Valuation of Mining Companies - Johannesburg - Financial - Corporate Finance

Dates	Location	Price	Add dates to my diary	Brochure	Register
6-8 Nov 2012	Johannesburg, South Africa	£2,850.00	Add dates	Download	Register now

The course will provide delegates with a thorough understanding of:

Investment appraisal techniques.
Equity valuation by discounting dividends.
Costs of debt and costs of equity.
Impact of tax and financial distress costs.
Capital asset pricing model.
Calculating beta and the risk premium.
Measuring the required capex.
Preparing the cash flows.
Methodologies using EBIT, EBITA, EBITDA, EBITDAX.
Alternative multiple-based valuation ratios.
The valuation of flexibility.
The option to defer.
Valuing reserves in the ground using comparables.
Using the option valuation methodology for mine expansion.

Who Should Attend

The course will be of value to professionals in the following areas:

Executives and managers.
Professionals in all functions seeking to enhance their financial knowledge.
Investment and commercial bankers (especially those with a single product specialisation needing to understand alternatives).
Equity and fixed income investment managers.
Investment analysts.
Credit analysts.
Treasury managers and staff.
Lawyers.
Accountants.
Company brokers and advisers.

Course Methodology

The training course is wholly interactive and participants will be fully involved through discussion, exercises and case studies. Participants will ideally have access to laptop computers with Microsoft Excel for some of the exercises and case studies. A calculator would also be useful.

Course Background

At the end of the course, participants will have a sound understanding of:

How decisions about the structure of the balance sheet are made.
How to model cash flows that are used in valuation.
The effect of the timing of cash flows on value.
What sensitivity analysis can do in developing an assessment of risk.
How to measure the cost of capital.
How valuation ratios can be used to value mineral reserves.
How to use valuation ratios when there are no earnings.
How to use comparative company financials for valuation.
How to measure beta.
How the finite life of a mining project impacts valuation.
How option valuation methodology can be used for project appraisal.
The value of the option to expand, defer or close.
The particular valuation techniques for reserve based businesses.

Day 1

DCF Valuation techniques

Session 1: Investment Appraisal Techniques

Shareholder value as a key management objective.
Strategic financial objectives.
Appraising investment projects.
Alternative measures of value.
Payback period, discounted payback period, NPV, IRR.
Introductory sensitivity analysis.
Using Excel shortcuts.
Organising the spread sheet to minimise errors.
Spread sheet disciplines.

Case Study: comparing alternative investment opportunities; and developing sensitivities of returns to variations in key project parameters.

Session 2: Equity valuation by discounting dividends

Dividend discount models.
Gordon growth model.
Multi-stage dividend discount models.
Weaknesses in these models.
Using the growth perpetuity to value cash flows.

Case Study: valuing equity using a 2/3-stage dividend discount model.

Session 3: Cost of Capital

Capital Structure Theory: Modigiliani and Miller.
Enterprise value concept.
Impact of tax and financial distress costs.
Cost of debt and cost of Equity.
WACC (weighted average cost of capital).

Case Study: calculating the benefit of the tax shield of debt.

Session 4: Capital Asset Pricing Model (CAPM)

How CAPM works.
How CAPM can be used to identify the cost of equity.
The impact of gearing on the cost of equity.
Relationship to capital structure.
Model inputs and sensitivity.
Calculating beta and the risk premium.
Sources of error in the model.

Case Study: calculating the cost of equity using beta; and adjusting the beta for changes in gearing.

Day 2

Cash flow modelling

Session 1: Identifying the key drivers in the business model

Forecast of sales: the assumptions.
Identifying the cost structure.
Computing the working capital needed.
Measuring the required capex.
Analysing capex between maintenance and development.
Preparing cash flows.
Terminal value assumptions and growth in particular.
Testing the reasonableness of the terminal value assumption.
Non-operating assets and impact on valuation.
Obtaining an equity value using WACC.

Case Study: Preparing cash flow forecasts for a multinational miner.

