PRESENTATION1_250226_200738

Page 1: Course Introduction

• Institution: Papua New Guinea University of Technology

• Department: Mining Engineering

• Facilitator: Dr. Kaepae Ken Ail

• Lecture Date: February 24th, 2025

Page 2: Session Outline

• Topics Covered:

  • Mining Cycle and Production Systems

  • Stakeholder Interests

  • Objectives of Government and Mining Companies

  • Strategy for Growth in the Mining Industry

  • Resource Sector Finance

  • Objectives of Financial Evaluation

  • Market Structure, Price Cycles, and Predictions

  • Regulatory and Political Risks

  • Summary

Page 3: Mining Stages and Cash Flows

• Stages of Mining Activities:

  • Generative Exploration

  • Evaluation Permitting

  • Pre-Development Program Design

  • Discovery of Mineral Occurrence

  • Feasibility Studies

  • Construction and Mining Operations

  • Environmental Rehabilitation

• Cash Flow Projections:

  • Initial negative cash flows transitioning to positive as operations begin.

Page 4: Revenue Flows

• Revenue Sources:

  • Royalties and tax revenues to the government and communities

  • Economic rent to investors and shareholders

  • Net Smelter Return (NSR) to refine and market minerals

Page 5: Mining Cycle Overview

• Activities Involved:

  • Vegetation clearance, drilling, blasting, overburden removal

  • Use of heavy machinery for excavation and rehabilitation

  • Loading of mined products for transport to processing facilities

  • Emphasis on effective restoration and environmental care

Page 6: Surface Mining Techniques

• Overview of Surface Mining Methods:

  • Techniques and machinery utilized in open-pit mining contexts.

Page 7: Underground Mining Infrastructure

• Key Components:

  • Head frame, settling pond, ramp, haulage levels, ore bin

  • Detailed understanding of mining layouts and operations

Page 8: Underground Mining Cycle

• Activities:

  • Drilling, survey, loading, blasting, ventilating, dislodging scale

Page 9: Stakeholder Financial Objectives

• Primary Stakeholders:

  • Shareholders: seek higher Returns on Assets (ROA)

  • Customers: desire lower prices and high availability

  • Employees: expect better wages and job security

  • Government: aims for increased tax revenues and economic contributions

Page 10: Government's Role in Mining

• Reasons for Involvement:

  • Ownership of minerals and legislative control over extraction

  • Need for safety regulations amidst technical challenges

  • Promote responsible waste management and environmental protection

  • Ensure equitable benefits from resource extraction for communities

Page 11: Interests of Stakeholders

• Government Aim:

  • Enforce policies that meet resource development objectives

• Mining Companies:

  • Foster partnerships with lenders and factor providers

• Employees and Landowners:

  • Firms must prioritize the needs and rights of their workforce and host communities

Page 12: Role of Provincial Governments and NGOs

• Provincial Government:

  • Ensuring monitoring and benefits redistribution for local communities

• NGOs:

  • Engage in compliance auditing and serve as advocates for accountability

• Transnational Organizations:

  • Influence industry best practices for sustainability and growth

Page 13: Corporate Policies for Private Companies

• Investment Objectives:

  • Maximize project value and ensure financial viability

  • Maintain effective cash flow management and asset oversight

Page 14: Financial Optimization Strategies

• Key Actions:

  • Enhance cash inflows while minimizing outflows

  • Focus on long-term integrated company growth

Page 15: Business Development Strategy

• Growth Horizons:

  • Extend core business while exploring new opportunities in various markets

Page 16: Strategic Effects of Growth

• Operational Goals:

  • Pursue larger projects and acquisitions to ensure long-term profitability

Page 17: Resource Sector Finance

• Investment Management:

  • Ensure stakeholders derive benefits from extraction

• Corporate Objectives:

  • Focus on sustainable profit maximization in competitive environments

Page 18: Financial Planning and Models

• Financial Analysis Dimensions:

  • Short-term budgeting and long-term financial planning

  • Assessment methods include evaluating investment viability and returns

Page 19: Whole of Life Financial Objectives

• Maximizing Cash Flow:

  • Key financial metrics include NPV, IRR, capital efficiency, and risk management

Page 20: Summary of Objectives

• Government Targets:

  • Maximize tax revenues and attract foreign investment

• Investor Goals:

  • Maximize equity and achieve competitive advantages

Page 21: Financial Modeling of Mining Projects

• Evaluation Criteria:

  • Analysis of both technical feasibility and financial viability

Page 22: Preliminary Evaluations Utilization

• Purpose of Evaluations:

  • Determine investment worthiness and guide financing decisions

Page 23: Industry’s Market Structure

• Market Dynamics:

  • Competitive, monopoly, and duopoly influences on pricing and production

Page 24: Economic Drivers in Mining

• Understanding Economic Rents:

  • Analysis of different types of economic rents and their taxation implications

Page 25: Economic Rents Visualizations

• Graphs on Rent Metrics:

  • Illustrate various categories and comparisons of rents in mining

Page 26: Profit Management in Mining

• Profit Maximization Strategies:

  • Analysis of market conditions affecting supply and demand

Page 27: Price Cycle Dynamics

• Understanding Price Volatility:

  • The cyclical nature of mineral prices influenced by economic conditions

Page 28: Historical Commodity Price Data (1980-2010)

• Commodity Price Trends:

  • Overview of the fluctuation in metal commodity prices over 30 years

Page 29: Price Drivers and Forecasts

• Key Influencing Factors:

  • Economic growth, demand from emerging markets, and future price predictions

Page 30: Annual Gold Prices

• Gold Price Trends:

  • Historical data reflecting the value of gold over time

Page 31: Resource Extraction Policy

• Sustainability Considerations:

  • Design policies that ensure equitable benefits and community support

Page 32: Community and Environmental Sustainability

• Long-term Impact Goals:

  • Focus on capacity building and mitigation of negative effects on communities

Page 33: Expectations on Resource Laws

• Legislation Goals:

  • Ensure transparency, stability, and investor security in mining operations

Page 34: Political and Regulatory Risks

• Identifying Risks:

  • Highlighting political climate impacts and the need for international guarantees

Page 35: Wafi-Golfu Project Concerns

• Evaluating Risk vs. Reward:

  • Analysis of project attractiveness against prevailing political risks

Page 36: Community Concerns

• Community Activism:

  • Local voices advocating against mining projects due to environmental concerns.

ROA stands for Return on Assets. It is a financial metric used to assess a company's profitability in relation to its total assets. ROA indicates how efficiently a company is using its assets to generate earnings and is calculated by dividing net income by total assets. In the context of mining, primary stakeholders such as shareholders seek higher ROA as it reflects successful management of the mining operations.

In the context of mining, the terms "farm-in" and "farm-out" refer to practices related to transferring interest in a mining project:

• Farm-In: This occurs when a company (the "farmer") acquires an interest in a mining project by investing capital to fund exploration and development. In exchange, the farmer typically receives a share of the output or a working interest in the mine.

• Farm-Out: This is the opposite process, where an existing stakeholder (the "farmer-out") relinquishes part of their interest in a mining project to another company in exchange for investment or services. The farmer-out retains some ownership but shares the risks and costs associated with the project.

These arrangements help companies manage the financial risks associated with mining operations.