3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item A comparison of real options and discounted cash flow valuation techniques on a gold mining project(2019) Shivute, Amtenge PendaValuation of mineral assets is done for several purposes including for investment-decision making. There are three main valuation approaches used in mineral projects valuation including the income approach. Within the income approach, the static discounted cash flow (DCF) is the widely used technique. However, it has several limitations, the main one being that it is deterministic. To try and overcome this limitation Monte Carlo simulation is done on the input parameters to result in a Monte Carlo DCF (MCDCF) technique. Nonetheless, the MCDCF also has limitations, the main one being that it neglects the value of flexibility that management has due to those uncertainties during the life of mine (LoM). All these limitations may lead to undervaluing or overvaluing mineral projects, resulting in unrealistic projects values. Real Options Analysis (ROA) technique has been recognised as a better mineral projects valuation technique that considers uncertainty and managerial flexibility. The research study applied and compared the results of the static DCF, MCDCF and ROA techniques on an underground mining project with two possible extraction scenarios. The static DCF was used as the basis for the economic value of the mining project, while the MCDCF incorporated uncertainty in its input variables and quantified the risk associated with the project using @RISK software. The Binomial-Lattice was used to value managerial flexibility to defer the start of the project. The research study found that the static DCF resulted in an NPV of US$9.60 million and an IRR of 8.67% for Scenario 1 while Scenario 2 has an NPV of US$11.35 million and an IRR of 8.95%. These results show that the project is viable since the NPV is positive and the IRR is greater than the 5% discount rate. However, the MCDCF found that there is a chance that the project is unviable which could change the decision made based on the static DCF results from the MCDCF analysis, there is a probability of 0.21 that the project’s NPV and IRR will be negative and less than the discount rate, respectively for Scenario 1. For Scenario 2 there is a probability of 0.17 that the project’s NPV and IRR will be negative and less than the discount rate, respectively. The Binomial-Lattice model resulted in a higher iii NPV for both scenarios; US$17.34 million and US$21.52 million for Scenario 1 and Scenario 2, respectively. This is because the Binomial-Lattice uses a risk-free rate to discount cash flows, whereas the static DCF and MCDCF use risk-adjust discount rate. From these findings it can be concluded that the project is viable and that there is more value created when mining projects have the flexibility to delay the start of a project. Therefore, the company should proceed to a full feasibility study. Also, mineral projects valuators must use the MCDCF and ROA to quantify risk in mineral projects and to valuate flexibility in the face of uncertainty.Item The impact of quasi taxes from mining on economic growth in South Africa(2018) Miyambu, MusaSouth Africa‘s economic growth has been declining since 2009. Mining contributes to economic growth in various ways, including foreign earnings and taxes. It contributes to the economy through direct, indirect and quasi taxes. Quasi taxes are near taxes that are imposed on mining projects in the national interests of protecting the environment and the social, cultural and economic needs of local communities. They have implications on tax design, they are often significant and are regulated by various Acts. They include contribution to local communities, foreign exchange control, environmental taxes, performance bonds and government equity in mining projects. Because of their implication on tax design and related aspects, the research was conducted to assess the extent which they contribute to the economic growth of South Africa, to assess how the country can enhance the effectiveness of quasi taxes on economic growth, to assess whether the country has a good mining tax regime, to assess their impact on mining investments decisions and planning. The research involved a literature survey for qualitative and quantitative data from various sources. These were various books, journals and others publications. It used an internet-based method of data collection and hard copies from various institutions, including libraries. Annual reports of three mining companies that are mining in South Africa and are listed on the Johannesburg Stock Exchange, were randomly sampled and assessed, to gain an understanding of the manner in which these taxes contribute to economic growth. The work also used a Discounted Cash Flow model to assess the impacts of quasi taxes on mine planning and mine investments. It further assessed the extent to which quasi taxes can be applied to the determinants of economic growth. The findings are that quasi taxes contributed 0,77 percent (%) in terms of mining exports earnings per unit of GDP created, between the years 2007 to 2016 and R2 billion to community development in the year 2015. It was found that transparency and lack of clarity are some of the impediments to the contribution of quasi taxes to economic growth. A good mining tax regime is required in order to reap maximum benefit from these taxes. The country must also use Community Engagement Plans to manage expectations, to explain the level of benefit from mining, for clarity and transparency between interested and affected parties. Quasi taxes affect mine planning and investment decisions. Quasi taxes must also be used for clustered and sustainable projects in the form of the Public Private Partnership approach, in line with the determinants of economic growth.Item An analysis of actual cost data for surface mine rehabilitation projects in South Africa and comparison with guideline values published by the Department of Mineral Resources(2018) Cornelissen, Hermanus StephanusIn 2004, the Department of Minerals and Energy (DME, predecessor to the current Department of Mineral Resources - DMR) published a guideline to calculate the amount that a mining right holder would require for financial provision at mine closure. This research report reviews the guideline, specifically focussing on the “rules-based approach” for determining the quantum of financial provision. Some authors have recorded the misapplication of this guideline in practice and their research supports a conclusion that the guideline does not provide adequately for the real costs of mine closure. This research report makes a comparison between the DME guideline master rates for mine closure costs and actual tendered prices for those same elements of mine closure in the period from 2009 – 2016. The analysis of the actual tender prices for the various master- and component rates in comparison with the DME guideline rates delivered mixed results. While the actual tender values exceeded the guideline master rates in most cases, there were notable exceptions where the actual tender results lagged the master rates. The data obtained from the actual tender prices for mine rehabilitation projects by a third party suggests that the use of CPI to escalate mine rehabilitation costs was very quickly overtaken in reality by higher annual costs and rate increases for most of the DME guideline master rates that relate to surface mining. It means that the DME guideline master rates were not reflective of actual rehabilitation costs by the time that the use of the DME guideline was superseded by the publication of new regulations by the Department of Environmental Affairs in November 2017. Whilst no perfectly linear and distinct relationship could be deduced, the results broadly support the findings of several authors that the actual costs to rehabilitate a mine are much more than the DME guideline document would lead a mine to provide for. The application of a rules-based approach remains an exercise mired in controversy and with many potential inaccuracies. The new NEMA regulations for financial provision completely negate the need for a guideline and relevant State Departments and mining companies alike are consequently dependant on third parties to prepare closure cost estimates.