Multiples of Exploration Expenditure as a Basis for Mineral Valuation

The ""multiple of exploration expenditure"" method of mineral valuation is applicable to exploration properties from the earliest stage of exploration to a moderately advanced stage but for which no resources have been delineated. While not recommended as a primary valuation method by some workers, others believe it to be the most satisfactory method of valuing exploration properties until it is possible to employ a DCF technique. In many situations facing the professional valuer, the method may represent the only semi-quantitative option available and is frequently used. Significantly it often forms the starting point in discussions to farm-in on an exploration tenement. The paper briefly reviews the definition of value as applied to mineral valuation and in particular examines the relationship between fair value and market clearing price in ""fair"", bull and bear markets. The multiple of exploration expenditure method uses previous exploration expenditure and/or future committed exploration expenditure to derive a base value for the tenements. This base value is multiplied by a prospectivity enhancement multiplier (PEM) with adjustments for market premium or discount and consideration of the quality of the exploration team to derive a fair value for the tenements. The paper will demonstrate that there is no necessary nexus between fair value derived from the method and present book Values.