1. Independent Expert Valuation Opinion - Diamond Exploration Company
In December 1996 a resource firm ("the Firm") made an above market offer to the outside shareholders of an Australian diamond company ("the Company") to buy the 22 percent of the Company's shares not already held by the Firm. Australian law mandates a valuation opinion by an Independent Expert of such offers.
The Company engaged A&S to provide an independent opinion as to whether the Firm's offer was fair and reasonable as those terms are defined under Australian law. A&S invited another firm to joint venture the project with A&S to provide the technical and operational evaluation of diamond properties (a highly technical subject).
The Company's assets consisted of one potential diamond mine that was still under evaluation, a number of exploration properties, and the diamond exploration, acquisition and development skills of its management.
The valuation process involved first (1) determining the value of the prospect under evaluation by identifying (a) all reasonable possible alternative development scenarios, (b) the economical potential of each scenario, and (c) the likelihood of each scenario coming to pass; (2) determining the value of the Company's other exploration properties; and (3) translating those factors into an "intrinsic" value per share of the Company's stock.
The intrinsic value per share was determined to be between $0.61 and $0.79 per share, well below the pre-offer market price of $1.03 per share, and even further below the offer value of $1.40 per share. A&S in its financial valuation then had to determine whether (1) the Company's market premium over intrinsic value was an appropriate constituent of value and why, and (2) the premium above market value offered by the Firm truly reflected the intangible value of the company, as well as being fair by takeover standards in the industry.
A&S' opinion, after considerable analysis, was that the Firm's offer was fair and reasonable, and the Company's management, while personally believing that the Company's potential future value was greater than the offer, recommended that the outside shareholders accept the Firm's offer for their shares. (744-1)
2. Valuation of a Latin American Barite Mine and Drill Mud Company - Medium-Sized Gold Company
Our client was a gold mining company with a 100% interest in a barite mine and 49.5% ownership share of a drill mud company, both in Latin America. A&S was retained to evaluate the value of the barite mine and the client's interest in the drill mud company.
The A&S assignment included:
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Development of projections for each key economic component of the business, including a global barite supply/demand analysis; |
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Selection of the appropriate valuation method; |
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Determination of value. |
For this work A&S fielded a team including a drill mud industry specialist, economic geologist, valuation expert, and senior industrial minerals business advisors. (717-3)
3. Planning and Valuation Review and Analysis - Major Coal Mining & Waste Management Company
Our client, in addition to its coal company, owns a number of coal properties in the U.S., including a potential open pit coal mine with a seven-year life with production running 50,000 tons a year; an adjacent exploration project as well as being the principal participant in, and holding interest in, eleven gold exploration projects of which:
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Five are in the Nevada Carlin Trend; |
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One is in the White Pines Area; |
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Three are in other Nevada locations; |
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One is in the State of Washington; and |
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One is in the State of Montana. |
At the time A&S was engaged, there was an existing feasibility study of the open pit mine to include all reserve estimation studies as well as all principal expenditures made to date on the 12 exploration projects to include contracts; partnership agreements, royalty agreements; land titles; and environmental impacts. A&S' role was:
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First to value the client's U.S. coal properties (separately and collectively) and test our value estimates against the offers or expressions of interest that the client had already received as regards these properties; |
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Second, to provide the client with our judgment as to whether these offers could be improved upon and if so, how and on what basis; |
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Third, if desirable, to provide the client with our judgment as to the best approach for marketing these properties. |
Our work consisted of (1) making a detailed review of the data already available, and (2) making a preliminary evaluation of the feasibility study as well as its ore reserve estimates.
Our output was a final report that provided our independent valuation and our comparison of it against the inquiries and offers received by the company to date. It also provided our conclusions as to what realistic value the company could expect to get from a sale of these properties on the open market within the next six months following our study. (338-4)
4. Provide Technical and Operating Judgments - Major Global Investment Bank
Our client was retained to sell a Canadian diamond mining and exploration company. This company owned 29 percent of a Canadian diamond mine. A&S was hired to provide technical data and judgments for the bank to model and value the mine. Using a team of five professionals, A&S reviewed the data available and constructed a mine plan with capital and operating costs for 20 years. The team advised the bank on inputs for their economic model and provided a written report of the work done. (769-1/2)
5. Valuation of a 'Taken' Coal Reserve - Department of Justice, U.S. Government
Under a 1976 Act of U.S. Congress, the mining of coal deposits in alluvial valley floors was prohibited. The law provided that an owner of such a property could trade with the U.S. Government for another property of equivalent value. One such owner, after failing to negotiate such a trade (there was no agreement on value), sued for compensation on the grounds that passage of the law had "taken" the value of the property. The potential amount involved was significant. In a prior similar case, the court had awarded a plaintiff over $300 million in compensation (later reduced after appeal to approximately $200 million).
