1. Financial Calculation of Long Term Tasks in Mine Water Management
Presenter: Carsten Drebenstedt
Co-Author: Dieter Slaby
Belgrade, 1

2. Financial Valuation of Long Term Post Mining Activities Content
Preliminary Remarks
The Problem
Methodology of Financial Valuation
Valuation Model
General Conclusions
Case Studies
Valuation of Alternatives
One-off payment
Conclusions 2

3. Financial Valuation of Long Term Post Mining Activities
Preliminary Remarks
- Fundamental approach of valuation in mining industry:
Capitalized Value of Potential Earnings
take into account the valuation of deposits, projects and companies
in their entirety
considere (by opportunity or alternative cost accounting):
Mining companies internal economics
External effects (e.g. influence to the environment)
Protection of deposites 3

4. Financial Valuation of Long Term Post Mining Activities The Probleme
Mining will allways effect the environment reclamation
Major Features (e.g. water management):
Long-term Character (infinite duration)
Special Risks (technical alternatives, insufficient process knowledge)
Financial Valuation problems in two fields:
Technical Alternatives (Investments vs. Aftercare costs)
One–off payment in case of transfer the responsibility 4

5. Financial Responsibility:
Financial Valuation of Long Term Post Mining Activities
The Problem II
Financial Responsibility:
Principle of causation (mining company)
Other principles: Burden-charing
User principle
principle of feasibility and reasonableness
In East Germany: The owner (state) of the mining companies liquidated 1990
New responsibility: Federal Republic of Germany/ New Federal States € 15 bn! 5

6. Financial Valuation of Long Term Post Mining Activities
Methodology of Financial Valuation - Model
AW - expense parameter, €
At(0) - periodic amount for the cash-layout costs and investments in period t at the valuation level in base year 0 (annuity), €
t - valuation period (year)
T - period
q - imputed interest (real rate of interest), %/a 6

7. Financial Valuation of Long Term Post Mining Activities
Methodology of Valuation – Model II 7

8. Financial Valuation of Long Term Post Mining Activities
Methodology of Evaluation – Model III
q - imputed interest rate, modified
qR - original imputed real interest rate
qInfl - inflation factor
qV - summarized object-related modification factor
of the valuation criteria (prices)
pR - discount interest rate for technological and commercial risks 8

9. Financial Valuation of Long Term Post Mining Activities
Methodology of Valuation – General Conclusions
AW responds rather sensitively to changes in the modified interest rate; (exponential growth with a declining interest); than lower the interest rate, than more sensitive
Priority: decision on the rate of inflation-adjusted basic interest q and
on the interest rate for risks involved pR (low interest rate promotes alternatives with less intensive aftercare, but higher investments)
Influence of T is growing with the limitation of project duration; after 30 years the influence will declined ( AW < 10 % bei T = 50 a und T= )
When T is limited, the exact determination of expense becomes more important 9

10. Financial Valuation of Long Term Post Mining Activities
Case Study 1: Valuation of Alternatives I 1 2 3a 4 5 6 7
3b bb b
+ 169 м
+ 165 м
+ 175 м
Mine lake water control:
Pumping vs. Outflow
Duration: T = permanently
Risk: low (pR = 0.5 %/a)
1- mining lake, 2 – dam, 3a – open ditch, 3b – pipe installation, 4 – river, 5 – pump station, 6 – pipe installation, 7 - road 10

11. Financial Valuation of Long Term Post Mining Activities
Case Study 1: Valuation of Alternatives II
Project Expense
Option 1:
Stationary
Pump
Option 2: Free outflow
Open trench
Pipeline
1. Investments, 103€
1.1 on-off, 103 €
1.2 Cyclic renewable
every 12 a, 103 €
1.3 Cyclic renewable
every 40 a, 103 €
Renewable of existing
Plant, every, alle 40 a, 103 €
3. Operating Costs, 103 €/a
71.3
10.2
20.2
40.9
21.6
18.6
524.5
505.1 -
19.4
537.3
272.5
264.8
Expense Parameter
AW, 103 €
693.8
825.0
947.3 11

12. Financial Valuation of Long Term Post Mining Activities
Case Study 1: Valuation of Alternatives III
Project Results:
Real interest = 3.5 % / p.a.: advantage Option 1 = 18.9 %
Real interest = 3 % p.a.: both options equivalent
Real interest = 5 % p.a.: advantage Option 1 = 36.4 % 12

13. of Long Term Post Mining Activities Case Study 2: Determine
Financial Valuation
of Long Term Post Mining
Activities
Case Study 2: Determine
the on-off payment I
Water and Soilair treatment
coking coal plant 13

14. Financial Valuation of Long Term Post Mining Activities
Case Study 2: Determine the on-off payment II
Project expenses/
Operating costs
Costs
in €/a
Manpower
91,500
Energy
17,500
Materials (Chemicals)
40,000
Services third site:
Maintenance, planing
 72,500
Other costs
15,000
Overall
Investments Treatment plant:
Realized: €1,000,000
New: € 750,000 (in year 8)
Other data:
Time of operation: 23 years
Real interest = 3,5 %
Risk interest = 0,5 %/a (Duration?)
Expense Parameter: € M 4.674 14

15. Financial Valuation of Long Term Post Mining Activities Conclusion
The financial valuation of especially long-term responsibilities of mine closure
expenses is possible by an inter-temporal approach
Evaluation criteria is the expense parameter of the related costs and
investments (negative income)
The most important datas for the valuation model are: Real interest, technical
and risks, Duration of the project, Operationg Costs, Investments
The calculation method is proofed by several practical case studies for both:
Valuation of alternatives or determine the on-off payment 15