Business Finance -Discounted Cashflow Model
BUS260 Business Finance Semester Major Assignment Bellevue Gold Mine Valuation Assessment Weighting – 20% Due Date – Sunday 24th October 2021, 11:59pm Submission Details – Please submit the Word document on Turnitin Word Limit – 2000 words, does not include bibliography and any necessary notes and appendices.
Summary This exercise provides you with the opportunity to apply concepts you have learnt in BUS260 to build a Discounted Cashflow Model to estimate the value of an investment project or a company. You will read a report to gather the relevant information and use that to build an appropriate model. This exercise will allow you to demonstrate your ability to sift through a large volume of information and filter out what you need to complete a task. This skill is critical in industry where companies present a comprehensive report to its various stakeholders to assist them with their decision-making. However, analysts will need to go through the report and extract information suitable to conduct their task. Your task is to use the Stage 2 Feasibility Study released by Bellevue Gold Limited pertaining to its plans to develop its Bellevue gold mine. You can find the report and presentation slides here: https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02416882- 6A1048607?access_token=83ff96335c2d45a094df02a206a39ff4 https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02416884- 6A1048610?access_token=83ff96335c2d45a094df02a206a39ff4 Note that the report and presentation slides contain over 170 pages of reading. You do NOT need to read everything in order to get the information you need. This is where you will develop the ability to scroll through a document and identify quite quickly where to find relevant information. Business reports follow a particular pattern. The more you do this, the better you get in identifying how this convention works.
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The assignment specifications will provide you with what your report needs to present. Also, you will also get some guidance in terms of what information you need to find in the reports to help you prepare your report. Report Requirements You will prepare a valuation report to estimate the current market value of the Bellevue Gold mine project. This report will answer the following questions: 1. What is the scope of this gold project under development in terms of its costs, mine-life, annual production and total costs?
2. What assumptions did you make in formulating your model in terms of the future economic conditions, commodity prices, costs, cashflow patterns and cost of capital?
3. What model did you use to perform your valuation? Explain how your model works.
4. Present some key results from your model. These should include the commonly used investment criteria metrics that you have covered in class.
5. Provide a discussion of your recommendation in relation to your model results. You do not need to prepare your model to answer these questions in the same order. You may prefer to write a report that incorporates all the answers to the above questions. Your report is assessed based on the following marking rubric:
1. Technical competence (40%). This relates to your ability to build an effective DCF valuation model, formulate reasonable assumptions, interpret the model results and present your recommendations in a coherent and consistent manner.
2. Conceptual competence (30%). This relates to your ability to demonstrate a clear understanding of the project and how to use the information in the reports to build your model.
3. Clarity (20%). You are assessed on your ability to present your report that a layperson can understand and follow. This involves writing about complex business concepts in a straightforward manner, using languages that flow and making your report easy to read.
4. Professional presentation (10%). This relates to the overall layout of your report to make it look presentable. Where possible, organise your headings, paragraphs and figures in a manner that is easy to read. Additional Information To help you prepare your DCF model, you will need to find the relevant data from the feasibility study report. Here is some guidance to allow you to do this:
1. Set up your DCF model with the following components: Production volume p.a., gold sale price, all-in sustaining cost of production, depreciation and amortisation (use straight-line depreciation with mine life of 15 years and $20 million residual value).
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2. What are the company’s projected annual gold production?
3. Look at the gold price history and consider the economic conditions to decide on the forecasted price of gold in the future to include into your DCF model.
4. Use the report’s estimates on production costs to develop a set of estimates for the mine in the future. Your estimates should not resemble the figures provided by Bellevue Gold. Use your own judgment, backed up by research. 5. Use the report to help you decide how the production costs will vary over the mine life. Note that contrary to the report’s forecasts, the first two years may see higher costs due to ramping up the process.
