How can the commercial value of a mining title be determined?

In the mining district of Soacha there is a mining project dedicated to the commercialization of sand and clay. It is currently a sustainable mining project, but among the decisions that its owners are considering is the sale of the mining title to a potential investor. However, when it comes to wanting to sell, the question arises: How much is the mining title worth? It is not really a simple question to answer, but from a financial analysis the sale value can be estimated based on the available reserves of sand and clay.

What variables influence commercial value?

Every investment has a risk, so the investor who is interested in buying a mining title must evaluate these risks in detail before making a decision. Within the financial world there are two methods for making investment decisions, the first is the calculation of the Net Present Value (NPV), which allows determining the value of an investment by comparing the current value of its expected cash flows (that is, bringing the net profits of each year to today's or present value) with the cost of the initial investment; and the second is the Internal Rate of Return (IRR), which calculates the expected return of the project before any investment.

The financial evaluation of the mining project consists of determining the net profits of the year throughout the useful life of the mining project, based on the analysis of various economic aspects, such as the dynamics of supply and demand of the local and regional market for the minerals to be marketed, the projection of production costs based on variations in the CPI, administrative costs, costs of implementing the Environmental Management Plan (PMA), taxes, the projection of the sale price of the mineral based on the IPP and gross income based on the market and approved reserves.

What other aspects can influence the commercial value of the mining title?

Yes, there is another aspect to discuss, and that is what is the most appropriate discount rate when calculating the NPV, which is a factor that measures the investment risk based on the analysis of the technical, economic, geographic, social and terrorism risks that could occur in the mining title area. Finally, the effect of these risks on the financial assessment must be analyzed and in this way the potential losses that an investor could be subject to are projected.