Mining Exploration Companies - PowerPoint PPT Presentation

1 / 47
About This Presentation
Title:

Mining Exploration Companies

Description:

Mining Exploration Companies. Understanding Exploration Company Financial Statements ... Australia; Great Basin presentation; Jubilee Platinum; Minotaur Exploration ... – PowerPoint PPT presentation

Number of Views:98
Avg rating:3.0/5.0
Slides: 48
Provided by: douglas173
Category:

less

Transcript and Presenter's Notes

Title: Mining Exploration Companies


1
Mining Exploration Companies
  • Understanding Exploration Company Financial
    Statements
  • Douglas Taylor
  • Wits Business School

2
Agenda
  • Objectives
  • Principles
  • Financial Statements
  • Assumptions Definitions
  • Trends
  • Reporting Exploration Results
  • Valuation issues
  • Flow-through shares
  • Additional Information
  • Earnings Management

3
Objectives of Financial Statements
  • Provide information about the
  • Financial position
  • Performance
  • Changes in financial position
  • Comprise
  • Balance sheet
  • Income statement
  • Statement of changes in equity
  • Cash flow statement
  • Notes

4
What about
  • Financial review by management
  • Environmental reports
  • Value added statements
  • Employee reports
  • CSI reports
  • SHE reports
  • BEE information

5
What about
  • Project review / Exploration report
  • Resources statement
  • Operating review / Management Discussion and
    Analysis

6
Users Information Needs
  • Investors risk and return buy, hold or sell
    ability to pay dividends.
  • Employees stability and profitability ability
    to provide remuneration, retirement benefits and
    employment opportunities
  • Public employment environment economy
    community

7
SAMREC CodeMain Principles
  • Materiality all the relevant information
    required to make a reasoned and balanced
    judgement regarding results, resources reserves
  • Transparency clear and unambiguous information
  • Competency the work and responsibility of
    suitably qualified and experienced persons
  • Impartiality no undue influence adequate
    disclosure

8
Qualitative Characteristics of Financial
Statements
  • Understandable
  • Relevant
  • Reliable
  • Comparable
  • GAAP / IFRS

9
IFRS 6
  • Exploration and evaluation assets to be tested
    for impairment when the carrying amount of the
    assets may exceed their recoverable amount.
  • Disclose information that identifies and explains
    the amounts recognised in financial statements
    arising from the exploration for and evaluation
    of mineral resources, including
  • accounting policies
  • amounts of assets, liabilities, income and
    expense and operating and investing cash flows
    arising from the exploration for and evaluation
    of mineral resources

10
(No Transcript)
11
(No Transcript)
12
How else could this be treated? What is its real
value?
Minimal loan funding, if any
Theoretical NAV. Could also be 30,900!
13
(No Transcript)
14
Arises mostly with SA interested companies
Development stage impairment
Largely share options - Black Scholes
Deferred
15
(No Transcript)
16
Wheres it gone to?
Wheres it come from?
17
(No Transcript)
18
Caveat
  • The Company is in the process of exploring its
    mineral property interests and has not yet
    determined whether these properties contain
    economically recoverable mineral reserves
  • The underlying value and the recoverability of
    the amounts shown for mineral property interests
    and equipment are entirely dependent upon the
    existence of economically recoverable mineral
    reserves and the ability of the company to obtain
    the necessary financing to complete the
    exploration and development of the properties

19
Critical Accounting Estimates
  • Some estimates
  • the value of mineral resources reserves
  • the carrying values of mineral properties,
  • the carrying values of property, plant
    equipment
  • the valuation of stock-based compensation expense
  • determination of future income tax assets
    liabilities
  • asset retirement reclamation obligations
  • Actual amounts could differ from the estimates
    used and, accordingly, affect the results of
    operations

20
Mineral Property Interests
  • Mineral property acquisition costs capitalized on
    a property-by-property basis.
  • Exploration expenditures incurred prior to
    determination of feasibility - expensed as
    incurred
  • Development expenditures incurred subsequent to a
    development decision - capitalized and amortized
    / impaired over the estimated life of the
    property
  • Mineral property acquisition costs include the
    cash and/or the fair market value of shares
    issued
  • The amount shown for mineral property interests
    represents costs incurred to date and accumulated
    acquisition costs, less write-downs, and does not
    necessarily reflect present or future values

21
Stock-based Compensation
  • Share option plans - record all stock-based
    payments using the fair value method.
  • Stock-based payments measured at the fair value
    the equity instruments issued and are charged to
    operations over the vesting period.
  • The offset is credited to contributed surplus.
  • Consideration received on the exercise of stock
    options is recorded as share capital and the
    related contributed surplus is transferred to
    share capital.

