BVR - Quarries & Mines

Valuing Quarries & Mines
VALUING QUARRIES
& MINES
JUNE 2013
Questions@BVResources.com
2013 Business Valuation Resources, LLC
OBJECTIVES
Todays Presenters:
Mike Nowobilski President Mid-America Energy & Mining Services, Inc.
Active in Mining Industry since 1976
Mergers & Acquisitions and Valuations since 1990.
BS Geology & MBA
Dwight Davis - Principal Dwight Davis & Associates, PSC
Active In Mining Industry Since 1977
Mergers & Acquisitions, Market Analysis and Valuations since 1988
BS Engineering
Presentations Objectives:
Describe those factors which determine a Quarrys or Mines profitability
(Valuation Drivers).
Discuss applicable valuation methodology employed by the mining industry.
DRIVERS OF VALUE
OVERVIEW OF VALUE DRIVERS
Key Determinates Of Value
Mining is an extractive industry.

Production and sales will continue
only as long as there is quality
mineral to extract which can be
economically mined.
Performance very dependant on

characteristics of Target Market.
Second largest factor.
Sources of mineral and their
proximity to the market.
Transportation (delivery) options
available.
Deposit & Market
1
2
3
Mineral Reserves
Market Demand
Market Supply
Historical Performance
4
Sales Performance
5
Production Costs
6
Income Analysis
7
Long Term Performance Forecast
Competitive delivered price.
ILLUSTRATE
DRIVERS OF VALUE
VIA
CONSTRUCTION AGGREGATES
INDUSTRY
INDUSTRY OVERVIEW
High Volume Quarry
Thick Limestone Deposit
Coupled With High Capacity

Processing Plant
+ 300 Ft. Thickness

Good Quality Limestone
$45 M Investment
Ship 5 to 8 Million Tons Annually
into River Market
INDUSTRY OVERVIEW
Much Smaller Processing Plant
The NORM
Thinner Limestone Deposit
+/- 100 Ft. Thick
Equipment value of $350,000

Ships +/- 100,000 tons annually into the
local market
Good Quality Limestone
INDUSTRY OVERVIEW
1. Industry Overview:
Percent
< 25,000
12.2%
Most quarries ship into a 30 to 40 mile radius
25,000-49,999
19.4%
Limited sales opportunities
50,000-99,999
28.7%
Relatively low sales volumes
100,000-199,999
42.2%
51.8% produce & sell less than 300,000 tons

Nearly 2/3s (65.4%) produce and sell less than 500,000 tons
Relative Size of Crushed Stone Quarries
Number of Quarries
Cumulative
3,126 Quarries
2. Typical Quarry Size:
Size Range
Metric Tons
450
400
350
300
250
200
150
100
50
0
200,000-299,999
51.8%
300,000-399,999
59.4%
400,000-499,999
65.4%
500,000-599,999
70.4%
600,000-699,999
75.0%
700,000-799,999
78.2%
800,000-899,999
80.8%
900,000-999,999
83.6%
1,000,000-1,499,000
91.6%
1,500,000-1,999,999
95.3%
2,000,000-2,499,999
97.0%
2,500,000-4,999,999
+ 5,000,000
Source: USGS
Metric Tons
99.5%
100.0%
#1. MINERAL RESERVES

Deposit & Market
1
Mineral Reserves
Market Demand
Market Supply
Definition: Economically mineable part of a Measured and/ or Indicated Mineral Resource;

