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Assessing the value of mining information
Jeames McKibben
November 2014
Melbourne | Sydney | Adelaide
Value Adviser Associates Pty Ltd ABN 54 131 852 607
Assessing the value of mining information
The majority of mineral producers record historical cost within their accounts as the value for
their mineral rights and information. This method is neither accurate or ideal and is potentially
exposing the company to unnecessary stamp duty under the landholder regime – trigger tax
liabilities under the Taxable Australia Real Property (TARP) regime and exposing the company
to an unnecessarily excessive tax liability under the existing mining rights and information
regime.
It is important that mining investors accurately allocate value between exploration and
production assets in order to minimise their tax liability. Foreign investors who dispose of
mining entities where the value of non-TARP assets exceeds 50 percent were exempt from
paying Capital Gains Tax.
Previously, mining information was classified as a non-TARP asset, increasing the ratio of nonTARP to TARP. This is especially relevant for early stage miners or developers who hold high
levels of information and lack income producing assets.
Mining information and goodwill must not be valued and included together with the mining
rights. For early stage miners, this effectively lumps all assets into the TARP bucket and gives
rise to a tax liability upon disposal.
Also under the stamp duty regime, mining information is still classified as a non-land asset.
Therefore correctly valuing mining information is important if miners wish to minimise their
potential tax payment. Ignoring this valuation issue can lead to an excessive stamp duty tax
liability.
In a recent arbitration hearing, Xstract completed a valuation of mining information using
annual exploration activity reports submitted by a company to the relevant State mining
department. This methodology essentially depicts the approximate dollar value of replicating
all the known information regarding each tenement, as at the relevant date. This data is
available and within the public domain.
Xstract’s method to determine the nominal expenditure amounts incurred by the company
at its respective projects included:
• Sourcing a listing of the company’s tenements which were owned as at the valuation
date, which were sourced from company annual reports, which were then grouped by
the project location
• The State on-line database of mineral titles and mineral exploration reports (in this case
the Mineral Titles Online (MTO) and Western Australian Mineral Exploration Index (WAMEX))
was accessed to compile Annual Reports and expenditure details for each tenement
• The annual report was then reviewed to determine the exploration work carried out since
the grant of each tenement. Annual reports were used to verify tenement numbers of the
exploration and mining tenements and the work completed. Tenement numbers were
checked as the shape of the tenements changed over the years.
• Where available the expenditure details from the MTO database were checked against
the expenditure details detailed in the annual reports and Form 5 Operations Reports on
Tenement Expenditure.
These nominal figures were then inflated using various factors, including the Consumer Price
Index (CPI) and several Producer Price Indices (PPI), to determine an appropriate proxy for
costs for in the exploration and mining industry. CPI data was obtained from the Reserve Bank
of Australia (RBA) and the appropriate period ending CPI factor was applied per year.
The Australian Bureau of Statistics (ABS) data was cross-referenced to determine if the CPI
provides an appropriate inflationary measure. Importantly, the ABS does not capture early
stage exploration cost data, relying more on engineering and mining construction cost data.
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For our valuation, we analysed data for metals production, surveying and mapping and
expenditure per metre drilled (excluding oil & gas).
The CPI inflated numbers were then compared against the inflationary figures selected by
Xstract from the ABS data.
In addition to the inflation factors applied, Xstract also applied a discount to account for the
use of public information. It is widely acknowledged in the industry that publically available
data is not as rich in content as data held by the creator. A potential purchaser of the
tenements is likely to apply such a discount when valuing publicly available mining
information, for several reasons including:
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Relevance and Timeliness: Information is perishable
Accessibility: ease of location and retrieval
Usability: ability to manipulate and analyse
Utility: suitability for multiple applications
Quality: accuracy, reliability, credibility and validation
Customisation: filtered, targeted, sub-setted
Re-useability: ability for others to access and use.
For example, the company creating the data would store it in a database which could be
swiftly interrogated and in a sophisticated way for rigorous analysis; however a potential
purchaser would only have access to hard-copy, paper reports. To our knowledge, there is
no industry standard or rules of thumb for applying such a discount for the use of public data.
We considered the type and style of exploration activity carried out on the properties, the
resulting mineralisation discovered and the activities required to reproduce the mining
information.
Using this methodology, Xstract arrived at several Real (inflated or escalated) estimates for
the value of mining information.
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