Institution: Papua New Guinea University of Technology
Department: Mining Engineering
Facilitator: Dr. Kaepae Ken Ail
Lecture Date: February 24th, 2025
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
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.
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
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
Overview of Surface Mining Methods:
Techniques and machinery utilized in open-pit mining contexts.
Key Components:
Head frame, settling pond, ramp, haulage levels, ore bin
Detailed understanding of mining layouts and operations
Activities:
Drilling, survey, loading, blasting, ventilating, dislodging scale
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
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
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
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
Investment Objectives:
Maximize project value and ensure financial viability
Maintain effective cash flow management and asset oversight
Key Actions:
Enhance cash inflows while minimizing outflows
Focus on long-term integrated company growth
Growth Horizons:
Extend core business while exploring new opportunities in various markets
Operational Goals:
Pursue larger projects and acquisitions to ensure long-term profitability
Investment Management:
Ensure stakeholders derive benefits from extraction
Corporate Objectives:
Focus on sustainable profit maximization in competitive environments
Financial Analysis Dimensions:
Short-term budgeting and long-term financial planning
Assessment methods include evaluating investment viability and returns
Maximizing Cash Flow:
Key financial metrics include NPV, IRR, capital efficiency, and risk management
Government Targets:
Maximize tax revenues and attract foreign investment
Investor Goals:
Maximize equity and achieve competitive advantages
Evaluation Criteria:
Analysis of both technical feasibility and financial viability
Purpose of Evaluations:
Determine investment worthiness and guide financing decisions
Market Dynamics:
Competitive, monopoly, and duopoly influences on pricing and production
Understanding Economic Rents:
Analysis of different types of economic rents and their taxation implications
Graphs on Rent Metrics:
Illustrate various categories and comparisons of rents in mining
Profit Maximization Strategies:
Analysis of market conditions affecting supply and demand
Understanding Price Volatility:
The cyclical nature of mineral prices influenced by economic conditions
Commodity Price Trends:
Overview of the fluctuation in metal commodity prices over 30 years
Key Influencing Factors:
Economic growth, demand from emerging markets, and future price predictions
Gold Price Trends:
Historical data reflecting the value of gold over time
Sustainability Considerations:
Design policies that ensure equitable benefits and community support
Long-term Impact Goals:
Focus on capacity building and mitigation of negative effects on communities
Legislation Goals:
Ensure transparency, stability, and investor security in mining operations
Identifying Risks:
Highlighting political climate impacts and the need for international guarantees
Evaluating Risk vs. Reward:
Analysis of project attractiveness against prevailing political risks
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.