Focus on Mineable with Current Technology and Merchantable at a Reasonable Profit.
Control: Owned, Leased, Sublease; Zoned or Capable of Being Zoned; Permitted or Capable of
Being Permitted. Option can not be considered as control.
Classification: Consist of: 1) Proven Reserves has been confirmed by adequate exploration
and testing to confirm geologic and grade continuity and 2) Probable Reserves can be estimated
with a reasonable level of confidence. Does not consist of Resource generally believed to occur
with reasonable prospects for eventual extraction
Quantity (Mine Life): Size, thickness, shape, depth, mineral content well established and
determined to meet both mineable and merchantable criteria
Quality: Reserves broken out by appropriate sales criteria; i.e. A Rock, B Rock, C Rock based
on state approval parameters and testing of each and every ledge.
Cost Structure: Variability across property, overburden increase or decrease, changes of

mining conditions or costs.
Sufficiency of Reserves: Usually 20 25 year minimum mine life
10
Reserves Defined by Prior Drilling
Area East of E, C, G has been previously mined (Active Pit)

Areas West shows more overburden and thinner limestone thickness
11
Reserve Classification
Areas in Yellow are Owned Proven Reserves; separated by Prairie Ditch (non-mineable
and access issues)
Area in Purple is Probable Reserves; no drilling info and late in mine plan
Resource (general geologic knowledge but not measured)
12
#2. MARKET DEMAND

&
#3. MARKET SUPPLY
Deposit & Market
1
Mineral Reserves
Market Demand
Market Supply
#2. MARKET DEMAND
Typically Localized Market: Exceptions are Rail or River Markets
Drivers of Demand:
1) Population: Current versus future population

2) State and County Infrastructure Spending: Historic, Current Budget vs. Long Term Projected
3) Commercial and Industrial Projects
Existing Customers: Historic, Current and Projected; Quantity by Product
1) Strategic Partnerships
2) Availability of Supply by Product to Meet Demand
3) Volume Discounting
Location: Transportation Costs and Logistics; Comparison with Competitors
Competitive Advantages: Opportunities for Expansion; Product Changes
1) Niche Products; Barriers to Entry

2) Specialized Quality or Sizing
3) Capability to Meet Specific Market Demands
#2. MARKET DEMAND
Define The Target Market
Typically Local Market
River &/or Rail Market is Exception
Loosely defined as area within 35 miles

where truck delivery is economic.
Example is lower Mississippi River and

Gulf Coast
15
#2. MARKET DEMAND
Re-Define The Target Market
Preliminary Assessment
Demand = X Million Tons; Quarrys market area extends from South Dallas along I-45 Corridor to Conroe
Final Assessment
3 Distinct Market Areas Defined by Product Construction Aggregate Extended Farther East Than First
Understood. Riprap Market Significantly Enlarged vs. Preliminary Assessment.
Final Outcome
Preliminary Assessment
Base
Riprap
57s
16
#3. MARKET SUPPLY
Existing Competitors:
2) Share of Market Demand Area;

3) Pricing by Product
Projected Changes in Supply:
1) Total Production,
1) Mine Life; Changes in Reserve

2) Changes in Quality or Cost;
3) Change in Pricing Due to Mine Cost Increases/
Decreases
Transportation Logistics:
Net-back f.o.b. mine cost; competition constraints for

new business
Competitive Advantages and Disadvantages
Re-examine pricing and quantities after

competitive review
17
HISTORICAL PERFORMANCE
ANALYSIS
4
Sales Performance
Production Costs
Income Analysis
Long Term Performance Forecast
HISTORICAL PERFORMANCE
OVERVIEW
General Rule of Thumb
Four years of information:

Balance Sheets, Income Statements & Cash Flow Statements
Internal Statements
Plus Audited Financials / Reviewed Financials / Compiled Financials
Tax Returns
Sales Information
Equipment Lists
Objective: Defendable Historical Financials = Defendable Profits/ Cash Flows
Key Point #1: Recast Sales Revenues & Expenses
Key Point #2: Eliminate Financing Expenses.

