Insights

A recent BHP article discusses using AI in the mining industry.¹ For a long time, some of these initiatives were merely conceptual, however the industry is now actively using AI in exploration projects and across operations. Mining companies are also employing real-time ore tracking, autonomous trucks and battery-electric haul trucks in their operations. So, what might this mean for mining valuations? “For a long time, some of these initiatives were merely conceptual, however the industry is now actively using AI in exploration projects and across operations” Is the cost base evolving? Historically, key cost drivers in the mining sector are labour rates and the price of oil and oil-based products; the latter can take the form of fuel, explosives, mining

3 KEY CONSIDERATIONS FOR VALUING A GOLD MINING COMPANY Most mining assets that analysts attempt to value are already producing; if not producing, they will often have a pre-feasibility, feasibility or definitive feasibility study that has been published. But how do you value a mining deposit when nothing but a few drill holes exist and we only have a very simple resource statement to go off? There are three key issues: Issue 1: DCF approach is tricky A standard DCF approach in this example is a little tricky. Firstly, the actual amount of ore in the ground is still very uncertain. Even If you’ve got a simple resource statement, how much “credit” do you give to indicated or even inferred resources? Second,

Net assets recorded on the balance sheet are frequently material to disputes – either as a liability issue or in the assessment of damages. For example, net assets are often central to disputes regarding: Asset impairment testing (particularly stranded assets) – A plaintiff may argue that the reported carrying value of assets has diminished, resulting in a financial statement failure.  M&A – A plaintiff may challenge the truth and fairness of a balance sheet provided for a corporate transaction. Solvency – net asset value may be the critical input into a solvency ratio or capital adequacy ratio, triggering contractual provisions or regulatory actions. Valuations – where a business is valued using balance sheet metrics, such as Price / Book Value