Mineral Assets Valuation

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Taxes in Mining Industry - Poland

Rytro k. Nowego Sącza, 19.11.2015

23 listopada 2015
Taxes in Mining Industry

The presentation  contains an analyses of widely used methods of risk valuation which have been developed within science of finance in order to assess risk of mineral deposits development stage. It has been indicated that a development stage typically spans over several years and is not only characterized by risks factors different than the ones pertinent to an operational stage but also has different fundamentals. As actual results deviate almost exclusively in a negative way from investors’ expectations it represents more insurable than financial risk. Consequently application of valuation tools developed for assessment of financial risk leads to alternate substantially valuation results. The presentation is based on the article published in Bulletin of the Mineral and Energy Economy Research Institute of the Polish Academy of Sciences, no 91.

Articles in Scientific Journals

  1. “Mineral Assets Valuation. Directions for further development. Methodological approach” (Wycena aktywów geologiczno-górniczych. Kierunki dalszego rozwoju. Podejście metodyczne), IGSMiE PAN, Kraków 2019.

  2. Co-author, “ Mines’ Closures and Rehabilitation of Post-Mining Areas in Open-pit Mining. Technical, legal and economic issues.” (Likwidacja kopalń i rekultywacja terenów pogórniczych w górnictwie odkrywkowym. Problemy techniczne, prawne i finansowe.), IGSMiE PAN, Kraków 2010.

  3. Co-author, “Foundations of mineral assets valuation” (Podstawy wyceny wartości złóż kopalin. Teoria i praktyka.), IGSMiE PAN, Kraków 2008.

  4. Co-author, „Valuing mineral deposits. Methods, problems, real-life solutions.” (Wycena wartości złóż kopalin. Metody, problemy, praktyczne rozwiązania.), AGH – Uczelniane Wydawnictwa Naukowo-Dydaktyczne, Kraków, 2005.

Books

ACADEMIC PUBLICATIONS ON MINERAL ASSETS’ VALUATION

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If you think to face a similar problem please refer to.

