AGENDA

Day 1 • Morning

The Integrated Valuation and Risk Modelling (IVRM) framework; Valuation fundamentals; Introduction to price uncertainty

- Introductory comments
- Integrated valuation and risk modelling
- Project structure (cash flow, design flexibility, stakeholders)
- Project uncertainty
- Valuation estimation – DCF and real options
- Organizational considerations
- Commodity price uncertainty models

Day 1 • Afternoon

Price model equations; Monte Carlo simulation; Parameter estimation

- Equations for commodity price uncertainty modelsExample: Build copper / gold forward curves and associated forecasts
- Re-interpreting static price equations as a Monte Carlo simulationExample: Build a stochastic simulation model for gold and copperExample: Using simulation to value a gold earn-in financing agreement
- Parameter estimation

Day 2 • Morning

Valuing cash flows with no flexibility

- Rethinking DCF discounting
- A simple example of discounting differences between real options and DCF
- Demonstration of discounting effects at the Oyu Tolgoi Project. Example: Valuing a stranded gas field with a take-or-pay pipeline transport agreement
- Design decisions: Higher capital spending and lower operating costs versus lower capital spending and higher operating costs. Example: Valuing competing designs at a SAGD oil sands project
- Summary of differential discounting

Day 2 • Afternoon

Valuing non-linear payoffs; Binomial techniques

- Non-linear cash flow payoffs
- Royalties, corporate income taxes, windfall taxes. Example: Mongolian windfall taxes at a Cu/Au project Example: Assessing a project finance proposal at a small gold project
- The relationship between Monte Carlo and binomial techniques
- Approximating a price process with a binomial tree
- Developing a true and risk-adjusted probability price trees. Example: Building a true risk-adjusted probability price tree on a spreadsheet

Day 3 • Morning

Introduction to valuing projects with flexibility

- Overview of management flexibility in project design and valuation
- A simple binomial example of valuing a mine with an abandonment option
- Building a project valuation model for a flexibly designed project
- Using the Excel Binomial Real Options / DCF Valuation Add-in
- Early closure at marginal project Example: A marginal mine closure decision Example: A closure decision at a coal-bed methane project

Day 3 • Afternoon

Valuing natural resource projects with flexibility

- Valuation Example: Valuing two design choices for a gold project – high capital vs low capital tradeoffExample: Valuing a gold mine with sequential development optionsExample: Valuing an undeveloped gold property
- New frontiers in the valuation of natural resource projects
- Course summary