Session 2: Applying WACC in practice

Review of WACC as a valuation tool.
Preparation of free cash flows.
Alternative terminal value calculations.
Iteration using "goal/seek".
Selecting the right beta.
Creating the sensitivity matrix.

Case Study: valuation involving preparation of cash flows, calculation of WACC, estimating enterprise value and hence equity value.

Session 3: Deriving the financial statements from the cash flow projections

Computing depreciation.
The tax function and deferred taxation.
Working capital.
Seasonal factors and working capital.
Monthly cash flow forecasting.
Debt financing as an overlay.
The revolving working capital facility.
Deriving P&L accounts from the cash flow projections.
Deriving balance sheets from the cash flow projections.
Modifying WACC to account for changes in capital structure.

Case Study: preparing projections for a private equity investment opportunity Session 4: Multiples based valuation methodologies.

The key valuation ratios.
"Proof" of the validity of multiples-based valuation tools.
Characteristics of the earnings forecast.
Comparable company analysis.
Enterprise ratios and their advantages over conventional ratios.
Methodologies using EBIT, EBITA, EBITDA, EBITDAX.
Alternative multiple-based valuation ratios.
Price/book, price/sales, price/pop and other ratios.
Accounting scams – the Xerox case.
Weaknesses in the model.
Reconciling a multiple-based valuation to WACC.

Case Study: IPO valuation using multiples.

Day 3

Option Valuation Methodology

Session 1: Valuing reserves in the ground using comparables

Identifying value from companies with comparable assets.
Using project financing techniques to evaluate mineral reserves.
The impact of commodity price hedging on values.

Case Study: The valuation of a project financing for the development of a major mineral resource.

Session 2: Real options

Projects as options.
The valuation of flexibility.
Introduction to option valuation methodology.
Payoff charts.
Put and call option parity.
The binomial model.
Black and Scholes.
Volatility measurement.

Case Study: valuation of an option.

Session 3: The option to defer

The value and cost of delay.
Impact of the time horizon: limited exploitation license life.
Using option valuation methodology to value the delay option.
Valuing reserves in the ground before extraction.
Value in uneconomic discoveries as an option.
Volatility of the underlying commodity.

Case Study: Estimating the value of the delay option for a mine.

Session 4: Other option elements: expansion and closure

Using the option valuation methodology for mine expansion.
Valuing the option to walk away.
Using existing market values to obtain valuation benchmarks.
Using a combined approach to valuing producing assets and discoveries.

Case Study: Valuation of a major mineral company with a range of developed and undeveloped mining assets.

Course summary and close

Johannesburg Hotel, Johannesburg, South Africa

This programme takes place on a non-residential basis at a central Johannesburg hotel. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.

Paul Richards
Paul Richards graduated from Cambridge University in mathematics and has a Masters degree in business administration from London Business School. He is also a CFA charter holder, an Associate of the Chartered Institute of Bankers, a Member of the Association of Corporate Treasurers and a Fellow of UKSIP.

Paul has more than 20 years investment banking experience specialising in domestic and international corporate finance at UBS (Warburg), HSBC and Map Securities (part of Skandia Insurance and Mapfre, Spain). He was also the chief executive of the London merchant banking operation of Credit Industriel et Commercial, a major French banking group.

As a result of this experience, Paul has extensive first hand experience of: Mergers and acquisitions; IPOs; bond issues; secondary market issues; privatisation; debt syndications; corporate treasury; equity valuation; investment analysis; security and derivative valuation; private equity; modelling; corporate governance; and compliance.

Paul won the 2004 Wincott Foundation Prize for his article "Lessons in shareholder value" on the boom and bust in new economy stocks, published in Professional Investor (the journal of the UK Society of Investment Professionals - the UK member society of the CFA Institute). He has taught MBAs and Masters to Finance students at Cass and Cranfield Business Schools for more than 12 years in a range of financial disciplines; and has trained staff at major City houses and in banks on different continents.
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Course Instructor: Paul Richards