NPV discussion I have been following with interest this discussion board’s prognostication threads on NPV, and like many of you, I too have been wondering what this asset will be valued at when translated into a buyout price. ** Spoiler alert – I don’t know! **
The big mining players are in the business of selling concentrate, ingots, and other metal products at profitable margins. Building a mill and adding all that infrastructure so that ore can be extracted and made into commercial product profitably takes a fair amount of up-front investment. If they over-pay for an asset, that can cut into their profit margins. So how do they know the value of such an asset prior to making an offer? Many variables are at play. Here is a good explanation on some of the metrics that can be used for mining asset valuations. I have no relationship with these folks and am not trying to market their services. I simply found their explanations helpful.
https://corporatefinanceinstitute.com/resources/knowledge/valuation/mining-asset-valuation-techniques/
An ideal resource scenario for a mine is to have a significant high-grade ore that is easily exploitable (e.g. close to the surface). A potential acquirer could conclude that early in the mine’s life-cycle, the revenue stream from a high-grade would be above average. So they might very well be willing to pay up for that advantage.
Or one or more potential acquirers may look at their current portfolio and see declining output in the near term (as lamented in some annual reports). Their business planning group might conclude that they really need to add something with an output of “x” tons per year in three to five years’ time. Having a quality asset on the pacific coast and close to transportation networks may be too good of an opportunity to pass. With the recent copper price trajectory and global demand projections not slowing down, paying extra for an asset may not carry much risk. This could add an extra pricing bump over traditional mining asset valuations. Time will tell.