22
Development Stages
  • Primary Exploration
  • Geochemical
  • Geophysical
  • Trenching
  • Drilling
  • Advanced Exploration
  • In-fill drilling
  • Geological modeling
  • Metallurgical testing
  • Pre-feasibility study
  • Project Development
  • Feasibility study
  • Geological modeling
  • Metallurgical testing
  • Mine planning
  • Mine Construction
  • Engineering design
  • Build the plant
  • Build the mine
  • Mine planning details
  • Target Generation
  • Planning
  • Historical data
  • Remote sensing
  • Geological

TIME
RISK PROFILE
23
(No Transcript)
24
Mineral Property Interests
25
Reporting of Exploration Results
  • Mineral tenement and land tenure status
  • Exploration done by other parties
  • Geology
  • Data aggregation methods
  • Relationship between mineralisation widths and
    intercept lengths
  • Diagrams
  • Balanced reporting
  • Other substantive exploration data
  • Further work

26
General Relationship between Exploration Results,
Mineral Resources and Ore Reserves
Source SAMREC
27
Mineral Resources
  • Inferred mineral resources estimated on limited
    information geologically speculative no
    certainty that mineral resources will be upgraded
    to mineral reserves through continued exploration
  • Indicated mineral resources sufficiently well
    defined to allow geological and grade continuity
    to be reasonably assumed and assessed
  • Mineral resources not mineral reserves not
    demonstrated economic viability have reasonable
    prospects for economic extraction

28
Estimation and reporting of Mineral Resources
  • Database integrity.
  • Geological interpretation.
  • Dimensions.
  • Estimation and modelling techniques.
  • Moisture.
  • Cut-off parameters.
  • Mining factors or assumptions.
  • Metallurgical factors or assumptions.
  • Bulk density.
  • Classification.
  • Audits or reviews.
  • Discussion of relative accuracy/confidence.

29
Rough Guide to (Gold) Value
  • Early stage some inferred resources - about 3.5
    of gold in the ground
  • Later stages more tangible assets about 10
  • Early stages of production value between 15
    and 25 of value of ounces in the round

30
Rough Guide to Value
  • Commodity price leverage
  • Value PV of future cash flows
  • Cost to mine 400 gold price 500 value is PV
    based on 100 margin
  • Gold price increases 20 to 600 - margin
    doubles and value doubles
  • Move to option pricing and real options

31
Rough Guide to Value
  • Weighted Average Cost of Capital (WACC)
  • Early years cost of equity
  • Risk / Return trade-off
  • NAV or V NA?

32
Intangibles
  • Management track record
  • How is the money being spent?
  • Economic reality
  • How long before the bubble bursts?

33
Its the Management, stupid
  • Clearly defined objectives strategies (87)
  • Full disclosure - transparent, open honest
    (85)
  • Reputable, honest trustworthy (82)
  • Financially sound secure (78)
  • Chief executive senior management always
    approachable (78)
  • Communicates well with the investment community
    (69)
  • Source Campbell Belman

34
Flow-Through Shares
  • Stimulate exploration improve access to capital
  • Exploration company incurs expenses tax
    deduction deemed to flow through to shareholders
  • Costs claimed sooner, and at higher rates

35
Flow-Through Shares
  • Advantages for individual investors - receive
    100 tax deduction for share investment
  • Shown to enhance investment returns
  • In the last three years alone, more than 350
    million raised through the flow-through share
    mechanism

36
Additional Information
  • Technical report - Goldstream Mining Nickel
    Australia Great Basin presentation Jubilee
    Platinum Minotaur Exploration
  • Deliberately not commenting on SA Financial
    Statements the standards seem high but need a
    fair review before comment
  • Corporate Governance

37
(No Transcript)
38
(No Transcript)
39
(No Transcript)
40
(No Transcript)
41
(No Transcript)
42
(No Transcript)
43
(No Transcript)
44
(No Transcript)
45
(No Transcript)
46
Earnings Management or Manipulation?
  • Revenue
  • Record future revenues before earned
  • Defer current revenue
  • Fictitious
  • Expenses
  • Record future expenses early
  • Defer current expenses
  • Dont record or disclose liabilities
  • Non-recurring transactions
  • Record in operating income
  • Geography matters (especially when not disclosed)
  • Big Bath

47
So Whos Doing It?
  • Most companies DO NOT intentionally distort their
    financial reports
  • Warnings
  • Poor internal controls
  • Lack of independent directors
  • Competence of external auditor
  • Extreme competitive pressure
  • Decelerating real growth
  • Survival in doubt
  • Private companies
  • Managements character in question
  • Greed
  • Why?
  • It pays
  • Its easy
  • Its unlikely theyll get caught
Write a Comment
User Comments (0)
About PowerShow.com