In mineral asset valuation the use of any valuation
method requires the input of competent and independent
technical professionals. A resource valuation must be
as transparent as possible to allow others to assess the
validity of their underlying assumptions. Materiality is
a dominant factor in all valuations and a valuer should
set out the basis for the subjective decisions made in
this regard. Any valuation methodology must comply
with the requirements of the law, practice notes and
guidelines issued by the various relevant authorities
and professional bodies. The valuation methodology chosen to value a mineral
asset depends upon the amount of data available on
that asset and the reliance that can be placed upon
those data. Mineral assets generally fall into one of
three broad categories, depending upon their state of
development, ie whether they are at the exploration, development or operating stage. Naturally there are
transition phases. Hence, there are ""Grass Roots""
Exploration Areas and Advanced Exploration Prospects;
Pre-Development Projects and Developing Mines; and
Operating Mines. The features of each of these mineral
asset status categories are described, mainly in terms of
the confidence in the contained identified Resources/
Reserves. The various subjective methodologies
available for the valuation of ""Grass Roots"" Exploration
Areas and Advanced Exploration Prospects -are
specifically reviewed. The pitfalls in adopting a ""recipe""
approach are noted. It is the author's view that the
Expected Value Method (based on the probability
adjustment of the output of a Discounted Cash Flow/
Net Present Value model) has little application in the
valuation of exploration mineral assets, so it is only
briefly addressed. The methodologies reviewed are listed
below. Multiple of Exploration Expenditure Method
(expenditure based). Joint Venture Terms Method (expenditure based).
Geoscience Rating Methods (eg Kilburn - area
based). Comparable Market Value Method (real estate
based). Rules of Thumb (eg $/Resource or production unit;
% of in situ value). Some recent Prospectuses are used to provide
examples of their misinterpretation and misapplication.