Measuring the risk of Business As Usual energy and the Value of Renewables for Mining. New financial metrics and Key Performance Indicators to measure renewables.

1. Measuring
the
risk
of
BAU
energy
and
the
Value
of
Renewables
for
Mining
“To
measure
is
to
know.
If
you
can
not
measure
it,
you
can
not
improve
it.”
William
Thomson
(first
Lord
Kelvin,
1824-­‐1907)
2014
©
r4mining.com
15
October
2014

2. VIDEO
SOLON
• INSERT
VIDEO
hKps://www.youtube.com/watch?v=gIHY4L3XdN4
Quote
in
English:
• 970
trillion
kWh
of
energy
fall
to
Earth
every
day
• Good
thing
we
do
not
see
• Bad
if
we
do
not
use
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto

3. Previous
Concepts
and
Goals
Douglas
W.
HUBBARD
(2010):
“How
to
measure
everything.
Find
the
Value
of
Intangibles
on
Business.
Ed.
Wiley”
• Uncertainty:
The
lack
of
complete
certainty,
that
is,
the
existence
of
more
than
one
possibility.
The
“true”
outcome
/
state
/
result/value
is
not
known.
– GOAL
1:
Profitable
ReducLon
of
Uncertainty
about
Renewables
for
Mining
• Risk:
A
state
of
uncertainty
where
some
of
the
possibilides
involve
a
loss,
catastrophe,
or
other
undesirable
outcome.
– GOAL
2:
Profitable
Decrease
of
Risk
about
Energy
for
Mining
• Measurement:
A
quandtadvely
expressed
reducdon
of
uncertainty
based
on
one
or
more
observadons.
– GOAL
3:
Measure
Opportunity
Costs
&
Risks
of
Energy
for
Mining
based
on
KPI
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto

4. REVENUE
STREAMS
“Canvas” Business Model
KEY
PARTNERSHIPS
KEY
ACTIVITIES
VALUE
PROPOSITIONS
KEY
RESOURCES
COST
STRUCTURE
CUSTOMER
RELATIONSHIPS
CHANNELS
CUSTOMER
SEGMENTS
bau4m
KPI
BAU
KPI
Metrics
on
Loss
of
Prevendon
and
Risk
Midgadon! MINING
Decision
Makers!
EPCM, ESCO
& Utility
Decision
Makers!
INVESTMENT
Decision
Makers!
r4m
KPI
Renewables
&
Mining
Observatory
NCRE
KPI
Metrics
to
Uncertainty
reducdon
for
Mining
Encourage
to
collaborate
with
KPI
Observatory
on
r4m
Figure out
Opportunity
RISK in BAU
Energy for
Mining!
Figure out
Opportunity
COST in
NCRE for
Mining!
Figure out
FEEDBACK
control about
RISKS &
COSTS!
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto
Customized
KPI
Analysis
&
Due
Diligence
Book,
Surveys
&
Reports
Training
KPI
Scenario
&
Solver
Simuladons
Barter
of
knowledge
Packages
2014
©
r4mining

5. The
Territory,
the
maps
and
compass
• Renewables
for
Mining
is
a
“Babel”
Territory
where
…
– Miners
talk
on
Tones
and
ounces,
energy
engineers
on
KWp
and
MWh,
and
Finance
professionals
about
USD,
€
or
debt
rates.
Furthermore
the
Public
Insdtudons
about
CO2
• To
achieve
our
goals
we
need
to
use
a
COMMON
LANGUAGE
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto
Power
meter
Geologist
Hammer
Financial
Calculator

6. r4m
Valuadon
Approach
• Compass
Rose
Value
Proposidon
–
new
KPI
Income
Statement
$/
MWh
(Min
Tn)
Balance
Sheet
$/MWh
(Min
Tn)
Business
Value
$
/
Share
JORC
Reserves
Balance
-­‐
Tn
(oz)
Carbon
(GHG)
Footprint
Co2/Tn
“Diesel
Footprint”
TOE/Min
Tn
-­‐
MWh
Social
Energy
Balance
Sheet
CSR
$/kWh
-­‐
LSoE
Policy
Regulatory
Balance
S.
(Derivate)
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto

