Course details

  • Duration: 5 Half days of Live Remote Sessions
  • Time:  13.00 – 17.00 (GMT)
  • Fees:   £1750    

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23 February 2021

This session considers the links between the “accounting model” (potentially net profit, earnings per share, price to earnings ratio, even return on investment %) and the “economic model” (present value of the project’s expected future cash flow). It outlines the way in which cash flow information is constructed from basic project details and then to represent that information as a set of accounts, as this is widely used for presentation and reporting of financial information. It could be argued, however, that cash flow information is much more useful.

For mineral projects particular attention has to be paid to the treatment of the key independent variables such as grade, and dependent variables, such as grade-tonnage relationships, and the way these influence the rate of mining, associated costs and optimisation of the value of a project. Petroleum projects are based on initial volumetrics, segment production and annual production profiles, revenue, operating costs and capital costs. The distinction between technical appraisal and financial factors will also be addressed and the reason why discounted cash flow (DCF) models need to be integrated correctly into financial accounts explained. This will be linked to concepts of shareholder value and the role of gearing to maintain an efficient balance sheet.

 

More information

Schedule - Day 2

Management and Business: Cash Flow Modelling


Time
Session 
Contributors
13:00-14.00
 
 

5. Introduction. Principles of DCF Modelling. Discount rate. Net Present Value. Internal Rate of Return. Payback Period and Choice of Discount Rate. Impact of different discount rates over time. Cash flow for a mineral project. Scenarios illustrating the range of economic performance indicators. Case history of gold operation.  Setting up base case. Nominal versus real.

Dennis Buchanan

14.00-15.00

6. Analysis of Risk and Uncertainty. Sensitivity analysis. Application to Monte Carlo simulation techniques. Treatment of multivariant systems. Brownian motion and probabilistic modelling. Crystal Ball modelling of gold project. Precision versus accuracy.

Dennis Buchanan

15.00-16.00

7. Project Finance and the Cost of Equity. Weighted average cost of capital (WACC). Integrated economic and accounting model for a simple gold project demonstrating the interrelationship between DCFs and the financial accounts. Capital asset pricing model. Optimisation of gearing. Project Finance cover ratios Demonstration of IC-MinEval. Treatment in the financial model of profits after tax before interest (ATBI), profit before interest and tax (PBIT),  profit after interest before tax (PAIBT) (and profit after interest and tax (PAIT).

Dennis Buchann

16.00-17.00

8. Oil and Gas Fiscal Systems. Oil and Gas cash flow. Petroleum Tax/Royalty DCF worked example. Interrelations between technical parameters, estimates of revenue and impact on PSCs on project investment returns. Decision Trees.


 Colin Howard

Presenters

Professor Dennis Buchanan (Course Director)

Emeritus Professor of Mining Geology & Senior Research Fellow, Imperial College London 

Professor Buchanan works jointly between the Department of Earth Science and Engineering and the Business School at Imperial College London and will act as the Course Director.   

Professor Buchanan's current research interest lies in addressing the underlying technical principles applying to mineral projects and demonstrating how these influence financial modelling. He has 36 years’ experience teaching mining geology, mineral exploration and mineral project appraisal and is responsible for the MSc in Metals and Energy Finance.  This is a joint degree between the Department of Earth Science and Engineering and the Business School at Imperial College. Professor Buchanan has worked as a Mining Geologist in both gold and platinum mines in South Africa and had wide experience as a consultant to industry, as an expert witness and in designing and delivering short courses for industry

 

Colin Howard
Director, CTH Resource Economics Ltd

Colin Howard is a consultant petroleum economist, specialising in the evaluation, fiscal modelling and risk analysis of hydrocarbon projects. Prior to establishing his own consulting business, he worked with Schlumberger Plc, providing software support to international oil and gas companies. He holds MSc degrees in structural geology from the University of Pennsylvania and in Mineral Project Appraisal from Imperial College London. He has extensive experience in modelling a wide variety of hydrocarbon tax regimes and production sharing contracts throughout the world, as well as presenting professional training courses. Clients include Royal Dutch Shell, BP, BG Group, Hess Corporation, and Sonatrach, Algeria.