Assume business and/or assets are sold Free & Clear of All Liens & Encumbrances.
19
#4. SALES PERFORMANCE

General Rule of Thumb
Four years of information:
Annual Sales Volumes (Tons, Units)
Annual Sales Revenues
Average Annual Unit Sales Prices (any price increases?)
Top 10 Customers Sales Detail By Year
Objective
Determine Sales Trends
Growing, stagnant, or declining sales volumes
Ability to increase sales prices.
Basis (Justification) For Sales Forecast
20
Sales Volumes (Tons)
Expanding Sales Volumes
Historical Sales Volumes (Tons)

1,400,000
Increased by 100% between 2006
1,200,000
2010 (4 years).
1,000,000
19% Compound Annual Growth

Rate
800,000
600,000
400,000
Why?
200,000
Can the rate, or at least the

current volume, be maintained?
0
2005
2006
2007
2008
2009
Is the increase reflected in sales

revenues & profits?
2005
Sales Vol. Tons
2006
619,024
594,872
2007
698,902
2008
2009
1,004,319
1,241,409
21

Short Term Sales Volumes (Tons)
Sales Volumes (Tons)
2,500,000
2,000,000
Long Versus Short Term

Trends
Suggests 1.5 to 2.0 Million Tons is a
reasonable sales volume
Recessions economic impact generally
1,500,000
1,000,000
500,000
0
2005
explains the significant sales decline.
2006
2007
2008
F 2009
Long Term Sales Volume (Tons)

2,500,000
Sales Forecast
Forecast must attempt to determine the
2,000,000
1,500,000
rate at which the market will recover &

what the new norm will be.
1,000,000
True To Self establish a fair sales
500,000
0
price.
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Must be defendable.
22
F
2009
#5. PRODUCTION COST

ANALYSIS
$ Per Ton
Labor
Fuel
Drill & Blast
Repairs
Utilities
Royalties
Other
Total
Mines Cost Structure Important

Goal = Be Low Cost Producer ($/Ton)
Largely determined by reserves, equipment
and mine plan.
Primary components illustrated in Exhibit 1.
Mine 1
$0.82
0.46
0.22
0.58
0.22
0.31
-0.03
$2.59
Mine 2
$3.67
0.65
0.46
0.37
0.06
0.00
0.53
$5.74
Historical Performance ($/Ton)
Viewed In Context Of Competitive
$10.00
Market
$8.00
Are costs competitive within the market?
$6.00
Indicator is sales price ($/Ton).
Exhibits 2 & 3 illustrate Mine 2 enjoys a
Avg. Sales Price
$4.00
Cash Operating
Costs
$2.00
Cash Ops. Margin
$0.00
significantly higher sales price per ton. Why?
Mine 1
Mine 2
Avg. Sales Price

Cash Operating Costs
Cash Ops. Margin
Mine 1
$6.00
2.59
$3.41
23
#6. INCOME ANALYSIS

Historical Sales Volumes (Tons)
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
2005
2007
2008
2009
Historical Financial Performance
2006
Largest determinate of Quarrys or Mines Fair Market Value.

Industrys key metric is EBITDA.
EBITDA = Earnings before Interest, Taxes, Depreciation & Amortization
Evaluate minimum of four (4) years of performance data
24
Mine 2
$9.00
6.85
$2.15
#6. INCOME ANALYSIS

Historical Financial Performance
Recast Financial Performance
$8,000,000
$7,000,000
$6,000,000
Key Observations:
$5,000,000
Revenues
$4,000,000
Cash Ops. Margin
$3,000,000
EBITDA
Profits (EBITDA) increase $2.6 million (+254%).
$2,000,000
EBIT
Question ability to maintain growth trajectory.
$1,000,000
Sales Revenues increase $3.4 million (+95%)
$0
2005 2006 2007 2008 2009
Key Observations ($/Ton):
Historical Financial Performance ($/Ton)
Sales Revenues decline - $0.17 per ton.
$7.00
Cash Operating Costs decline - $1.08 per ton.
$6.00
Profits Increase:
$5.00
Cash Operating Margin + $0.91 per ton.
$4.00
EBITDA + $1.28 per ton.
$3.00
Revenues
Cash Ops. Margin
EBITDA
$2.00
Question ability to maintain cost improvements.
EBIT
$1.00
$0.00
2005
2006
2007
2008
2009
25
#6. INCOME ANALYSIS

