Presentation Title:
Using Dynamic DCF and Real Options to Assess the Value and Risk of Mining Investments

Abstract:

Short Course Objectives

This workshop is a practical overview of using Dynamic Discounted Cash Flow (Dynamic DCF) and Real Option (RO) methods to value and assess the risk of mining investments. It has three objectives:
• Discuss important project characteristics that influence value and risk – financial
market and technical uncertainty, operating leverage, management flexibility, and the interaction between equity, government, and non-equity project participants.
• Demonstrate how a detailed description of financial and technical risk, project structure and flexibility, financing, and government participation can be combined in a dynamic cash flow model to communicate operating policy and the distribution of value and risk that cannot be matched by conventional cash flow models.
• Uncover the unique investment situations where Dynamic DCF and RO techniques can provide fresh insights. Applications include exploration, pilot programs, short versus long-life project horizons, staged development, alternative finance, and international corporate portfolios.

Short Course Abstract

Investment decision-making and risk management in the mining industry are becoming increasingly complex because of:

Increased technical uncertainty due to the difficulty of finding new deposits and the decline in deposit quality,
Greater financial uncertainty linked to metal and energy prices,
The flexibility to actively manage project investment, and
Financing and taxation structures that distribute value and risk in a complex manner.

This complexity increases the difficulty of analyzing many mining investments in a manner that considers each investment’s unique structure and risk characteristics. Unfortunately, the static cash flow models often used to support investment decisions have difficulty recognizing the contrastingmcharacteristics of many mining investments.

Advances in finance theory and risk management allow mining professionals to improve their financial and risk analysis with dynamic cash flow models. These models improve investment analysis by dynamically describing uncertainty, recognizing unusual project features and flexibility, and assessing the value and risk-transfer effects of complex financing and taxation structures.

We’ll illustrate key concepts with a series of case studies involving:

How exploration creates value.
The hidden value benefit of long-life copper projects over multiple price cycles.
The possible value and risk benefits of staged development in comparison to frontloading capital investment.
How alternative finance may distribute value and risk in a surprising manner.
The impact of jurisdiction and development stage of each asset on the risk profile of an M&A transaction.

Join us to learn how financial and technical uncertainty, project structure, and financing structures influence the value and risk of mining investments.

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Mike Paduada

Biography