asset valuation for takeover (general methods)

Mineral Asset Valuation Approaches and Methods

Let's have a look at how the professionals are doing an asset valuation. That will give us clearer picture about how much good and safe ELM's asset is, why the risk is so low, how high the bidder can go without looking current JORC results for 16 holes.

Valuation Approaches and Methods include;
- A list of recent Valuations of the Mineral Property (for at least the past two years), briefly describe the methods employed, and provide the resulting Valuations.
- Consideration of whether the highest and best use of the property may be other than its potential for the development of a mineral deposit, and, if so, description of the valuator's opinion of the highest and best use for the property is given.
- Discussion of the possible application of various approaches and explanation of why each approach was utilized or not.
- Description of the methods selected for the Valuation and justification of their applicability. A discussion of the exposure time to the market and the marketing effort
assumed.

Valuation includes;
- An overview of the economic context within which the Valuation is carried out. For Exploration Properties, this might include comments on the demand for such properties by junior and major mining companies, and the availability of financing for exploration work. The outlook for commodity prices and the availability and cost of funding should be outlined.
- Currency used and any exchange rates utilized.
- Details of database used to support each method.
- A clear description and analysis of the information utilized, the methods followed, and the reasoning that supports the analysis, opinions and conclusions as to value.

Valuation Conclusions include;

- A summary of the Valuation estimates reached using each method employed.
- A reconciliation of justification of any significant differences in the Valuation estimates.
- The Valuation conclusions, expressed as a range of values. Discussion of any reliance on or weighting of different Valuation estimates used to develop the range of values.
- Where a single value is required, discussion of the rationale used to select this value within the stated range.

When a company and its assets are being valuated the following points will be considered;
As you can see here no kind of Feasibility Study is required for an mineral property valuation. So ELM can be valuated by a suitor after having a JORC compliant asset.

1- Compliance with the CIMVal (Canadian based on NI 43-101 Code) or VALMIN (Australian) Standards
2- Property Location, Access and Infrastructure
3- Property Ownership, Status and Agreements
4- History of Exploration and Production
5- Geology and Mineralization
6- Exploration Results and Potential
7- Sampling and Assaying
8- Mineral Resources and Mineral Reserves
9- Metallurgy
10- Environmental Considerations
11- Mining and Processing Operations
12- Key Assumptions, Risk and Limitations

(See the bottom notes for the details of those valuation points)

Also, the three generally accepted valuation approaches are;

- Income Approach
- Market Approach
- Cost Approach

- The Income Approach is based on the principle of anticipation of benefits and includes all methods that are based on the income or cash flow generation potential of the Mineral Property.

- The Market Approach is based primarily on the principle of substitution and is also called the Sales Comparison Approach. The Mineral Property being valued is compared with the transaction value of similar Mineral Properties, transacted in an open market. Methods include comparable transactions and option or farm-in agreement terms analysis. (we'll get PotashOne as our benchmark)

- The Cost Approach is based on the principle of contribution to value. The appraised value method, is one commonly used method where exploration expenditures are analyzed for their contribution to the exploration potential of the Mineral Property.

Mineral Properties can be categorized as four types;
As applied to Mineral Properties, the Valuation approach depends on the stage of exploration or development of the property. It should be noted that there are no clear-cut boundaries between these types, and it may be difficult to classify some Mineral Properties as to one specific category.

- Exploration Properties
- Mineral Resource Properties
- Development Properties
- Production Properties

Valuation Approaches for Different Types of Mineral Properties;

Valuation ....Exploration....Mineral Res....Development...Production
Approach......Properties.....Properties......Properties.......Properties
------------------------------------------------------------------------------------------------
Income ............No..........In some cases.......Yes............. Yes
Market............ Yes............. Yes................ Yes..............Yes
Cost............... Yes........ In some cases....... No.............. No

Primary Valuation Methods for Mineral Properties;

For INCOME Valuation Approach;
- The "Discounted Cash Flow (DCF)" is very widely as primary method of ranking.

For MARKET Valuation Approach;
- "Comparable Transactions" is widely used with variations as primary method of ranking.
- "Net Mineral Valeu" or "Value Per Unit of Mineral" is widely used as "rule of thumb" as secondary method of ranking.
- "Gross in situ" mineral value" is not acceptable for Market Valuation approach.
- Value per Unit Area" is used as secondary method ranking for large exploration properties.

For COST Valuation Approach;
- "Multiple of Exploration Expenditure" is more commonly used as primary method of ranking in Australia. Similar to the Appraised Value Method but includes a multiplier factor.
- "Appraised Value" is used as as primary method of ranking but not accepted by all regulators.

DETAILS; When a company and its assets are being valuated the following points will be considered;

1- Compliance with the CIMVal (Canadian based on NI 43-101 Code) or VALMIN (Australian) Standards.

- State the Valuation complies with the Standards.
- Where the Valuation is inconsistent with the Guidelines, disclose and explain such inconsistencies or deviations and reasons therefore.

2- Property Location, Access and Infrastructure

- Describe the Mineral Property location in detail, including area, and provide a location map.
- Provide distances to major centres, and an outline of how the property can be reached.
- Describe the availability of infrastructure such as roads, rail, shipping, airports, power, water, pipelines, labour, supplies and services.
- Provide a summary of other relevant local issues such as military or terrorist activities, social unrest, seismic risks and the like.
- Provide maps on a regional and local scale, showing all relevant infrastructure including roads, railways, power lines, pipelines, and tailings disposal sites. Provide
geographic coordinates using national and international systems.