  1. “The Hotelling’s Rule in practice – analysis of gold mining sector” (Twierdzenie Hotellinga w praktyce – analiza sektora górnictwa złota), Mineral Resources Management, no 2, vol. 37, pp. 63-84, IGSMiE PAN, Kraków, 2021.
  2. “Investment stage of mineral deposit development in the DCF method” (Ryzyko fazy inwestycyjnej projektu górniczego a metoda DCF), Kruszywa, no 1, pp. 48-53, Katowice, 2020.
  3. “Earning potential as the sole parameter determining a mineral asset value in market-based approach. Proposal of a method.” (Potencjał dochodowy jako jedyny atrybut wyznaczania wartości złoża w podejściu porównawczym. Propozycja zmodyfikowanego podejścia metodycznego), Economic Studies. Scientific Bulletin of the University of Economics in Katowice, no 354, pp. 60-79, Katowice, 2018.
  4. “10 years of the POLVAL code applied in practice – challenges regarding the applied methods” (X lat stosowania kodeksu POLVAL – wnioski metodyczne), Bulletin of the Mineral and Energy Economy Research Institute of the Polish Academy of Sciences, no 106, pp. 199-209, IGSMiE PAN, Kraków , 2018.
  5. “Selected problems regarding the valuation of properties with mineral assets held in perpetual usufruct.” (Wybrane problemy wyceny nieruchomości z prawem do złóż kopalin dla potrzeb ustalenia opłaty za użytkowanie wieczyste), Bulletin of the Mineral and Energy Economy Research Institute of the Polish Academy of Sciences, no 96, pp. 311-322, IGSMiE PAN, Kraków , 2016.
  6. „Mineral assets valuation rules and methods as stipulated by relevant valuation codes”, WSFiP Research Journal, no 3, pp. 50-65, WSFiP, Bielsko-Biała, 2015.
  7. „Risk in an investment stage of a mineral deposit development project in view of its valuation ”, Bulletin of the Mineral and Energy Economy Research Institute of the Polish Academy of Sciences, no 91, pp. 203-2016, IGSMiE PAN, Kraków , 2015.
  8. „Valuation of Mineral Resources in Selected Financial and Accounting Systems”, Natural Resources, Vol. 5, No 9, pp. 496-506, July 2014.
  9. “Evaluation of the SMOG method applicability for hydrocarbon reserves’ valuation in financial statements of oil and gas companies.” (Ocena przydatności metody SMOG do wyceny wartości złóż węglowodorów w sprawozdaniach finansowych firm naftowych), Theoretical Journal of Accounting, No 67(123)/2012, pp. 115-134, Warszawa, 2012.
  10. “ Circumstances supporting use of real-options approach for valuation of selected classes of mineral deposits”. (Przesłanki dla stosowania metody opcji realnych przy wycenie niektórych złóż kopalin), Mineral Resources Management Vol. 28/1, pp. 137-155, IGSMiE PAN, Kraków 2012.
  11. “Evaluation of the cost approach usefulness for a mineral assets valuation” (Ocena przydatności podejścia kosztowego do wyceny aktywów geologiczno-górniczych), Mineral Resources Management Vol. 27/2, pp. 63-78, IGSMiE PAN, Kraków 2011.
  12. “Determining a discount rate applied for calculation of provisions for decommissioning of mining facilities.” (Zagadnienie wyznaczania stopy dyskonta przy ustalaniu wartości rezerwy na likwidację zakładu górniczego), Theoretical Journal of Accounting No 58(114)/2010, pp. 193-206, Warszawa, 2010.
  13. “Mineral Assets Valuation. Selected methods.” (Wycena wartości złóż kopalin. Wybrane metody wyceny), Scientific Journal of Mining Institute of Wrocław Technical University No 125. Vol. 35. Mining and Geology XI. Wrocław, 2009.
  14. “Mineral Assets Valuation. Valuation methods” (Wycena wartości złóż kopalin. Metody wyceny), Journal of Basic and Common Minerals of Open Pit Mining (Kopaliny Podstawowe i Pospolite Górnictwa Skalnego) No 1/2009 (56), Wrocław, 2009.
  15. „Standardized Measure of Discounted Future Net Cash Flows Related to Proved Oil and Gas Reserves and Capitalised Costs of Exploration and Development as two ways to include oil and gas assets’ valuation in financial statements”, Balkema -Taylor & Francis Group, London 2008.
  16. “Impact of land rehabilitation expenses on mineral deposits’ (mining companies’) value” (Wpływ obowiązku rekultywacji gruntu na wartość złoża (przedsiębiorstwa górniczego), Mineral Resources Management Vol.22/2, IGSMiE PAN, Kraków 2006.
  17. “Using option pricing for valuation of mineral deposits”, Mineral Resources Management Vol. 19/4, IGSMiE PAN, Kraków 2003.
  18. “Valuing minerals – selected issues from the Hotelling theorem” (Wartość kopalin – wybrane problemy wyceny w świetle teorii Hotellinga), Mineral Resources Management Vol. 18/special issue 1, IGSMiE PAN, Kraków, 2002.
  19. Co-author, Saługa PW, Uberman R, Mazurek S „Goals of harmonization of solid mineral resources classification systems” (Cele harmonizacji klasyfikacji zasobów złóż kopalin stałych), Polish Geological Review, Vol. 66, no 6, pp. 353-360, PIG-PIB, 2018.
  20. Co-author, Nieć M., Uberman Ry, Naworyta W., Uberman Ro „Causes and consequences of abandonment of exploitation of mineral deposits” (Przyczyny i skutki pozostawiania w złożach niewykorzystanych zasobów kopalin), Polish Geological Review, Vol. 66, no 3, pp. 166-169, PIG-PIB, 2018.
  21. Co-author, „Problems of establishing compensation for mining usufruct” (Problemy ustalania wynagrodzenia za użytkowanie górnicze), Bulletin of the Mineral and Energy Economy Research Institute of the Polish Academy of Sciences, No 100, pp. 265-278, IGSMiE PAN, Kraków, 2017.
  22. Co-author: Galos K., Pietkiewicz P., Uberman R.: „A new standard for valuing real-estates with mineral deposits” (Nowy standard wyceny nieruchomości gruntowych ze złożami kopalin) Kruszywa mineralne, t.1, pp. 19-30. Wydział Geoinżynierii, Górnictwa i Geologii Politechniki Wrocławskiej, 2017.
  23. Co-author: Galos K., Nieć M., Saługa P. W., Uberman R.: „The basic problems of mineral resources valuation methodologies within the framework of System of Integrated Environmental and Economic Accounts.” Mineral Resources Management. 31/4, pp. 5-20, IGSMiE PAN, Kraków 2015.
  24. Co-author, „Taxes, levies and other financial duties in Polish mining industry, including fossil fuels” (Podatki, opłaty i zabezpieczenia finansowe w polskim górnictwie, w tym w górnictwie surowców energetycznych), Journal of Energy Policy, No 2, IGSMiE PAN, Kraków, 2015.
  25. Co-author, „Valuation of land properties associated with mineral deposits – towards a new standard of valuation” (Wycena nieruchomości gruntowych związanych ze złożami kopalin – w kierunku nowego standardu wyceny), Bulletin of the Mineral and Energy Economy Research Institute of the Polish Academy of Sciences, No 85, IGSMiE PAN, Kraków, 2013.
  26. Co-author, “Valuation of license for exploitation and documentation of hypothetical mineral deposits using methods based on the cost approach” (Wycena wartości koncesji na poszukiwanie i rozpoznanie złóż kopalin z wykorzystaniem metod podejścia kosztowego), Journal of Open Pit Mining No 1-2/2011, Wrocław, 2011.
  27. Co-author, „Methods for valuation of anthropogenic mineral deposits” (Metody wyceny złóż antropogenicznych), Mineral Resources Management Vol. 23/2, IGSMiE PAN, Kraków, 2007.
  28. Co-author, ”Legal basis for valuation of mineral deposits to be extracted in open pits” (Podstawy prawne dla wyceny wartości złóż kopalin eksploatowanych metodą odkrywkową), Mineral Resources Management Vol. 20/special issue 1, IGSMiE PAN, Kraków 2004.
  29. Co-author, “Value of anthropogenic mineral deposits and related valuation methods” (Wartość złóż antropogenicznych i metody ich wyceny), Journal of Open Pit Mining No 1-2/2002, Wrocław 2002.
  30. Co-author, “A seasonality effect in natural rock quarries – challenge for the managements” (Sezonowość w górnictwie surowców skalnych. Wyzwanie dla zarządzających), Journal of Open Pit Mining No 4/2002, pp. 30-34, Wrocław, 2002.
  31. Co-author, “Sezonowość w górnictwie surowców skalnych” (A seasonality effect in natural rock quarries), Kopaliny Pospolite nr 8/2001 (37), Wrocław, 2001
  32. Co-author, “An issue of extraction period in valuation of mineral deposits” (Zagadnienie okresu wystarczalności zasobów złóż wycenach ich wartości), Journal of Open Pit Mining No 4-5/1999, Wrocław 1999.
  33. Co-author, “Identification of a discount rate for valuation of mineral deposits when the DCF method is applied” (Określanie stopy dyskonta dla potrzeb wyceny wartości złóż kopalin metodą zdyskontowanych przepływów gotówki), Journal of Open Pit Mining No 1/1998, Wrocław, 1998.
  34. Co-author, “Selected issues in valuation of mineral deposits to be extracted in open pits” (Wybrane problemy wyceny wartości złóż kopalin eksploatowanych odkrywkowo), Journal of Open Pit Mining No 3/1997, Wrocław 1997.

