Modelling Valuation / Risk / Decision in Mining Projects by Nuzulul Haq.

Nuzulul Haq from Mineral Economics Working Group of PERHAPI recently spoke on “Dynamic DCF vs Real Options Methods in valuing mineral assets”. This concept follows several professional papers wherein dynamic cash flow modelling has been considered as an alternative to static DCF methods since the mid 1960’s, which may be more applicable for business models related to reserves and mining. The static model assumes a single average price going forwards to develop a cash flow model. The dynamic model uses multiple forward price predictions (for beyond 1 year) to develop multiple (say 1,000 iteration) cash flow models that are then averaged. The dynamic model also separates between the Risk discount factor and Time discount factor where so far be merged in the discount rate. Conceptual case studies were run to show the different outcomes from static to dynamic DCF/Real Options model. Nuzulul has published this book by print-on-demand (Rp 200,000) that can be obtained by contacting info@explorerealoptions.id This book starts with the basic principles of appraisal for mining projects, then identifies deficiencies in conventional valuation techniques, and goes on to proposes improved valuation concepts for mining projects. More specifically, this book proposes the use of SIP Math software to simulate monte-carlo calculations. The 240-page hardback book is written in Bahasa Indonesia and is designed to be a guide to use the recommended software. This proposed method of “Real Options” is not yet popularly accepted in the mining industry (including MAPPI / OJK), but is available to validate more traditions methods of static DCF methods.