3- Property Ownership, Status and Agreements
- Describe the Mineral Property title and the owner?s interest in the property, including surface rights, including obligations that must be met to retain the property, and the expiry dates of claims, licences and other tenure rights, along with any encumbrances to the title.
- Describe any applicable agreements, such as options, joint ventures, farm-ins, royalties, back-in rights, payments, and the like.
- Describe the status of the Mineral Property at the Valuation Date including statutory work requirements, surface rights, water rights, easements, aboriginal land claims, any legal issues, environmental and permitting issues and the impact these may have on property development

4- History of Exploration and Production
- Provide chronology of previous exploration programs, including methods employed and results, quality of the work, and ownership at the time of the work.
- Tabulate historical Mineral Resource and Mineral Reserve estimates, if relevant, along with the source and the quality of the estimates.
- Tabulate production history showing annual amounts and grades. Provide a reconciliation between Mineral Reserves and production, where possible.
- Provide information of a similar nature for the region and for adjacent properties, if relevant.

5- Geology and Mineralization
- Describe the regional geology and mineralization.
- Describe the detailed geology of the Mineral Property.
- Describe the mineralization encountered on the property, the host rocks, and relevant geological controls. Give details on geometry and dimensions of the mineralized zones, along with the type, character, continuity and distribution of the mineralization.
- Outline current thinking about sources and controls of mineralization and the models and concepts being applied to exploration.
- Provide similar information about adjacent properties, if relevant.
- Provide regional and property geology maps showing mineralization and other relevant details.

6- Exploration Results and Potential
- Describe recent exploration work on the Mineral Property and discuss results, their interpretation and their significance. Discuss the quality and reliability of the exploration work and the data.
- Provide opinion on the exploration potential for existence and discovery of economic mineralization on the Mineral Property.
- Where a significant mineral deposit is indicated, provide an assessment of the potential for the discovery of additional mineralization.
- Information from adjacent properties may be included provided that the distinction is clearly made between information on the adjacent properties and the property being valued.
- Describe any constraints to further success, such as legal disputes, land claims, permitting constraints, or physical impediments to effective exploration.

7- Sampling and Assaying
- Describe the methods of sampling and details of location, number, type, nature and spacing or density of samples collected, and the area covered.
- Identify any drilling, sampling or recovery factors that could Materially impact the accuracy or reliability of results.
- Describe sample preparation, security and analytical procedures, assay quality assurance and quality control procedures, and check assays; and discuss their adequacy.
- Note where the analytical data have been verified by a Qualified Person and any limitations on that verification.

8- Mineral Resources and Mineral Reserves
- Provide estimates of Mineral Resources and Mineral Reserves, if any, and how Current they are, and confirm that the work was carried out by a Qualified Person.
- State the date when they were effective, and describe any subsequent sampling, production or other information that would change the Mineral Resources and Mineral Reserves.
- Describe the reserve/resource database and how it was validated.
- Discuss geological interpretation and continuity of mineralization.
- Describe estimation methods and how they were applied.
- Discuss technical and economic parameters such as cut-off grade, dilution and mining recovery.
- Provide details of any reconciliation between Mineral Reserve estimates and subsequent production results.
- Discuss the classification of the Mineral Resources and Mineral Reserves.
- Provide representative plans and sections depicting the configuration of sampling data and the Mineral Resource and Mineral Reserve outlines or blocks.

9- Metallurgy
- Describe mineralogy of the mineralization, and the results of thin section, polished section and similar studies.
- Describe sampling procedures for metallurgical tests and discuss the representativeness of the samples.
- Provide details of metallurgical testwork including the laboratories used, who supervised and carried out the work, methods employed, results obtained.
- Describe proposed beneficiation process and flowsheet.

10- Environmental Considerations
- Describe the environmental standards that have to be met, and the permits needed to continue work on the Mineral Property and any limitations they may impose on the
exploration, development and production on the property.
- Describe the status of environmental baseline studies.
-Provide an outline of environmental issues that have to be dealt with, and the proposed means for dealing with them.
- Describe plans for bonding, pre-closure remediation, reclamation, closure plan, and post-closure responsibilities.

11- Mining and Processing Operations
- Outline current status and proposed activities for the future.
- Where property is at a Feasibility Study stage, provide a full description of the engineering, Prefeasiblity Studies and Feasibility Studies completed and planned, and
discuss the significance of these studies and the plans for future work.
- Where property is in production, provide a full description of mining and processing methods, mining dilution, metallurgical performance, throughput and output
capacities, an assessment of operating costs, infrastructure, management capabilities and products marketing. Describe any technical or financial issues that may impact on Value, and discuss measures proposed to deal with these.
- Provide an outline of capital and operating costs, contracts, taxes, and royalties.
- Provide details and results of any cash flow analysis or economic study.

12- Key Assumptions, Risk and Limitations
- Describe and discuss all Material assumptions and limiting conditions that affect the analyses, opinions and conclusions reached and upon which the Valuation is based.
- Discuss the Material risks associated with the Mineral Property including technical, operating, financial, socio-economic, environmental, permitting, marketing, commodity prices and political risks.
- Describe reliance on information obtained from management.