{"id":183903,"date":"2018-02-20T23:50:30","date_gmt":"2018-02-20T23:50:30","guid":{"rendered":"https:\/\/writemyessayfree.com\/valuing-an-abandoned-coking-coal-mine"},"modified":"2018-10-24T09:07:39","modified_gmt":"2018-10-24T09:07:39","slug":"valuing-an-abandoned-coking-coal-mine","status":"publish","type":"post","link":"https:\/\/www.benedictsol.com\/blogs\/valuing-an-abandoned-coking-coal-mine\/","title":{"rendered":"Valuing an Abandoned Coking Coal Mine."},"content":{"rendered":"<p>You are assessing the value of an abandoned coking coal mine in New Zealand, which still have significant deposits. A mining expert\u2019s report suggests that there might be 10 million tonnes of coking coal in the mine still, and that the cost of reopening the mine will be NZD$100 million.Assume that, if the owner decides to develop this mine, the NZ$100 million will be spent at year 0, and all the operational cash flows occur at the end of each year from year 1 to year 10. The annual production is estimated to be 1 million tonnes, and the nominal price of coking coal is expected to increase by 4% per year. (Hint: assume the asset to be a dividend paying stock with a dividend yield of 10%). The price of coking coal per tonnes is NZD$55 and the average cash production cost is expected to be around NZD$50 per tonne at the end of year 1. You can ignore tax and calculate project cash flows as The production cost is expected to grow at 4% per year, once initiated. The annualised standard deviation in asset values of comparable coking companies is 30% (in New Zealand dollar terms), and the 10-yearNew Zealand riskless bond yield is estimated to be 6% p.a..<\/p>\n<p><strong><u>Requirements:<\/u><\/strong><\/p>\n<ul>\n<li>Estimate the value of the mine using static NPV analysis. Assume that all cash flows occur at the year end and a Weighted Average Cost of Capital (WACC) of 10%.Show your valuation model as Appendix 3(1). &nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (10 marks)<\/li>\n<li>Estimate the value of the mine based on the Black Scholes Option Pricing Model. Show your detailed steps and result in the main text. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (15 marks)<\/li>\n<li>How would you explain the difference between the two values from (1) and (2) above? Answer the question in the main text. (word limit: 60) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (5 marks)<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>You are assessing the value of an abandoned coking coal mine in New Zealand, which still have significant deposits. A mining expert\u2019s report suggests that there might be 10 million tonnes of coking coal in the mine still, and that <a href=\"https:\/\/www.benedictsol.com\/blogs\/valuing-an-abandoned-coking-coal-mine\/\" class=\"read-more\">Read More &#8230;<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-183903","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/183903","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=183903"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/183903\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=183903"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=183903"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=183903"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}