Zambia in dire need of a Mineral Asset Valuation Code to prevent Overpricing or Under-pricing of Mining Assets

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By Derrick Sinjela

CENTRE for Trade and Policy Development (CTPD) Senior Researcher (Extractives) Webby Banda says mining valuation defined as the placement of a currency value on a mining asset. Continues being the answer to the million kwacha question of “what is the value of the mine” or “what is the mine worth?”

Consequently, in a Sunday 31^st January 2021 Press Statement circulated by Information and Communications Specialist Ms. Mwaka Nyimbili, Mr. Banda explained that mine valuation has to encapsulate the value of surface and sub-surface infrastructure.

In the recent past, Banda recollected that several jurisdictions had developed professional codes to standardize the field of mining asset valuation, namely; VALMIN code from Australia, CIMVAL code from Canada, and SAMVAL code from South Africa.

“These codes classify the valuation approaches as income, market, and the cost approach. The application of any of these methods on a particular mining asset depends on the phase of the project, availability of information, and nature of the valuation,” noted Banda.

Banda says the objective is not to arrive at a particular value but to narrow down to a range of values in undertaking mineral asset valuation for three reasons; ‘Trading purposes of mining assets on the international market place, Taxation purposes; and Financing purposes’.

“It is important to note that if the reserve/resource statement is unsound or the exploration data does not reflect the potential of the property, the resulting valuation could be meaningless. In other words, this means an erroneous estimate of reserves or resources as an input parameter will translate into garbage out in terms of the estimated value of the mine. A mineral asset valuation code must be applied in tandem with a mineral reserve reporting code,” proposed Banda.

Despite 100 years of mining, Banda says it is unfortunate that Zambia cannot boast of its own mineral asset valuation code and a mineral reserve reporting code., pointing out that crafting such codes will avert  mining assets being overpriced and underpriced to the detriment of the state.

“When our mines were privatized the citizenry felt and continue to feel  at a loss because the assets were underpriced. Secondly, in the case of of the acquisition of Mopani Copper Mine by ZCCM-IH it is debatable as to why a cost approach to mine valuation was used. This approach merely looks at the historical, current and future cost of a mining asset. It fails to account for reserves, production profile and other fiscal terms of the project. The question that is to be answered is whether this approach to mine valuation is the best when valuing production properties like Mopani? The best-known method of valuing mineral production properties is the income approach particularly using a Discounted Cash Flow (DCF) analysis. This approach valuates the mineral reserves/resources and takes into considering the cost, production profile, and the fiscal regime in application over the life span of the mine,” advised Banda.

The Centre for Trade and Policy Development Senior Researcher –Extractives believes that the trend of undervaluing and overpricing of mining assets will continue in perpetuity if Zambia does not craft her own mineral asset friendly valuation code.

“This does not involve reinventing the will because the Government can easily fine-tune and adopt one of the international codes and pass it into law. When this is done the Zambia will have proper guidelines on mining asset valuation. This is a matter that the Centre for Trade Policy and Development –CTPD  has been advocating for over the recent years,” reiterated Banda.

The Centre equally calls for Government to craft mechanisms that establish the authenticity of the deposited geological information by mining houses as this will translate in estimating the true worth of Zambia’s deposits in any future transaction.

The Centre for Trade Policy and Development (CTPD) is a not- for –profit, membership based trade policy and development think tank, established in 1999 and previously existed as the civil society trade network (CSTNZ), until 2009 when it was rebranded as the Centre for Trade Policy and Development (CTPD).

The mandate of CTPD is to influence pro-poor trade and investment reforms at national, regional and multilateral levels as well as facilitate the participation of various stakeholders including member organizations in ensuring that trade is used as a tool for poverty eradication.