(Confidential) Valuation of a Dormant Gold Mine

The Challenge / The Scope:

Micon was engaged by shareholders of a company that owned a dormant gold mine in the Rouyn-Noranda district of Quebec. The owners lacked access to the capital necessary to redevelop the mine. Our brief was to prepare an estimate of fair market value (FMV) of the property in order to facilitate a proposed share transaction.

Micon’s Approach:

The Property is located in a jurisdiction where transactions involving gold properties frequently involve publicly-listed companies. Therefore, it was possible to gather the details of several comparable transactions, and the Market approach using comparable transactions was adopted as the most appropriate valuation method in this case.

The property had no current mineral reserves or production plan, so the Income method was inappropriate for use in establishing FMV. Nevertheless, Micon used an earlier published study as the basis of a conceptual cash flow model for internal use, in order to test the reasonableness of a valuation based on comparable transactions.

The property is a past producer with a long history of exploration and development. However, Micon concluded that any valuation based on historical costs would not properly reflect FMV of the Property, and the Cost approach was not applied.

Results:

Using a set of comparable transactions, Micon was able to derive a FMV for the property by determining the statistical relationship between the grade of gold resources and their market value per ounce of gold. The range of FMV of the resource was then estimated from statistical error in the estimate at the 90% confidence level. Lastly, reasonableness of the FMV results was confirmed by comparison to the net present value of the conceptual cash flow projection.

The Client successfully effected a transaction that has led to renewed development of this property.