Before engaging A&S, the U.S. Department of Justice had engaged two other minerals consultants to value the property under traditional methodology.
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The first consultants attempted to do a valuation based on comparable transactions. |
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The second consultants prepared a valuation based on the development of an appropriate mine plan for the property.However, neither approach was successful. |
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The attempt to value the property by comparable transactions was well done but was not successful because there were no transactions on record of properties that were sufficiently similar to stand up under scrutiny as comparable to the property in question. |
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The mine plan approach was also well done, but the resulting value was dependent upon assumptions of (1) coal marketability, (2) coal price and (3) the cost of capital. |
A&S was engaged to address the financial issues. A&S was to (1) critique the finance and commercial assumptions in the plaintiff's valuation and (2) provide A&S' own valuation using the assumptions of the mine, capital and operating costs developed by one of the Government's other consultants.
The plaintiff's valuation had been prepared by highly reputable consultants. The basic methodology used by the plaintiff was to prepare a discounted cash flow analysis off the base of (1) a mine plan developed by mining consultants, (2) coal demand and price by an electric utility consultant and (3) financial assumptions for the cost of capital by one of Wall Street's largest and most prestigious banking firms. (727-1)
6. Preparation of Offering Materials - Major Latin American Fertilizer Producer
This assignment was done for the owners, a major Mexican fertilizer company recently privatized, and involved four outputs:
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The offering materials to be used to brief investors about our client's business. These comprised assets (mine, fertilizer plant, other surface facilities); markets; forecasts of prices and tonnage; business strategy; reserves; historical financial results; replacement costs of the assets; future profit improvement programs; and prior and projected financial statements. |
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Assessment of our client as prospective investors would see it. Here we assessed our client as it would be seen by the most likely buyers; i.e., industry players and financial institutions. |
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Valuation of the business. We did this using five different approaches to valuation. |
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Prioritized a list of potential investors including industry companies and financial investors. (724-2) |
7. Valuation of Four Underground Coal Mines - Major North American Coal Mining Company
Our client requested A&S to value four western underground coal mines. This was at the time a confidential assignment requiring A&S to use industry knowledge and contacts to develop information. A&S prepared mine plans and built economic models that showed revenues, costs, EBITDA, capex and pretax cash flows. These were life-of-mine projections. (752-3)
8. Planning Review of Gold Mine Development Project - Major Global Investment Banking Firm
Our opinion was sought as to reasonableness of capital costs and schedule and operating costs for a gold mine development project. Our client was an investment bank leading a syndicated financing of a gold mine and mill project with an estimated capital cost of $256 million designed to mine 37,500 tons/day ore with an average grade of 0.0252 oz/ton gold in an open pit mining operation. The A&S assignment was to give opinions as to the reasonableness, risks involved, and upside opportunities in the project focusing on:
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Reserve estimates; |
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Capital cost projections (including construction schedule); |
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Operating expectations (annual production); |
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Operating costs; |
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Risk management plans (environmental, geotechnical, etc.). |
For this work A&S fielded a team of specialists with experience in the planning, development and operation of similar projects. (623-7)
9. Specialist Consulting Services For - World's Largest Mining Firm Merger Major Investment Bank
In October 1995, the RTZ Corporation (based in London and then the world's largest mining company) and CRA (Australian based, 49 percent owned by RTZ and in itself one of the world's largest mining companies) announced a merger. Under Australian law an independent opinion as to the fairness of the merger to the outside stockholders was required. CRA engaged the overseas investment banking firm to provide this opinion which in turn engaged A&S to serve as its minerals business and technical specialist.
