The course covers three primary topics:
- How the characteristics of the natural resource environment influence project value
These include commodity price and cost uncertainty; operating leverage and management flexibility.
- How to build a dynamic valuation model that calculates a market-based project value and optimizes design and operating strategy by integrating financial market information, finance theory and a detailed project description
This topic includes discussions on the risk adjustment information contained within financial markets; the concepts that allow a dynamic project environment to be represented within a valuation model; and the use of Monte Carlo analysis and decision trees to investigate the impact of operating leverage and management flexibility on project value.
- How to determine the investment decision situations for which advanced valuation methods can provide new insights, and those for which these methods are not feasible or appropriate
Suitable applications include analysis of windfall taxes, sliding-scale royalties, project financing, cost-reducing capital spending, design capacity choice, designing for possible development of sub-economic resources, satellite field or mineral resource development, and exploration or development deferral at a lease.
Participants will receive a set of course notes detailing valuation concepts, numerical calculations, and practical valuation examples. A course USB memory key is provided containing spreadsheet-based examples, graphical aids, and topical papers. Monte Carlo simulation exercises are run using a commercial spreadsheet-based simulation package made available to participants under a limited educational license. Case studies about flexibility are run with Microsoft Excel™ Binomial Dynamic Discounted Cash Flow / Real Option Valuation Add-in developed for the course by Dr. Samis. This add-in may be used after the course by participants for educational and professional development purposes.
Participants must bring a laptop running Microsoft Windows XP (or later) and Microsoft Excel 2003 (or later) to run the course examples. There is no guarantee that earlier versions of the required software will support the course teaching aids and examples. The laptop must have software installation privileges.