7. r4m
KPI
Accoundng
Fundamentals
• Energy
Savings
are
not
the
best
approach
to
renewables
for
mining
because
in
terms
of
USD,
Tn,
CO2
or
MWh
Cashflow
works
as
follows
– NCRE
are
Assets
– and
BAU
energy
are
LiabiliLes
• Therefore
the
energy
Net
Worth
(energy
Net
Assets
Value,
or
Owner's
Equity
or
Shareholders’
Equity)
results
on
…
– …
the
difference
between
the
BAU
energy
(LiabiliLes)
and
NCRE
energy
(Assets).
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto

8. BAU
&
NCRE
Cashflow
PaKerns
Business
As
Usual
(BAU)
CASHFLOW
Paaern:
Non
ConvenLonal
Renewable
Energy
(NCRE)
CASHFLOW
Paaern:
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto
B
A
U
MODEL
CASFLOW
PATTERN

9. r4m
KPI
Valuadon
Fundamentals
• bau4m-­‐
3
&
r4m-­‐3:
BUSINESS
VALUATION
– The
technique
of
Band
of
Investment
Using
One
Stabilized
Year
is
well
applied
to
esdmate
the
value
for
Real
Estate
facilides
linked
to
economic
exploitadon
as
hotels.
Useful
on
NCRE
installadons
as
well.
– Business
Value
=
EBITDA
/
WACC
• the
r4m2-­‐3
&
bau4m2-­‐3;
DERIVATES
BV
• Derivadve
“A”:
increase
EBITDA:
– If
we
reinvest
in
new
NCRE
facilides
as
follows
– P&L
NCRE
Savings
as
Equity
Invest.
(20%)
– Using
the
80%
of
the
previous
facility
value
as
Collateral
for
the
80%
debt
investment
• Derivadve
“B”:
decrease
of
WACC
– …
to
cheap
energy
price
(avoiding
voladlity
as
well)
– …
lowering
environmental,
social
and
reguladve
risks
• bau4m-­‐
4
&
r4m-­‐4:
JORC
BALANCE
– if
we
fix
constant
mining
income
then
operadve
costs
are
the
key
reladonship
between
Proven
Reserves
and
Resources
Measured
– The
NCRE
Model
in
front
of
BAU
Model
derivate
in
the
“mineral
cashflow”
transformadon
from
Liabilides
to
Assets
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto

10. R4m
KPI
Triple
Accoundng
r4m
and
bau4mining:
Environmental
(CO2),
resilience
(TOE
Diesel),
Social
Assets
(kWh
Social)
and
the
derivate
Policy
Reguladve
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto

11. Mapping
the
mining
KPI
Territory
MINING
ACCOUNTING
VECTORS
Opportunity
RISK
Opportunity
COST
Opportunity
FORECAST
Levelised
Units
INCOME
STATEMENT
(P&L)
bau4m-­‐1
r4m-­‐1
h4m-­‐1
LCoE
-­‐
LSoE
BALANCE
SHEET
bau4m-­‐2
r4m-­‐2
h4m-­‐2
LBSoE
BUSINESS
VALUE
bau4m-­‐3
r4m-­‐3
(a)
h4m-­‐3
(a)
LVoE
Derivate
BUSINESS
VALUE
bau4m2-­‐3
r4m2-­‐3b
h4m2-­‐3b
LVoE
JORC
BALANCE
bau4m-­‐4
r4m-­‐4
h4m-­‐4
LBRoE
CARBON
FOOTPRINT
bau4m-­‐5
r4m-­‐5
h4m-­‐5
LCFoE
DIESEL
FOOTPRINT
bau4m-­‐6
r4m-­‐6
h4m-­‐6
LDFoE
SOCIAL
E.
FOOTPRINT
bau4m-­‐7
r4m-­‐7
h4m-­‐7
LSFoE
POLICY
/
REGULATORY
F.
bau4m-­‐8
r4m-­‐8
h4m-­‐8
LPRFoE
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto

