Due Diligence & Financial Models Helsinki - Johan Bradley, SRK Consulting

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Due Diligence & Financial Models Helsinki …

Due Diligence & Financial Models Helsinki
Johan Bradley, SRK Consulting

Mining On Top: Helsinki 2013
16-17 September 2013 | Helsinki

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  • 1. Due Diligence & Financial Models Helsinki, September 2013
  • 2. Take Away Statement 1. SRK Overview of Services 2. Due Diligence & Financial Models 3. Summary
  • 3. Offices Worldwide SRK: >1600 Employees, >50 offices, 6 Continents Cape Town Port Elizabeth East London Brisbane Sydney Perth Pretoria Harare Johannesburg Durban Rustenburg Cardiff Beijing Vancouver BeloHorizonte Santiago Toronto Elko Tucson Denver Fort Collins Reno Yellowknife Pietermaritzburg Newcastle Saskatoon Kolkata Moscow Sudbury Melbourne Kimberley Anchorage Nanchang Skellefteá Jakarta Buenos Aires Zacatecas Ulaanbaatar Almaty Lubumbashi Ankara Accra Mendoza Skellefteå
  • 4. Technical Services • Full range of services o Exploration – Mining – Closure • Feasibility Studies o Scoping o Pre-feasibility Studies o Feasibility Studies • Due Diligence Reviews SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW
  • 5. Take Away Statement 1. SRK Overview of Services 2. Due Diligence & Financial Models 3. Summary
  • 6. Mining Due Diligence Definition... • “Development of an operating plan in accordance with industry guidelines incorporating appropriate capital cost, operating cost and revenue estimates suitable to be used as the basis of either a loan agreement between bank and mine, or as the basis of an asset / company valuation.” SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW
  • 7. Mining Due Diligence • Debt Finance o Assist lenders in reaching a decision o Feasibility Study or Operating Mine • Equity o Assist investors understanding risks, opportunities & potential returns of holding Company o Any stages of project development • Merger / Aquisition o Relative value of projects owned by different companies SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW
  • 8. Financial Model Why do we need one? • Look at the Project as a whole o What happens if... • Risks, opportunities & sensitivities • Viability of the Project o Benchmarking against similar operations • Adjust inputs and quantify impact on Project NPV SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW
  • 9. Financial Model A financial model should be... • Representative of the projected cash flows of an operation • Could be based on technical inputs derived during a study (SS, PFS or FS) • ...or historical performance in the case of an operating asset SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW
  • 10. Financial Model Financial Model is not... • A Balance Sheet, Profit and Loss Statement or a Cashflow Statement for accounting purposes SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW
  • 11. Financial Model: Key Components • Debt Finance • Equity • Merger / Aquisition SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW SAME PROCESS
  • 12. Financial Model: Key Components Starts with an audit of… • Geology & Resources • Mining & Reserves • Mineral Processing & Plant Design • Infrastructure • Environment & Permitting • Implementation / Construction schedule SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW
  • 13. Financial Model: Key Components MINING STOCKPILES PROCESSING TAILINGS PRODUCT ROCK DUMP SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW PHYSICALS
  • 14. Financial Model: Key Components • Revenue o Commodity prices o Royalties, TC/RC o Export duty • Operating Costs o Mining, Processing, Tailings, Transport o Environmental o G&A • Capital Costs o Project o Sustaining SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW REVENUE & COSTS
  • 15. Financial Model: Key Components • Start – client model • Re-build – check integrity • Verify – consistency • Adjustments – based on technical audit • Finish – independent audited model SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW DUE DILIGENCE PROCESS
