Lens Metals & Mining Assets - Coal and Metals mine Methodology

The aim of Wood Mackenzie's coal/metals mine reports is to provide a detailed review of the key technical, commercial and economic issues surrounding the historic and future development of a mine. Although not all mines have cash flows, where applicable, cash flows provide the necessary financial information to indicate Wood Mackenzie's view of the future value of each mine, based on the development scenario outlined. The key sections in a Wood Mackenzie mine report include:

Wood Mackenzie also delivers mine, company and country unit costs and margins in ranked tables (leagues) and cost curves in the Metals Cost Benchmarking Tool. The data are presented on a nominal basis for historical years, and on a constant dollar basis for future years. Coal mine unit cash cost and margin curves are shown on a nominal basis in the Coal Cost Benchmarking Tool.
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Wood Mackenzie's approach to producing its reports is to conduct primary research, supported by a range of data and information available in the public domain and our in-house deep industry and regional knowledge. This allows us to generate high-quality proprietary information and analysis, using our proprietary models, and insightful commentary on all major mine developments around the world.
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Wood Mackenzie's research analysts conduct extensive and detailed research into their respective focus areas. We use a wide variety of sources, but we do not purchase data other than from entities which own the data and are entitled to sell it to us.

Our research uses our propriety databases and costing models which have been built up over many years of industry research and analysis.

The primary external data sources used by Wood Mackenzie to compile metals and mining asset reports are shown.

External data sources

Our data are subject to a rigorous integrity checking and quality control process. We have developed a comprehensive set of checks, which are carried out on a regular basis, at a mine, country, regional and global level.

In addition to the checking and validating process for each individual asset, Wood Mackenzie's analysts perform holistic checks on the sector, country or region to ensure consistency and feasibility. For example, a number of mines in an area may be competing for development or production expansion, but concurrent development of all of them as predicted by their respective owners may be unfeasible. This might be due to the lack of available market demand, or the constraining limits of export infrastructure capacity. In such instances, Wood Mackenzie's regional experts will make their own assessment as to the likely schedule of developments and adjust the various project parameters in our analyses accordingly.

It is Wood Mackenzie's intention within each commodity to provide sufficient coverage of the operating mines and new projects to generate a comprehensive picture of the sector. Wood Mackenzie strives to cover all mines in any particular country or sector. However, for a variety of reasons individual or groups of mines may not be covered.

The primary reason for exclusion is the (lack of) significance of that asset or group of assets to the sector and/or the industry as a whole. This may be a result of the physical scope and scale of such assets in terms of reserves, production or investment.

A second key reason for the exclusion of assets from our coverage is where data availability precludes an adequate analysis being undertaken. Wood Mackenzie uses a wide variety of information sources as the basis for its analyses. If it is deemed that inadequate publicly available information exists on any particular asset(s), then a detailed analysis will not be attempted.

Wood Mackenzie focuses its research and updating processes with the aim that each impactful mine will be updated at least annually. In performing these updates, although analyses may be published at any time throughout the year. We prioritise our updates based on a number of factors, including the last publication date, the level of client interest and the scale of individual asset developments.

Wood Mackenzie also aims to update a proportion of its analyses more frequently than annually. These updates will usually focus on, for example, assets that have been materially affected by a significant event or areas of higher client interest.

To support our updates, research activities by the various regional teams occur continually throughout the 12-month period to fit in with access to the various research sources. For example, the information contained in company annual reports and government publications is collated as and when those documents are published. Hence, at the start of a particular update, a certain amount of information on the sector and individual assets will already have been gathered. Wood Mackenzie's analysts then commence the detailed research and updating processes specific to the relevant asset.

Using all possible published (i.e. publicly available) information together with information gathered from company interviews, Wood Mackenzie's analysts complete a draft of each mine analysis. In an important part of the updating process, where possible, these drafts are forwarded to each operator, and very often to the other non-operating company participants in any particular mine, for their comments. This stage of the process is designed to ensure that each analysis is as accurate as possible, within the limits of what may be differing interpretations of a particular development amongst the various equity holders. It should be stressed that the final analysis produced is Wood Mackenzie's view of the most likely development of an asset and may not necessarily reflect the view of the operator, partners or other parties.
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Wood Mackenzie defines commercial mines as those currently producing and those under construction. Our analysis classifies new mining projects into different groups; highly probable, probable and possible, depending on their stage of development or perceived likelihood of advancement to commercial production.