12. Case
Study
Simuladon:
KPI
for
Chilean
Copper
• Solar
PV
Energy
for
1
TMF
Copper:
– 100
MWp
Solar
PV
as
“Amanecer
Solar”
(SunEdison)
– Applied
to
“La
Escondida”
Copper
Mine
– Over
1
million
TMF
/y
• Sources
of
informadon:
– Public
SunEdison
/
CAP
data
– Consejo
Minero
2012:
energy
consumpdon
/
TMF
Copper.
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto

13. Opportunity
Risk,
Cost
and
Hybrid:
Chilean
Copper:
1
Tn
and
100
MWp
Solar
PV
• Copper
Price
(USD
/Tn):
6,696.00
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto

14. Future
Metrics
Diversificadon
• Figure
out
FEEDBACK
control
about
RISKS
&
COSTS
– Considering
a
close
collaboradon
in
developing
these
KPI,
three
types
of
metrics
diversificaLon
would
be
possible
• 1.
Energy
Diversificadon
Metrics
– To
mining
total
efficiency
(i.e.
from
ESC
ESCO
to
EPC
ESCO)
– To
“future”
storage
integradon
with
hybrid
systems
(scenarios)
• 1.
Mining
Diversificadon
Metrics
(to
Mining
Valuadon)
– Geological
resource
(direct
and
bypass
products)
-­‐
Mineable
reserve
-­‐
Recoverable
metal
-­‐
Gross
revenue
-­‐
Net
smelter
return,
• 3.
Financial
Rados,
Scenarios
and
Solver
Base
Case
Modeling:
– IRR
(project
&
equity)
over
LSoE,
LBSoE,
LBVoE
“
cashflows
– NPV
and
ROI
based
on
LSoE,
LBSoE,
LBVoE
cashflows
– How
r4m
–
bau4m
–
h4m
will
affect
the
DSCR,
the
risk
adjusted
rate
of
return
– operadng
Cashflow,
cash
flow
axer
capital,
net
cash
flow
– VERY
IMPORTANT:
WACC
trends
….
New
Mining
Energy
Risk
Radngs
– NAV
accredon,
cash
flow
per
share
(“CFPS”)
accredon
– Capital
Allocadon
Decisions
..
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto

15. Conclusions
• 1.
BAU
energy
for
mining
is
not
a
quesdon
of
engineering
reliability,
but
a
challenge
about
Balance
Sheet
reliability
– Figure
out
the
LIABILITIES
to
beaer
locate
the
OPPORTUNITY
RISKS
thanks
to
bau4m
KPI
• 2.
Renewables
for
Mining
is
a
challenge
of
Assets,
not
a
quesdon
of
Savings
– Figure
out
the
OPORTUNITY
COSTS
to
increase
diverse
types
of
mining
assets
based
on
r4m
KPI
• 3.
Recommendadon
for
Observatory
for
Renewables
and
Mining:
– Figure
out
FEEDBACK
CONTROL
– FUTURE
DIVERSIFICATION
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto

16. Thank
you
very
much
for
you
aKendon
Dr.
Arnoldus
M.
van
den
Hurk
Mir
info@r4mining.com
www.renewables4mining.com
www.r4mining.com
www.miningrenewables.com
hKp://es.linkedin.com/in/arnoldusmateovandenhurkmir/
hKps://twiKer.com/r4mining
hKp://es.slideshare.net/ArnoldvandenHurk/
hKps://www.youtube.com/user/renewables4mining
“Ignorance
is
never
beUer
than
knowledge.
Enrico
Fermi,
winner
of
the
1938
Nobel
Prize
for
Physics.”
2014
©
r4mining.com
RENEWABLES
AND
MINING
SUMMIT,
15-­‐16
October
2014.
Toronto