A New Approach to Minerals Valuations

Today’s minerals valuations require greater sophistication, with particular consideration being given to risk as the sector evolves.

Derek Detring, Detring Energy Advisors
A New Approach to Minerals Valuations

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The U.S. mineral and royalty market has evolved sub­stantially over the past three to four years as mineral buyers have taken a new approach to valuation and substantial capital has been allocated to the sector. As ad­ditional sophistication has entered the space, valuations have trended toward a discounted cash flow approach, which more accurately ascribes value to both producing and undeveloped reserves, versus the more traditional method where buyers bid a multiple of annual or monthly cash flow generated by the assets.

While cash flow multiples and cash yield are still import­ant factors in buyers’ ability to pay in the current market en­vironment, the deciding factor in valuation has transformed into the inherent risked value of future production and asso­ciated revenues, i.e., a discounted cash flow analysis.

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