mineral resources

Lao Zhou, who runs a copper mine in Yunnan, recently encountered a sweet trouble: the mining rights evaluation report showed that the copper mining rights certificate he held was valued at 150 million yuan. The bank said it could lend at 60% of the appraised value, which meant he could lend up to 90 million.

"How should I use so much money?" Lao Zhou was excited and began to make calculations.

However, lawyer Liu Jingzhu would like to remind everyone in charge of mining companies: the assessed value of mineral rights is only a theoretical "ceiling". How much can actually be borrowed depends on many factors.

How is the assessed value calculated?

Mineral rights value assessment is the core part of mineral rights mortgage loans. There are three main assessment methods:

Method 1: Income method

The income method is the most commonly used evaluation method. The core idea is "how much money can this mine make for me in the future?" The evaluation agency will calculate the net cash flow that the mine may generate in the future based on the mine's resource reserves, designed mining scale, predicted mineral product prices, and reasonable development costs, and then convert it into a present value.

Simplified version of the formula:
Appraisal value = sum of net cash flows in future years ÷ discount factor

Method 2: Market method

The idea of ​​the market approach is "how much similar mineral rights are worth, I will be worth as much as I want." The appraisal agency will look for several recent mining rights transaction cases with similar types of minerals and similar scales, and determine the appraisal value after comparison and adjustment.

Method 3: Cost method

The idea of ​​the cost method is "how much did I invest in order to obtain this mineral right?" It is suitable for the evaluation of exploration rights where the degree of exploration is low and the income is difficult to estimate.

Six Factors Affecting Appraisal Value

Lawyer Liu Jingzhu introduced that the assessed value of mineral rights is affected by multiple factors, and slight changes in different factors may lead to huge differences in the assessment results:

Factor 1: Resource reserves

Reserves are the basis of mineral rights value. The larger the reserves and the higher the recoverable ratio, the higher the evaluation value. It should be noted that the assessment does not use figures reported by the company itself, but reserves reports that have been reviewed and filed by qualified institutions.

Factor 2: Mineral product prices

Mineral product prices directly determine profits. Rating agencies usually use market prices near the base date and make appropriate adjustments with reference to historical trends. Minerals with large price fluctuations (such as precious metals) need to be more cautious when evaluating.

Factor Three: Development Cost

Including mining costs, mineral processing costs, management costs, financial costs, etc. The higher the cost, the lower the net benefit and the lower the assessed value.

Factor 4: Development conditions

Including transportation, water supply and power supply, geological conditions, safety conditions, etc. The worse the development conditions, the higher the cost and the lower the assessed value.

Factor five: policy factors

Ecological and environmental protection policies, production safety policies, industrial policies, etc. may affect the actual development of mines, and thus affect the assessment value.

Factor Six: Rights Status

Whether there are encumbrances such as mortgages, seizures, and leases on mineral rights, whether there are ownership disputes, and whether transfer proceeds are paid in full will all affect the assessed value.

What do banks think of appraisal reports?

Lawyer Liu Jingzhu pointed out that many companies think that everything will be fine once they get the evaluation report, but this is not the case. Banks have their own set of review logic for assessment reports:

1.Assessment agency qualifications: Banks only recognize reports issued by evaluation agencies with mining rights evaluation qualifications;
2.Assess parameter plausibility: The bank will review whether the parameters used in the assessment, such as mineral product prices, cost data, discount rates, etc., are reasonable;
3.Evaluate the credibility of the conclusion: The bank may entrust its own evaluation agency to conduct a review. If the two conclusions are too different, it may need to be re-evaluated.

Actual loan ratio: You can’t loan as much as you appraise

Even if the appraisal report shows that the mineral rights are worth 100 million, banks will not lend money at 100 million. Usually, banks will consider the following factors to determine the loan ratio:

Yingting lawyer reminds

Lawyer Liu Jingzhu suggested that the person in charge of the mining company:

1.Choose a reliable assessment agency: The choice of the assessment agency directly affects the assessment conclusion. It is recommended to choose an agency with a good reputation in the industry and a basis for cooperation with banks;
2.Fully communicate assessment assumptions: During the evaluation process, fully communicate with the evaluation agency to ensure that the selection of evaluation parameters is reasonable and well-documented;
3.Communicate well with banks: After the evaluation report is completed, fully communicate with the bank, explain the evaluation assumptions and parameter selection, and strive for bank approval;
4.Don’t be overly in debt: The loan amount must match the actual operating needs and repayment ability of the enterprise to avoid liquidity risks caused by excessive debt.

Beijing Yingtong Law Firm has extensive experience in the field of mineral rights evaluation and financing, and can provide professional legal support to mining companies.

(This article is for reference only. Please consult a professional lawyer for specific questions. This content does not constitute legal advice.)