estimate
19 pages
Advanced Mineral Resource Estimation
100% (1)
Advanced Mineral Resource Estimation
4 pages
L01 PDF
No ratings yet
L01 PDF
12 pages
MiningForValue web-OK PDF
No ratings yet
MiningForValue web-OK PDF
108 pages
International Journal of Mining Science and Technology: Franco-Sepulveda Giovanni, Campuzano Carlos, Pineda Cindy
No ratings yet
International Journal of Mining Science and Technology: Franco-Sepulveda Giovanni, Campuzano Carlos, Pineda Cindy
9 pages
S 27 Mineral Economic 27
100% (3)
S 27 Mineral Economic 27
23 pages
2 S 31 Mineral Economic 31 EP 2017
No ratings yet
2 S 31 Mineral Economic 31 EP 2017
42 pages
X Reserves Resources 201112
No ratings yet
X Reserves Resources 201112
50 pages
Mineral Economics
100% (1)
Mineral Economics
58 pages
Evaluation Mining Project (Topal, 2008)
No ratings yet
Evaluation Mining Project (Topal, 2008)
15 pages
Dimitrakopoulos
No ratings yet
Dimitrakopoulos
6 pages
Feasibility Studies For Deep Mines PDF
No ratings yet
Feasibility Studies For Deep Mines PDF
6 pages
Geometallurgy Austmine - SRK - Standard
100% (1)
Geometallurgy Austmine - SRK - Standard
11 pages
Sources of Value in Mining GS v4
No ratings yet
Sources of Value in Mining GS v4
15 pages
A Simple and Accurate Method For Ore Reserve Estimation in SLC Mines
No ratings yet
A Simple and Accurate Method For Ore Reserve Estimation in SLC Mines
15 pages
Beyond The Feasibility Study
No ratings yet
Beyond The Feasibility Study
4 pages
Classification of Mineral Deposits
No ratings yet
Classification of Mineral Deposits
4 pages
Valmin Seminar Series
100% (1)
Valmin Seminar Series
12 pages
Mineral Economics
100% (3)
Mineral Economics
274 pages
The Primary-Response Framework For Geometallurgica
No ratings yet
The Primary-Response Framework For Geometallurgica
6 pages
Adjusted Real Option Valuation To Maximise Mining Project Value - A Case Study Using Century Mine
No ratings yet
Adjusted Real Option Valuation To Maximise Mining Project Value - A Case Study Using Century Mine
10 pages
Reconciliation of Reserves: Delivering Smarter Solutions
No ratings yet
Reconciliation of Reserves: Delivering Smarter Solutions
4 pages
Economic Analysis of Mining Projects (Csiminga & Iloiu, 2007)
No ratings yet
Economic Analysis of Mining Projects (Csiminga & Iloiu, 2007)
5 pages
Paul Jourdan Up and Downstream Linkages in The Mineral Value Chain
No ratings yet
Paul Jourdan Up and Downstream Linkages in The Mineral Value Chain
51 pages
The Business of Mining - Mineral Deposits
100% (1)
The Business of Mining - Mineral Deposits
194 pages
Dollar Driven Mine PL
100% (1)
Dollar Driven Mine PL
9 pages
Misguided Objectives That Destroy Value
No ratings yet
Misguided Objectives That Destroy Value
5 pages
Principles of Mining: Valuation, Organization and Administration
From Everand
Principles of Mining: Valuation, Organization and Administration
Herbert Hoover
No ratings yet
Financial Discounting Techniques A Complete Guide
From Everand
Financial Discounting Techniques A Complete Guide
Gerardus Blokdyk
No ratings yet
Santa Rita del Cobre: A Copper Mining Community in New Mexico
From Everand
Santa Rita del Cobre: A Copper Mining Community in New Mexico
Christopher J. Huggard
No ratings yet
Incidents In The Life Of A Mining Engineer
From Everand
Incidents In The Life Of A Mining Engineer
Edward Thomas McCarthy
No ratings yet
Ama Deus Research
No ratings yet
Ama Deus Research
174 pages
Chapter 5 The Ethics of Comm Research
No ratings yet
Chapter 5 The Ethics of Comm Research
12 pages
Frer 7130 - Research Paper
No ratings yet
Frer 7130 - Research Paper
9 pages
2506-Article Text-6137-2-10-20151026 PDF
No ratings yet
2506-Article Text-6137-2-10-20151026 PDF
4 pages
Foundation of Communication Research - Draft
No ratings yet
Foundation of Communication Research - Draft
10 pages
The Effect of Discussion Technique and English Learning Motivation Toward Students' Speaking Ability
No ratings yet
The Effect of Discussion Technique and English Learning Motivation Toward Students' Speaking Ability
10 pages
BM2 Chapter 3 Decision Theory
No ratings yet
BM2 Chapter 3 Decision Theory
29 pages
List of Vacant Positions-PhilSys
No ratings yet
List of Vacant Positions-PhilSys
15 pages
Multivariate Normal Distribution
No ratings yet
Multivariate Normal Distribution
9 pages
Best Practice Pays Off. Paul Barshop
No ratings yet
Best Practice Pays Off. Paul Barshop
2 pages
Sacred Heart Sibu 2013 M2 (Q)
No ratings yet
Sacred Heart Sibu 2013 M2 (Q)
3 pages
Data Collection Instrument
No ratings yet
Data Collection Instrument
5 pages
Dirk Baecker - A Calculus For Autopoiesis PDF
No ratings yet
Dirk Baecker - A Calculus For Autopoiesis PDF
16 pages
SodaPDF Converted 78 Article Text 354 1-10-20210625
No ratings yet
SodaPDF Converted 78 Article Text 354 1-10-20210625
27 pages
Field-Education-Manual - Illinois
No ratings yet
Field-Education-Manual - Illinois
37 pages
Quiz 1
No ratings yet
Quiz 1
8 pages
Ee ZG515 Course Handout
No ratings yet
Ee ZG515 Course Handout
11 pages
Operations Management - Exam Study Note PDF
No ratings yet
Operations Management - Exam Study Note PDF
13 pages
Final Report Internship
No ratings yet
Final Report Internship
12 pages
Chapter 5 Introduction To Statistical Inference
No ratings yet
Chapter 5 Introduction To Statistical Inference
9 pages
Ethical Considerations
No ratings yet
Ethical Considerations
3 pages
Consumer Behaviour Report On Meswak Toothpaste
100% (3)
Consumer Behaviour Report On Meswak Toothpaste
22 pages
R Programming Assignments Help UK
No ratings yet
R Programming Assignments Help UK
5 pages
EDUC 200 Midterem Exam
No ratings yet
EDUC 200 Midterem Exam
2 pages
Untitled
No ratings yet
Untitled
14 pages
Development of Comprehensive Local Juvenile Intervention Plan CLJIP
100% (6)
Development of Comprehensive Local Juvenile Intervention Plan CLJIP
4 pages
Textbook Evaluation
No ratings yet
Textbook Evaluation
10 pages
Data Mining: Practical Machine Learning Tools and Techniques
No ratings yet
Data Mining: Practical Machine Learning Tools and Techniques
68 pages
Research Defense Paper
No ratings yet
Research Defense Paper
31 pages