Optimization for Mining Right Evaluation Methods

Abstract

The gradual formation of mining right evaluation method system has provided a solid prop for domestic mining right evaluation activities. But, the results of practices have shown that the existing mining right evaluation method still has room for further improvement. Starting from basic principles, the paper analyses the shortcomings of discount cash flow method, comparable sales method and option valuation method, believing that, in the calculation method using the discount cash flow method, the advance deduction of the amount contributed for annual net cash flow or return on investment will cause the under valuation of mining right prices and greatly increase the uncertainty and complexity of the relevant administrative work of the mining industry, in the option evaluation method, the treatment method of directly using the validity term of mining right as the term of option overlooks the periodic characteristics of mining right implementation and is in obvious deviation from the reality of mining development. The paper then suggests ideas for improvement, i.e., in the utilization of the discount cash flow method, the safeguarding of the reasonable interests of mining investors should be incorporated into the setting of discount rate, while in the utilization of option evaluation method, the validity term of option should be the term after deduction of the basic cycle necessary for mining and development of the resources in the tenement from the validity term of mining right. Based on this thinking, the paper has improved the calculation methods of the discount cash flow method and the option evaluation method.