ISSUE NO.

16 March 2001

PAH NEWS Pl<%

-ANGLO AMERICAN PLC TO TAKE OVER DE BEERS NEWMONT TO EXPAND OPERATION IN UZBEKISTAN """"' "MS TO TAKE CONTROL , .. .JUAN IRON ORE MINER IN BID TO BECOME WORLD'S NO. 2 IRON ORE MINER NORANDA TO DEVELOP TECHNOLOGY TO RECOVER COPPER FROM CHALCOPYRITE

Cash Flow ModelsDos and Don'ts

This review covers the fundamentals of cash ow development for the geologist and the engineer, and is intended to provide the user with the basic information to complete a cash ow model. analyst's work, and electronic cash ow models are an expected part of a bank or equity nancing.

What is the cash ow used for?

The most important function of the cash ow is to formally set out the expected costs, benets and revenues. The cash ow provides a framework for the assumptions and data required. The cash ow also provides a way to evaluate the value of the an orgamzat of different investment options. Finally, the cash ow model provides a means of assessi: project sensitivities to outside cost and production factors, and a means to conduct a post audit of an existing operation.

What is a cash ow?

A cash ow is the amount of cash available from a project for re-investment or dividends. In its simplest form, a cash ow is a forecast of the costs and revenues associated with a project, broken into some xed time periods that can be used to predict the economic performance of that project. A cash ow also represents a 'model' of the current state of technical and economic knowledge available for a project. Financial institutions looking to provide nancing for a project will commonly

C A L E N D A R
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NET CASH FLOW = REVENUES (TONS*GRADE*RECOVERY*PRICE) less COSTS (ROYALTIES;SMELTER DEDUCTIONS; OPERATING COSTS; CAPITAL COSTS) refer to the cash ow of a project as a model What information is essential for a (versus computer resource models). Cash ow? The classic case is that of the evaluation ot a teen-elds project, where there is some investment in a processing plant, property and equipment that must be evaluated against the future potential earnings. Historical!)', cash ow models were done with a basic approach using simplifying assumptions to make the (at the time) manual calculations more palatable. Today the task is generally done on a computer, using a spreadsheet program. The spreadsheet is considered essential to the This area will depend on the extent to which the cash ow model will be used. For a simple evaluation of a property the information may only include the current resource with some assumed mining and milling costs. For an equipment decision, it maybe the cost of the equipment versus the benets. For a $1.0 billion copper project, an extremely detailed data input on all aspects of the project that will impact nal net revenues will be required.

Resort
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