  • 16. Financial Model: Typical Issues • Model integrity • Forecasts inconsistent with study or historic performance • Mining schedule does not match Reserve • Mining dilution/losses • Plant recovery • Construction schedule optimistic • Closure & rehabilitation costs SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW
  • 17. Financial Model: Results SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW
  • 18. Financial Model: Results REVENUE V OPEX SENSITIVITY DISCOUNT FACTORS 37,890 -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% -25% 6,359 21,969 37,579 53,188 68,798 84,408 100,017 115,627 131,236 146,846 162,456 -20% (6,498) 9,112 24,722 40,331 55,941 71,550 87,160 102,770 118,379 133,989 149,599 -15% (19,355) (3,745) 11,864 27,474 43,084 58,693 74,303 89,913 105,522 121,132 136,741 -10% (32,212) (16,602) (993) 14,617 30,227 45,836 61,446 77,055 92,665 108,275 123,884 -5% (45,069) (29,459) (13,850) 1,760 17,370 32,979 48,589 64,198 79,808 95,418 111,027 0% (57,926) (42,316) (26,707) (11,097) 4,512 20,122 35,732 51,341 66,951 82,561 98,170 5% (70,783) (55,174) (39,564) (23,954) (8,345) 7,265 22,875 38,484 54,094 69,703 85,313 10% (83,640) (68,031) (52,421) (36,811) (21,202) (5,592) 10,017 25,627 41,237 56,846 72,456 15% (96,497) (80,888) (65,278) (49,668) (34,059) (18,449) (2,840) 12,770 28,380 43,989 59,599 20% (109,354) (93,745) (78,135) (62,526) (46,916) (31,306) (15,697) (87) 15,523 31,132 46,742 25% (122,212) (106,602) (90,992) (75,383) (59,773) (44,163) (28,554) (12,944) 2,665 18,275 33,885 REVENUE V CAPEX SENSITIVITY DISCOUNT FACTORS 37,890 -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% -25% (51,621) (36,011) (20,401) (4,792) 10,818 26,428 42,037 57,647 73,256 88,866 104,476 -20% (52,882) (37,272) (21,662) (6,053) 9,557 25,166 40,776 56,386 71,995 87,605 103,215 -15% (54,143) (38,533) (22,924) (7,314) 8,296 23,905 39,515 55,125 70,734 86,344 101,953 -10% (55,404) (39,794) (24,185) (8,575) 7,035 22,644 38,254 53,864 69,473 85,083 100,692 -5% (56,665) (41,055) (25,446) (9,836) 5,774 21,383 36,993 52,602 68,212 83,822 99,431 0% (57,926) (42,316) (26,707) (11,097) 4,512 20,122 35,732 51,341 66,951 82,561 98,170 5% (59,187) (43,578) (27,968) (12,358) 3,251 18,861 34,471 50,080 65,690 81,299 96,909 10% (60,448) (44,839) (29,229) (13,619) 1,990 17,600 33,209 48,819 64,429 80,038 95,648 15% (61,709) (46,100) (30,490) (14,881) 729 16,339 31,948 47,558 63,168 78,777 94,387 20% (62,971) (47,361) (31,751) (16,142) (532) 15,078 30,687 46,297 61,907 77,516 93,126 25% (64,232) (48,622) (33,012) (17,403) (1,793) 13,817 29,426 45,036 60,645 76,255 91,865 CAPEX v OPEX SENSITIVITY DISCOUNT FACTORS 37,890 -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% -25% 90,713 77,856 64,999 52,142 39,285 26,428 13,570 713 (12,144) (25,001) (37,858) -20% 89,452 76,595 63,738 50,881 38,024 25,166 12,309 (548) (13,405) (26,262) (39,119) -15% 88,191 75,334 62,477 49,620 36,762 23,905 11,048 (1,809) (14,666) (27,523) (40,380) -10% 86,930 74,073 61,216 48,358 35,501 22,644 9,787 (3,070) (15,927) (28,784) (41,641) -5% 85,669 72,812 59,954 47,097 34,240 21,383 8,526 (4,331) (17,188) (30,045) (42,902) 0% 84,408 71,550 58,693 45,836 32,979 20,122 7,265 (5,592) (18,449) (31,306) (44,163) 5% 83,146 70,289 57,432 44,575 31,718 18,861 6,004 (6,853) (19,710) (32,567) (45,425) 10% 81,885 69,028 56,171 43,314 30,457 17,600 4,743 (8,114) (20,971) (33,829) (46,686) 15% 80,624 67,767 54,910 42,053 29,196 16,339 3,482 (9,375) (22,233) (35,090) (47,947) 20% 79,363 66,506 53,649 40,792 27,935 15,078 2,221 (10,637) (23,494) (36,351) (49,208) 25% 78,102 65,245 52,388 39,531 26,674 13,817 959 (11,898) (24,755) (37,612) (50,469) OPEX CAPEX Revenue OPEX Revenue CAPEX SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW
  • 19. Take Away Statement 1. SRK Overview of Services 2. Due Diligence & Financial Models 3. Summary
  • 20. Summary SUMMARY FM: RESULTS FM: KEY COMPONENTS FINANCIAL MODELS DUE DILIGENCE SRK OVERVIEW • Due Diligence: Independent assessment of all Project elements • FM quantify risks to Project viability • Output - Independent Audited Model • 80:20 Rule – 80% of effects come from 20% of causes
  • 21. Ode to remember… Some mines make me happy, Some mines make me blue. But the one that gave me the most joy, Was the one I sold to you.