Alternative Valuation methods

While the various chapters above describe the various aspects of “discounted Cash flow” method of valuation, There are other complementary methods of valuation which a smart valuer should also consider (if only as a cross check). These would include

1. Comparable multiples method - a comparison of valuation ratios of comparable listed firms. For mining companies, the ratios could include EV/EBITDA, Price /Earnings, Enterprise Value/ ton of Reserves and Resources, Enterprise Value/ Ton of Capacity, EV/Sales etc
2. Comparable transactions – similar to the above but considers valuation for the assets which have been recently sold or bought
3. Book value - valuation basis of the value in the accounting books of the assets of the company.
4. Real Option valuation – estimation of the “option” value of the assets under consideration. A method not popular due to its complicated formulas and non intuitive nature.

It is important to consider the comparable multiples and comparable transactions esp for assets which are still in exploration and development stage as typically they trade at values different from the net Present value estimates due to Uncertain nature of the cashflows and potential to add further resource.