Below are some concepts used in mining financing:
- Revenue: Ore (tons) x Grade (g/t) x Recovery x Payability x Metal Price
- Royalties: Properties often have royalties on them (e.g., 2% Net Smelter Return)
- Operating costs: Per ton basis (e.g., $2.50/ton for mining)
- Capital costs: Includes initial capital (construction of mine) and sustaining capital (ongoing equipment, etc.)
- Reclamation costs: Takes place at the end of a mine’s life; accrued for accounting purposes but not accrued in a cash flow model
- Depreciation: A percentage of production bases over the entire life of the mine
- Taxes: Can often be complicated with mining companies operating in several countries; mining specific taxes and royalty agreements need to be considered
- Changes in working capital: Changes in accounts receivable, inventory, and accounts payable should be factored into a cash flow model
What’s one financial metric or challenge unique to mining that you find most critical for investors or operators to understand? Share your insights!
Reference:
https://corporatefinanceinstitute.com/resources/career/introduction-to-the-mining-industry/
