This report reviews the literature regarding the theory and practise behind the valuation of mineral resource assets, in particular the valuation of potential acquisition targets to create value for the purchaser. The accurate estimation of the long run value of a mineral resource is essential if returns are to accrue to a purchaser of these assets.
The history and development of resource valuation processes is briefly reviewed highlighting the changes brought about by technological advances in geological evaluation techniques, computing, and the influence of the highly complex financial securities markets on the mineral resource industry.
The underlying economic principles of mineral property values are examined to provide a framework to explain the fundamental processes involved in being able to create value for the purchaser through acquisition.
Financial securities markets have spawned a myriad of techniques for the modelling of returns to financial assets and a large number of these have been applied to the valuation of physical assets. The theory underpining the most commonly used of these models is discussed and the appropriateness of their adaptation to mineral resource asset valuation examined. A very significant proportion of the literature on this subject deals with the identification and quantification of risk.
The valuation of a mineral resource project is an extremely complex and multifaceted exercise and evaluation of the risks associated with its future exploitation is essential to providing an accurate estimation of its future value. Methods of quantifying the risk associated with the valuation of mineral properties are reviewed in association with their role in the financial models.
The dynamics of both the mineral commodities market and the stock market for mineral companies are examined to determine the impact of these practical distortions on the theoretical financial models.
Opportunities for further research to verify the valuation processes proposed are identified.