This paper explains why the valuation of mining
assets is often a very different exercise from the valuation
of the shares in the mining company which owns those
assets. The fundamental reason for this is that mining assets, and the shares of the company which owns those
assets have different risks. In order to properly value
mining securities it is essential to: ensure all the different risks and other factors which
impact on the value of the mining assets and the
value of the shares are taken into account; and determine the extent to which the different risks and
other factors are addressed in the value of the mining
assets and the value of the shares so as to avoid
double counting or not counting at all. If the alternative, but far from consensus, view is
accepted that the correct valuation methodology to apply
to shares in mining companies should be based on option
pricing theory then conventional valuation practice of
both mining assets and shares in mining companies will
need to be fundamentally reassessed.