The work of both A&S and the bank was to be done in accordance with Australian Valuation Minerals' Code and under the aegis of the Australian Security Commission. A&S' report was shown on page 112 and was completed on page 163 of the Independent Experts' Report, with the first 111 pages having been prepared by the bank. A&S' report was submitted to the Executive Director of the overseas bank based in Melbourne. Both reports were sent to the RTZ and CRA shareholders.
The bank asked A&S to take on four principal tasks in relation to its analyses of each significant asset:
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Verify that the production, operating cost and capital cost schedules over the most likely mine lives are reasonable and attainable on the basis of present and planned reserves, operating assets and technology. |
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Identify any material risks (including environmental-related risks) or opportunities that are not recognized in the production, operating cost and capital cost schedules. |
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Identify any differences between CRA and RTZ policies or practices that could have a material influence on value. Examples include methods of reserve calculation, capital expenditure policies and environmental protection policies. |
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Assess the value of CRA's and RTZ's respective exploration interests. (722-4) |
10. Determination of Residual Value of South American Quarry - Major Investment Bank
Determination of the residual value of a quarry owned jointly by a Colombian company and a Mexican company operating in Colombia. Our client was selected by two other investment banks to provide an independent evaluation of the residual value of a large quarry. This quarry had several remaining years of production and is located in Bogota. The quarry covered 250 acres, has been mined for decades and now has housing immediately adjacent to it. Our assignment was to predict the remaining years of production, examine various methods of closure, define the most suitable use of the quarry, and then determine a value. (722-5)
11. Valuation and Analyses of Non-Australian Assets - Major Australian Mining Company
As part of its defense against a takeover bid, our client hired A&S to value the non-Australian assets. A&S assembled three teams with a total of 21 professionals. These teams simultaneously made property visits in Canada, Scandinavia and South America. Each team commented and made modifications to the long-range plan for each of the properties. A&S also reviewed the major exploration properties. All of these data were presented in report form. The entire assignment was completed in 15 days. (716-6)
12. Gold Multiple Survey - Major Coal Mining & Service Company
Our client was the mining subsidiary of a multi-industry company whose Gold Division comprised a gold mine producing about 25,000 ounces p/a and extensive gold exploration efforts in Nevada spending about US$4 million p/a.
Our client, in contemplation of some major acquisitions, retained us to determine (a) the key factors leading to valuation of gold companies, and (b) the difference between the level of multiples attained by pure gold companies as contrasted with the level of multiples of mining companies with a base of mixed assets, of which gold is one.
Our client asked us, as part of our analysis, to conduct a survey of the equity research analysts who specialize in gold to determine and evaluate their thinking as to the factors that drive multiples in the gold business, to include pure gold companies and companies with a mix of assets which include gold. (145-79)
13. Valuation Analysis - Major Investment Manager
Advice to a mutual fund investment manager as to whether the stock market price of a publicly held gold company reasonably reflected the company's present and potential reserves, costs, volumes and other operating and technical factors that underlie long-term value in minerals investments. (695-1)
14. Evaluation of a Large Coal Mining Company - Major Investment Banking Firm
Evaluate a large coal company in terms of its worth in (1) sale to a third party or (2) a leveraged buyout by coal company management. Our role was to participate in the evaluation team to assure the investment banking firm that its evaluation methods reflected the basic requirements and risks in the coal business. We were also asked to assist in various aspects of the sale. (387-5)
15. Coal Company Valuation - Major Investment Bank
A&S, as part of a continuing relationship with the client, was asked by a major lender to value a coal company. This coal company has a large loan from the client. In addition, the client wanted A&S' assessment of productive capacity in southern Powder River Basin. Since time was of the utmost importance, A&S worked extremely long hours to complete the assignment in eight days. Using a financial model from the coal company to supply some input values, A&S constructed an economic model to calculate the Present Value using discounted cash flows. Values were calculated on an after-tax basis and on an EBITDA-minus-CapEx basis. A&S made changes to the company projections, based on our expertise, to reflect the results A&S believed the company would attain. The productive capacity of the Powder River Basin was determined by analyzing each of 15 coal mines and showing past or expected production for 1999, 2000 and 2001 versus installed train loadout capacity. Sources were industry contacts, A&S' expertise and public information. (759-8)
