Abstract
Mineral Asset valuation of Mineral Resources and Mineral Reserves as the single
fundamental asset for a mining company, according to the SAMVAL Code, CIMVAL
Code or the VALMIN code, can be carried out using three valuation approaches, namely;
the Cash Flow (Income) Approach, Market Approach, and Cost Approach. Under the
2009 SAMVAL Code the Market and Cost approaches are viewed as the preferred
approaches to the valuation of Exploration Properties with mainly only Inferred Mineral
Resources, with the Cash Flow Approach ’not generally used’. The updated 2016
SAMVAL Code has split Exploration Properties into two categories; early stage and
advanced stage Exploration Properties. For both stages of Exploration Properties the
Market and Cost Approach is ‘widely used’, while the Income Approach is ’not generally
used’ for early stage Exploration Properties and ’less widely used’ for advanced stage
Exploration Properties. In both versions of the SAMVAL Code the Income Approach is
the least preferred method for valuations of exploration projects, with only Mineral
Resources and without any credible studies to assess the technical and economic
viability.
Under the 2016 SAMVAL Code, an advanced Exploration Property is defined as a project
that has undertaken considerable exploration and a Mineral Resource estimate has been
defined and a Scoping Study has been applied to determine whether there are reasonable
prospects for eventual economic extraction.
This paper looks at the valuation of early Exploration Properties, especially those with
mainly Inferred Mineral Resources, with particular attention on the use of the Income
Approach. It will discuss circumstances where Inferred Mineral Resources could be or
should not be valued using in the Income Approach-based valuation methodologies.