The valuation result of mining rights must correspond to the valuation date—that is, the valuation result of mining rights varies with changes in the valuation date. In practice, the valuation result is significantly influenced by market factors or risks. Market factors change over time and are primarily reflected in the form of a discount rate; their content can be summarized as follows:

Market reference system

When valuing mineral rights, the reference market should be the market of the country where the project is located. For example, if Chinese investors go to Zambia in Africa to invest in a mining project, the reference market should be Zambia’s local market rather than China’s market. In formal terms, the risks associated with these reference markets are primarily reflected in the country risk of the project’s host country. The main points are summarized below:

ü    These include capital markets, raw materials, energy resources, labor markets, and consumer markets for mineral products. The development of the local stock market can provide a direct basis for determining the discount rate. In China, the mining investment and financing market—especially the debt financing market—is still underdeveloped, resulting in relatively high financing costs. This situation is highly detrimental to enhancing the valuation of mining rights. The levels of raw material, energy, and labor costs directly affect the profitability of a project. If essential raw material and energy markets are absent, or if inadequate infrastructure drives up transportation costs, the overall rate of return on the project will decline, thereby hindering the enhancement of mining right valuations. Moreover, if there is no corresponding consumer market for the mineral products at the project site, the project developer would have to arrange external sales themselves—a scenario that is also extremely unfavorable for boosting the valuation of mining rights.

Other circumstances beyond the project owner’s control—such as fixed-cost budgets, land reclamation, community relations, culture, and safety—if these risks cannot be effectively managed, the country risk will increase, and the valuation of mining rights will tend to decline.

Project Type, Industry Debt Structure, and Income Tax Rate

ü Mining project types include resource-based projects, reserve-based development or production projects, or specific mineral types. Reserve-based development or production projects carry significantly lower risks and returns compared to resource-based projects; their beta coefficients are reduced, and their mineral rights valuations increase. The situation is similar for different mineral types: under comparable conditions, gold mining projects yield substantially higher returns than quartzite mining projects. Consequently, the beta coefficient of a gold mining project is lower than that of a quartzite mining project.

ü The debt-to-equity ratio and the corporate income tax rate in the industry where the project is located significantly influence the beta coefficient. The higher the industry’s average debt-to-equity ratio, the higher the beta coefficient. All other factors being equal, the higher the industry’s corporate income tax rate, the lower the beta coefficient.

Different Stages of Market Development

The mining market alternates between periods of prosperity and recession over time. The supply-demand dynamics in the local mineral rights market and the sales prices of mineral products also fluctuate in tandem with these market cycles. In particular, changes in the sales prices of mineral products directly determine the magnitude of mineral rights valuation outcomes.

ü The degree of supply and demand in the local mineral rights market: With the globalization of economic development, the local mineral rights market in the country where a project is located is significantly influenced by the global mineral rights market; yet, it still retains its own distinctive characteristics in terms of supply and demand. Overall, China’s mineral rights market tends to be characterized by a supply-demand imbalance—supply falling short of demand—which has driven up the market valuation of mineral rights. In Africa, by contrast, the local mineral rights market generally exhibits a situation of oversupply. Consequently, it would be inappropriate to value a project located in Africa simply by applying China’s market valuation levels, such as those derived from comparable sales methods. Similarly, it would be unwise to use China’s discount rate data alone to estimate the value of mineral rights located outside China.

ü The equity risk premium varies over time, influenced by both bear and bull markets in the stock market. However, there is no strict positive or negative correlation between the equity risk premium and market cycles; rather, a negative correlation tends to prevail—especially after 2008. Specifically: during the early stages of a stock market rally, the equity risk premium declines; as the stock market reaches its peak, risk rises and the equity risk premium increases. After a bull market bursts, investors’ risk awareness intensifies, causing the equity risk premium to rise further. Once market expectations converge on a common view, the market tends to reverse course. The higher the equity risk premium, the lower the valuation of mining rights. In short, during boom periods, mining rights tend to be overvalued, whereas during downturns, they tend to be undervalued.

Project-specific risk

This includes the authenticity and reliability of the original databases upon which the project scale, exploration potential, and resource estimates are based; the degree of feasibility study conducted; and the reliability of the feasibility study results (such as the availability of surrounding infrastructure—including water, electricity, and transportation—design options, especially risks associated with ore-processing technologies, supply-and-demand conditions in the mineral products market, and the basis and accuracy of estimates for capital investment and operating costs). The project’s inherent risks are expressed in the form of a beta coefficient.

The project exhibits good exploration potential, which will yield excess profits for investors, reduce the beta coefficient, and increase the valuation of mineral rights. The better the authenticity and reliability of the original database upon which resource estimates are based, the lower the beta coefficient and the higher the valuation of mineral rights. The higher the level of feasibility study and the greater the reliability of its results, the lower the beta coefficient and the higher the valuation of mineral rights. Project scale also has a certain impact on the beta coefficient: the larger the project scale, the lower the beta coefficient and the higher the valuation of mineral rights.

Moreover, the current operational status of the company holding the mining rights—excluding potential financial and operational risks as well as other business risks—also influences, to a certain extent, the magnitude of the beta coefficient associated with the valuation of those mining rights, particularly for investors making small-scale investments. The operational status of the company holding the mining rights encompasses factors such as the professionalism of the management team, compliance with regulations (including corporate financial rules and regulations, as well as records of environmental and safety incidents), the experience of the management team, competitive advantages in the market, and whether the company has already generated cash flow. The better these aspects are, the lower the beta coefficient will be, and the higher the valuation of the mining rights will become.