Mining Modeling 3: Valuation Techniques
This hands-on course is focused on the practical implementation of Discounted Cash Flow (“DCF”) valuation analysis for a mining company. The skills required to build a DCF analysis will be discussed and incorporated into a mining model. Participants will learn to recognize and avoid the most common errors that mining professionals make when creating a DCF analysis. This course will also include a number of Excel tips and skills to help a user check and audit a financial model.
Participants should have a basic working knowledge of Excel and the mining sector prior to taking this course.
Build a Detailed Income Tax Schedule
- Incorporate an income tax schedule to calculate current and deferred income taxes for the company
- Use a tax pool schedule to track the following items:
- Capital Cost Allowance (“CCA”)
- Canadian Development Expenses (“CDE”)
- Canadian Exploration Expenses (“CEE”)
- Tax Loss Carry Forwards (“TLCF”)
Incorporate a DCF Analysis
- Discuss the appropriateness of DCF methodology to value a mining company which is in production
- Properly calculate a company’s unlevered free cash flows
- Calculate the tax impact of unlevering a company’s cash flows
- Calculate the company’s cost of capital and choose an appropriate weighted average cost of capital (“WACC”) range
- Ensure cash flows in the forecast period are discounted to the correct period
- Discuss common discounting errors and review the magnitude of discounting the cash flows to the wrong time period
- Discuss alternative valuation methodologies used in the mining industry
Understand the DCF Analysis
- Use powerful Excel tools to sensitize the outputs
- Incorporate appropriate ratios and performance metrics
- Create “flags” to warn the user if a covenant has been tripped
- Conditionally format output tables to highlight specific results
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