Recast Financial Summary
EBITDA Trend: EBITDA increased $2.7 million, or 173 percent (173%) during five
year period.
Recast Performance: Recast sales revenues, operations costs and SG&A expenses.
2005
Sales Tons
Sales
2008
2009
619,024
2006
594,872
2007
698,902
1,004,319
1,241,409
$3,596,670
$3,547,811
$4,207,470
$5,734,813
$7,001,827
Cash Ops. Costs
2,025,896
1,798,128
2,182,725
2,606,111
2,713,197
Cash Ops. Margin
$1,570,774
$1,749,683
$2,024,745
$3,128,702
$4,288,630
SG&A
541,497
557,089
576,267
728,157
642,468
EBITDA
$1,029,277
$1,192,594
$1,448,478
$2,400,545
$3,646,162
% Sales
Non Cash
EBIT
% Sales
28.6%
33.6%
34.4%
41.9%
52.1%
485,227
607,780
592,329
679,279
540,974
$544,050
$584,814
$856,149
$1,721,266
$3,105,188
15.1%
16.5%
20.3%
30.0%
44.3%
26
#6. INCOME ANALYSIS

Recast Financial Summary ($/Ton)
Sales & Costs Trends:
Average Sales Price: decreased by (-) $0.17 per ton.
Average Cash Operating Costs: decreased by (-) $0.91 per ton.
2005
Sales Tons
Sales
2008
2009
619,024
2006
594,872
2007
698,902
1,004,319
1,241,409
$5.81
$5.96
$6.02
$5.71
$5.64
Cash Ops. Costs
3.27
3.02
3.12
2.59
2.19
Cash Ops. Margin
$2.54
$2.94
$2.90
$3.12
$3.45
SG&A
0.87
0.94
0.82
0.73
0.52
EBITDA
$1.66
$2.00
$2.07
$2.39
$2.94
Non Cash
EBIT
0.78
1.02
0.85
0.68
0.44
$0.88
$0.98
$1.22
$1.71
$2.50
27
#7. LONG TERM

PERFORMANCE FORECAST
4 Sales Performance
5 Production Costs
6 Income Analysis
Long Term Performance
7 Forecast
#7. LONG TERM FORECAST
Identify Adjustments
Potential Market Adjustments

Change in market demand?
Change in market supply?
Potential Sales or Cost Adjustments

Reserve quality changes indicate changing
products with either higher or lower sales prices
($/Ton)?
Sufficiency of reserves?
Mineral deposit change results in higher or lower
costs?
Other changes resulting in cost structure

changes?
Potential Other Adjustments

Replacement of equipment?
29
#7. LONG TERM FORECAST

Forecast Sales Volume (Tons)
300,000
25 Year Forecast
250,000
200,000
Minimum 25 Year Projection

Basis is historical sales and financial
performance
Considering potential adjustments

(prior slide).
150,000
100,000
50,000
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
Basis For Valuation:
Revenue
30
2037
2035
2033
2031
2029
2027
2025
2023
2021
2019
EBITDA
2013
Market Approach multiples.
2017
cash flow.
Basis for possible adjustments to
Forecast Sales & Profits (EBITDA)

$5,000,000
$4,500,000
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
2015
Income Approach using discounted
VALUING
THE QUARRY OR MINE
OVERVIEW
Textbook Definition of Business Value is:

American Society of Appraisers definition of fair market value is the amount at which property
would change hands between a willing seller and a willing buyer when neither is acting under
compulsion and when both have reasonable knowledge of the relevant facts.
Three Primary Valuation Methods:
1. Income Approach
Valued As An On Going Concern
2. Market Approach
Valued As An On Going Concern
3. Asset Based Approach

