Valuation Simulation for a Net Smelter Return Royalty on a Mining Project

Bell, Peter (2018): Valuation Simulation for a Net Smelter Return Royalty on a Mining Project.

Abstract

This paper provides a rough calculation of the economic value of a hypothetical mining operation for a profitable of mineral deposit. I present simplifying assumptions for the deposit geometry and mine production constraints to calculate the value of a net smelter recovery royalty on the mine, which is due a small fraction of gross income from the mine. I calculate the value of the royalty with constant prices and conduct a simulation exercise where the metal price changes quarterly based on historical data for gold futures contracts.

• Item Type: MPRA Paper
• Language: English
• Keywords: Engineering Economics, Mining, Royalties, Finance
• Subjects: C - Mathematical and Quantitative Methods > C0 - General > C00 - General; G - Financial Economics > G0 - General > G00 - General; L - Industrial Organization > L7 - Industry Studies: Primary Products and Construction; L - Industrial Organization > L7 - Industry Studies: Primary Products and Construction > L72 - Mining, Extraction, and Refining: Other Nonrenewable Resources

References

Bell, P. (2017). "Example of a Rising NPV Profile for a Mining Project," MPRA Paper 81353, University Library of Munich, Germany. Retrieved from https://ideas.repec.org/p/pra/mprapa/81353.html

Bell, P. (2018a). "Simulation Framework for Economic Modeling of Mineral Resources," MPRA Paper 85075, University Library of Munich, Germany. Retrieved from https://ideas.repec.org/p/pra/mprapa/85075.html

Bell, P. (2018b). "Example of a Rising NPV Profile for a Mining Project," MPRA Paper 87283, University Library of Munich, Germany. Retrieved from https://ideas.repec.org/p/pra/mprapa/87283.html

Chakana Copper (May 28, 2018). Chakana Corporate Presentation. Retrieved from http://cdn.ceo.ca.s3-us-west-2.amazonaws.com/1dgp5a3-2018-05-15_chakana_investors_presentation.pdf

Franco-Nevada (May 28, 2018). FRANCO-NEVADA Terms Explained. Retrieved from https://www.franco-nevada.com/our-assets/terms-explained/default.aspx