Case 1 (A challenging valuation). Limestone. One of quite common minerals. Used for various purposes. Generally the highest value application is by cement industry. The other refer to absorption capacities (sulphur capture in power plants) or construction. If a property under valuation is being exploited at full capacity and used for the cement industry the task looks quite simple: just another DCF exercise. The real challenge comes when it is not. After all there is a limited number of cement plants globally and they tend to be bigger and bigger. Due to transportation costs they have to be supplied by mines located in a short distance away. At present 3 million tons of annual capacity seems to be the minimum standard. Is there a chance that a new one will be located in the near neighborhood? Certainly there are another options. Construction industry may take a significant volume. However from their perspective limestone may have many disadvantages. For the sulphur cupture purposes limestone has to demonstrate certain properties – in fact in some cases a given material may be technically unacceptable. And even if this obstacle is overcome one faces a similar problem as in case of the cement industry: big power plants with sulphur capture installations are not built in every city. For the construction industry limestone is in general quite unattractive material: is soft and not resistant to various environmental constrains, for example water. So definitely process obtained from this industry will be much lower than ones acceptable for the former two. The solution applied was a mixed of the classical DCF approach, option pricing and scenario analysis. The complex analyses performed allowed to establish unconditioned current price accepted by a buyer and its auditor.

  • Sworn Mineral Asset Valuator, Polish Association of Mineral Asset Valuators, May 2008 –
  • More than 30 appraisals of mineral deposits for both prospectus buyers and sellers.
  • A banking business plan for an open mining company with an investment value of ca. 10 mo. EURos.
  • 10 valuations of rehabilitation provisions for a lignite mine (financial & accounting part).

CREDENTIALS & CONSULTING PROJECTS PERFORMED