Valuation of deposits, reserves of mineral deposits valuation services

A key factor in deciding on the development of new reserves is their value. Valuation of mineral deposits allows one to determine the efficiency of their investment in development. Valuation of reserves is one of the most difficult and time-consuming areas in valuation to date.

The appraisers of Swiss Appraisal identify the following characteristics that affect the valuation of mineral deposits:

  • The volume of raw material reserves
  • The quality of raw materials (the percentage of minerals in the ore)
  • The conditions of occurrence (depth, accessibility)
  • The geographical location (climate, infrastructure, economic development and transportation network in the region)

It is obvious that after consideration of the subject factors, it is needed to make allowances for the general demand of this form of mineral resource and the size of the deposits at hand.

If you need to valuate your reserves of mineral deposits, please send a request via the website.

The objectives of reserves valuation

Swiss Appraisal identifies the following goals for reserves valuation and report preparation:

  • Valuation of deposits for sale / purchase
  • Valuation of damage and lost profit
  • Valuation of the deposit for court
  • Deposit valuation for the attraction of financing
  • Valuation of reserves for contribution to authorized capital
  • Valuation for property division and disputes
  • Mineral resources valuation for investment attraction
  • Revaluation of deposits

Deposit valuation approaches

Theoretically, there are the three possible approaches for deposit valuation: cost, sales comparison or income approach. However, from a practical point of view, the cost approach does not provide a fair value of mineral resources, because it does not take into account the main factor determining the value of the reserve, that is, the future income. In addition, the documented evidence of the cost of obtaining a license often does not reflect its real value. For the same reason, it is difficult to use of the comparative approach for deposit valuation. Moreover, significant differences in terms of licenses and the complexity to obtain information on comparable deposits do not allow one to apply a fully comparative approach.

Therefore, the only approach that can be used to get a proper valuation of mineral deposits is the income approach, i.e. the discounted future cash flows.

Income calculation is carried out based on the parameters of the deposit stipulated in the license agreement.

Classification of raw material reserves

In accordance with the generally accepted framework for the classification of all the deposits of raw material, reserves are characterized as follows:

  • Geological valuation of mineral reserves
  • Technical and economic feasibility of the development of the deposit
  • Economic efficiency

In the process of the valuation of deposit reserves, the calculation of the projected revenue depends on the size, quality and complexity of mineral mining. Usually the data on techno-economic justification indicated in the license agreement is used, and the price level is adjusted for the date of the valuation report.

The duration of the forecast period in order to assess the deposits is usually equal to the license term. The depleted cost of the extracting company (the reversal value) is usually taken to be zero. It is justified by long periods of operation and the necessity to take rehabilitation measures at the end of the operation to meet ecological requirements.

For more information about mineral reserves valuation, please contact the Swiss Appraisal regional office.