Highly-probable projects are considered highly likely to achieve commercial production within the time-scale indicated.

Probable projects are those projects likely to enter commercial production in the future, but are subject to a significant degree of uncertainty, particularly with regard to timing. The uncertainty usually relates to economic or technical matters.

Possible projects are those with a high degree of uncertainty, which may apply to any aspect of the project. Such projects are usually at an early stage of development.
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Wood Mackenzie's estimates of mine life and production are based on our view of likely future commercial production. We do not conduct independent geological modelling or detailed mine engineering assessments. Rather, we make an independent analysis of production forecasts provided by operators and/or partners (where available), integrated with our own view of other commercial factors such as demand, infrastructure availability and costs. We validate this assessment by comparing this to data from analogous operations in the same region, and through our extensive industry experience.

Our total future production estimates are broadly equivalent to company reported proved and probable reserves (after allowing for the processing into a marketable product), although they can include additional resources that, in our view, are very likely to be exploited. We take this approach, as opposed to basing asset modelling solely on a strict reported reserves basis, because it is believed to represent the most likely future commercial outcome for each asset. In some instances, where there is a high degree of uncertainty or risk associated with proposed future mining, these areas may be excluded from our production and cash flow forecast.

Such exclusions will be noted in the mine report, as will reserve upside if it is known to exist; for example where resource areas are yet to be drilled to a sufficiently defined status, or deeper resources are present but their commercial status is unknown. These additional resources will not be included in our cost, cash flow and valuation analysis of the asset.

Wood Mackenzie’s Coal Supply production data represents the most likely commercial outcome for each asset. It is also a key component in estimating our independent view of the most likely reserves and value of an asset.

For the purpose of estimating an asset’s potential production and value, annual production figures are modelled within the bounds of an asset’s minimum and maximum operating capacities. The full production profile of an asset represents the total reserves over the asset’s modelled life. These reserves may or may not match the official estimates disclosed by a given company for a given asset. That means we may include additional resources into the official reserve base if judge them very likely to be exploited after considering factors that include but are not limited to economic, marketing, legal, environmental and social aspects.

In the near term, company reported production guidance is heavily considered in our analysis. In the longer-term – as asset performance becomes less certain – mine capacity, reserve base and economic factors become increasingly important while forming our view. This approach may vary depending on the information available in each region.

Coal assets exist in a competitive market. In order to assess each asset fairly and individually, our representation of future annual production figures in the Coal Supply Service may differ from Wood Mackenzie’s views published within the Coal Markets Service.

Wood Mackenzie develops capital and operating expenditure forecasts associated with our view of production and mine life for an asset or group of assets.
Capital expenditure (capex) costs are broken down into development or expansionary capex, and sustaining capex required to maintain production. Development or expansionary capex is further broken down, where appropriate, into exploration and acquisition costs, mining development works, mining equipment, handling facilities, processing plants, general infrastructure, transport infrastructure, any other capital costs, and finally any closure or final rehabilitation costs.

Operating costs are estimated for mining operations based on paid production rather than sales volumes. Allowance for co-products or by-product revenue is also made, with unit costs presented either on a normal or pro-rata basis. Under normal costing, full operating costs are allocated to the commodity under analysis and net by-product revenue is credited to give a net cash operating cost. On a pro-rata basis, the operating cost is shared amongst different metals according to their contribution to net revenue.

Operating costs are divided into direct cash costs and indirect cash costs. The cost definitions used in the coal/metals mine research are shown below.

Sustaining capital expenditure can be added to the total cash cost to give a full cash cost measure. Cash margins are analysed on different levels according to need. Common points are a M1 basis (revenue less C1™ costs), operating basis (revenue less total cash cost), or on a full cash cost basis (revenue less total cash cost plus sustaining capex.