Valued As Sum Of Asset Values
32
1. INCOME APPROACH
Most Accurate Method of Valuation
Fair Market
Value
1. Determines Value of Performing Assets

Does not consider the value of non-performing assets
Quarry Value
25 Year DCF Value
Adjustments (Additional Value)
Undisturbed Real Estate (33 Acres)
Excess Working Capital
Subtotal
Examples include excess real estate or facilities, excess

equipment, obsolete inventory, excessive inventory, etc.
2. Requires Business Forecast

True to Self
$2,275,000
78,000
378,000
456,000
Total Enterprise Value
$2,731,000
Minimum 25 Year Financial Forecast: Sales, Profits, Capital

Forecast & Cash Flows
Assumes necessary working capital & fixed assets to operate the

business. Otherwise, cash flow model must be adjusted for any
shortfall.
Cash Flow Discounted At Discount Rate which provides a

Reasonable Return to a Purchaser. Assume 15% as a starting
point.
3. Not Always Appropriate For Very Small Quarries/Mines

33
2. MARKET APPROACH
Very Popular Technique but less accurate than
Income Approach
1. Determines Value of Performing Assets
Annual Variation In Multiple Value

(EBITDA X)
Does not consider the value of non-performing assets

Examples include excess real estate or facilities,
excess equipment, obsolete inventory, excessive
inventory, etc.
$5,000,000
Assumes necessary working capital, fixed assets to

operate the business. Otherwise, calculated value
must be adjusted for any shortfall.
$3,000,000
EBITDA
$2,500,000
6X
$4,500,000
$4,000,000
$3,500,000
$2,000,000
7X
$1,500,000
8X
$1,000,000
$500,000
2. Commonly Used By Purchasers as a

Preliminary Estimate of Value
3. Key Parameter is Historical EBITDA
Starting point is an EBITDA Multiple of 6X to 8X.
Larger more profitable quarry may sell for a multiple
of 9X. Probably consider a maximum.
34
2011
2010
2009
2008
2007
2006
2005
$0
2004
3. ASSET APPROACH
Typically not used to value a profitable quarry or mine.
Primarily Used To Value Underperforming Business Assets
For example, a $20 million investment that either breaks even or has negative income.
1. Determines Value of All Assets
Does consider the value of non-performing assets. Including excess real estate or facilities,
excess equipment, obsolete inventory, excessive inventory, etc.
Assumes necessary working capital, fixed assets to operate the business. Otherwise,
calculated value must be adjusted for any shortfall.
2. Based On Sum of Individual Asset Values

Orderly Liquidation versus Forced Liquidation
Erected versus on the trailer
3. Requires Good Estimates of Hard Assets Fair Market Values
35
APPLICABILITY TO OTHER SEGMENTS OF

MINING INDUSTRY
Coal Industry
Frac Sand, Silica Sand, Sand &

Gravel, Clay
Specific To Frac Sand
Typically not a local market

Transportation is a big consideration often
rail or barge delivery
Term Contracts an important consideration
Quality of coal reserves extremely important
Current macro environment Not Friendly to

