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Valuing Exploration Properties and the Public Reporting Requirements

The valuation of exploration assets is required as a basis for the commercial terms of corporate transactions, but can also support a company’s exploration strategy when every exploration dollar must be carefully considered. In exploration it is generally recognised that while the investment risks are high, the financial returns of discovery are significant. Many parts of the globe, both mature and relatively under-explored, continue to deliver new finds.

Any valuation approach needs to take into account both the technical merits of a project and the market conditions, and will usually incorporate several different valuation methods. All statements by the company regarding discovery potential and possible outcomes for future exploration campaigns must be made on a reasonable basis. The valuer should communicate the project merits while satisfying the market regulators who are very cautious about forward-looking statements.

The guiding principles for any valuation should revolve around the materiality of the data, the competence of the valuer and the transparency of information. Materiality guides what data should be considered for the valuation. For example, if a historical or foreign estimate of mineralisation is known on the property, this is clearly material information, even though it may not be readily released in accordance with public reporting guidelines. A site visit is a key aspect of understanding the context of the information. Competence refers to the relevant previous experience of the individual who is conducting the valuation. Commonly, a number of technical specialists will need to take responsibility for their respective areas of reporting, rather than a single expert. Reports should be transparent with sufficient information, so that the reader can understand the approach and assumptions made in clear and unambiguous terms.

In Australasia, the release of the JORC Code (2012) and the update of the VALMIN Code, which is currently in progress, provide increased guidance to the industry in disclosing information in public reports. Both these committees have worked with international bodies in attempting to harmonise the requirements of a number of jurisdictions. In addition to the professional codes, each jurisdiction will have their own regulatory and reporting requirements that need to be considered. Adhering to these guidelines provides transparent and defendable valuations, offers comfort to the investment community and helps protect the reputation of the resources industry.

Matt Greentree:

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