Coal
Market & Transportation more similar to coal

Recent explosive growth in demand versus
supply have created large profit margins.
Is profitability sustainable? Recent
developments suggest profitability will decline.
MIKE NOWOBILSKI
Mike Nowobilski
Professional Profile
INTRODUCTION
Mr. Nowobilski founded Mid-America Energy & Mining Services, Inc. following a 25-year
career of executive management, mergers & acquisitions (M&A), and operations experience
in the mining, energy and natural resource industries. He specializes in directing valuations
and M&A assignments on behalf of the owners of small and middle market companies. Mr.
Nowobilski serves both buyer and seller clients.
BACKGROUND
Mr. Nowobilskis M&A experience includes participation in successful transactions valued at
more than $1 billion since 1990. His experience includes both company and mineral
property assessments and valuations, buyer-seller negotiations, definitive purchase
agreement negotiations, due diligence, negotiations with major lending institutions, and the
procurement of private equity capital.
Mr. Nowobilski received his Bachelor of Science degree from the University of Illinois in
Champaign, Illinois and his Master of Business Administration degree from Southern Illinois
University.
37
DWIGHT DAVIS
Dwight Davis
Professional Profile
INTRODUCTION
Mr. Davis has over 20 years of professional and managerial experience in acquisitions
and divestitures (M&A), market analysis, asset management and operations engineering
within the natural resource industry. His resume includes management positions with
Zeigler Coal Holding Company, Shell Mining Company and A. T. Massey Coal Company.
BACKGROUND
Mr. Daviss natural resource industry experience spans 35 years and includes the
acquisition and divestiture of numerous natural resource operations, coal mines and
mineral reserves. His experience includes all phases of the acquisition and divestiture
process - from identification, evaluation, due diligence and final closing of various
operating mining operations and numerous mineral properties.
Mr. Davis received his B.S. degree in Engineering from the University of Louisville. In
addition to his role as an associate with Mid-America Energy & Mining Services, Inc., he
owns and operates Dwight Davis & Associates, PSC. His engineering and consulting
firm provides a broad range of services specific to the natural resource industry.
38

BVR - Quarries &amp; Mines

Enviado por

Dados do documento

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

BVR - Quarries &amp; Mines

Enviado por

Direitos autorais:

Formatos disponíveis

Valuing Quarries & Mines

2013 Business Valuation Resources, LLC

Valuing Quarries & Mines

OVERVIEW OF VALUE DRIVERS

Key Determinates Of Value

Mining is an extractive industry.

Performance very dependant on

Deposit & Market

Competitive delivered price.

2013 Business Valuation Resources, LLC

Valuing Quarries & Mines

High Volume Quarry

Thick Limestone Deposit

Coupled With High Capacity

+ 300 Ft. Thickness

2013 Business Valuation Resources, LLC

Valuing Quarries & Mines

Equipment value of $350,000

Good Quality Limestone

Most quarries ship into a 30 to 40 mile radius

Limited sales opportunities

Relatively low sales volumes

51.8% produce & sell less than 300,000 tons

2. Typical Quarry Size:

2013 Business Valuation Resources, LLC

Valuing Quarries & Mines

#1. MINERAL RESERVES

#1. MINERAL RESERVES

Definition: Economically mineable part of a Measured and/ or Indicated Mineral Resource;

Cost Structure: Variability across property, overburden increase or decrease, changes of

Sufficiency of Reserves: Usually 20 25 year minimum mine life

2013 Business Valuation Resources, LLC

Valuing Quarries & Mines

#1. MINERAL RESERVES

Reserves Defined by Prior Drilling

Area East of E, C, G has been previously mined (Active Pit)

#1. MINERAL RESERVES

2013 Business Valuation Resources, LLC

Valuing Quarries & Mines

#2. MARKET DEMAND

#2. MARKET DEMAND

Typically Localized Market: Exceptions are Rail or River Markets

1) Population: Current versus future population

Existing Customers: Historic, Current and Projected; Quantity by Product

Location: Transportation Costs and Logistics; Comparison with Competitors

Competitive Advantages: Opportunities for Expansion; Product Changes

1) Niche Products; Barriers to Entry

2013 Business Valuation Resources, LLC

Valuing Quarries & Mines

#2. MARKET DEMAND

Define The Target Market

Typically Local Market

River &/or Rail Market is Exception

Loosely defined as area within 35 miles

Example is lower Mississippi River and

#2. MARKET DEMAND

Re-Define The Target Market

2013 Business Valuation Resources, LLC

Valuing Quarries & Mines

#3. MARKET SUPPLY

2) Share of Market Demand Area;

Projected Changes in Supply:

1) Mine Life; Changes in Reserve

Net-back f.o.b. mine cost; competition constraints for

BVR - Quarries & Mines

BVR - Quarries & Mines