The correct reference for the SAMVAL Code is:
THE SOUTH AFRICAN CODE FOR THE REPORTING OF MINERAL ASSET VALUATION (THE SAMVAL CODE), 2016 EDITION

The SAMVAL Code should be applied in the valuation and reporting of all styles of solid mineralisation. The guiding philosophy and intent of the SAMVAL Code is that Mineral Asset Valuations (MAV) should be undertaken by Competent Mineral Asset Valuators (CVs) and all relevant information should be fully disclosed (SAMVAL, 2016).

Erratum for SAMVAL 2018

Effective 1 October 2018 (based on SAMVAL Guidance Note 4.4), clause 4.4 of the SAMVAL Code has been modified from:
“The results from the valuation approaches and methods employed should be weighted and reconciled into a concluding opinion of value in accordance with Figure 1. The reasons for giving a higher weighting to one method or approach over another should also be stated and justified.”

To:
“The results from the valuation approaches and methods employed should be weighed and reconciled into a concluding opinion of value in accordance with Figure 1. The reasons for giving a higher weighting to one method or approach over another should also be stated and justified.”

This is a typo error – it should be “weighed” as used in clause 25 of the 2009 edition of SAMVAL Code.

Valuators should be aware that the use of the words “weighed” and “weighted” did not intend for a subjective weighting factors to be applied to the individual value ranges determined by the Cash Flow, Market and Cost Approaches to arrive at a final weighted average value.

The purpose of comparing (“weighing”) the results from the various Valuation approaches and methods is to provide corroborative evidence for the value ascribed to a mineral asset. In evaluating (“weighing”) the various results, the determination of the final value (the relative “weighting” of the different values) is dependent on the Competent Valuator’s experience and judgement. The Competent Valuator has to determine which of the valuation techniques used is the most appropriate for the asset being valued.

The use of subjective weightings applied to two or more valuation approaches and aggregating such weighted values in arriving at a final value is therefore not considered compliant with the SAMVAL Code.

Guiding Principles

The SAMVAL Code is a principles-based code meaning that the Competent Valuator (CV) must follow and base their professional judgements on the fundamental principles of SAMVAL Code. The Code differentiates between fundamental principles which must be adhered to and guiding principles which are more ethics based. The fundamental principles of materiality, transparency, competence and reasonableness must be applied by the CV when conducting a valuation and are described in the SAMVAL Code as follows:

Materiality

The essence of the materiality principle is that a Public Report must contain relevant information that would reasonably be required, or expect to be found, on which to make a reasoned and balanced judgement with respect to the Mineral Asset Valuation as reported.

Transparency

Sufficient and relevant information must be provided in the Valuation Report in such a way that it is unambiguous, so that the reader understands the report and will not be misled. It follows that the methodology and processes followed should align with the valuation purpose and should be auditable.

Competency

The SAMVAL Code states that a CV is “a person who possesses the necessary qualifications, ability, and sufficient relevant experience in valuing mineral assets.” The CV must use professional judgement in determining their own competency, and must be able to defend their valuation to their peers if called upon to do so. A CV must be registered with SACNASP, ECSA or SAGC or be a Member or Fellow of the SAIMM, GSSA or SAICA or a Recognised Professional Organisation (RPO), or other organisations recognised for this purpose by the SSC on behalf of the JSE. All RPO’s must be subject to an enforceable Code of Conduct and a Disciplinary Code.

Reasonableness

Is underpinned by the idea that two or more CV’s would arrive at “a broadly comparable range of value”, when provided with the same information, as at the same effective date using the same basis of value and the same scope of work. A “Reasonableness test” should be able to identify a valuation which is out of step with industry standards and norms.

Other principles include partiality, responsibility and independence. Impartiality and responsibility are included in the Standards section of the SAMVAL Code and is therefore mandatory, while independence is included in the guidance section of the code and is not mandatory, but may be required in specific circumstances.

Impartiality

This effectively means that no undue influence should be applied to the CV by any organisation, company or person commissioning the valuation and valuation report. In this regard it is imperative that the CV documents all assumptions, premises and modifying factors and provides adequate disclosure of all material aspects (singularly or in aggregate) for a reasoned and balanced judgement of the valuation and valuation report.

Responsibility

The CV carries significant responsibility regarding undertaking Mineral Asset Valuations in terms of the Code. The CV must adhere to the Fundamental Principles of the Code.

• The CV must assess the technical data and information, technical interpretations, technical conclusions, parameters and forecasts used in the Mineral Asset Valuation and has to apply judgement with respect to the relevance, reliability and quality of these inputs.       The CV must decide on the most appropriate valuation approach and method used in the valuation and must also explain and justify the methods used.
• The CV may need to rely on work of other Competent Persons, Technical Experts and Accountants and this should be stated, and the person or people concerned should be identified. Although the Competent Person, Technical Expert or Accountant should accept responsibility for their component of the work, the CV still takes overall responsibility for the Mineral Asset Valuation. The CV needs to ensure that they have permission to use other people’s work, that the quality is acceptable and that the parts of the report where other people’s work is relied upon are signed off by these contributors.
• The CV should also be cognisant of the requirements of integrated reporting, Generally Accepted Accounting Standards (GAAP), International Financial Reporting Standards (IFRS) issued by the International Account Standards Board (IASB) and International Valuation Standards as described by the International Valuations Standards Committee (IVSC), as valuations of a going concern company may include accounting values such as debt, goodwill, intangibles etc.
• Where MAVs depend on Exploration Results, Mineral Resources and Mineral Reserves, these should comply with SAMREC or other CRIRSCO-affiliated reporting codes. The Mineral Resources and Reserves must be signed off by a Competent Person.
• The CV must remain impartial and disclose all the relevant and material inputs, assumptions, modifying factors and constraints in order to facilitate reasonable and balanced judgements of the MAV.
• The CV must ascertain the ownership of the Mineral Asset being valued and must determine if there are restrictions on the rights to a mineral asset or any agreements which may impact on the valuation. The CV should undertake a site visit to the mineral property being valued, but if not done should be explained.
• The CV must provide a valuation date as inputs, assumptions and forecasts are only valid at a point in time.

Basis of Valuation

“The basis of valuation is the monetary value of the Mineral Asset being valued. The value may vary depending on the value type that is being assessed.” The SAMVAL Code defines a number of value types including Fair Value, Intrinsic value, Investment Value, Market Value, Special Value and synergistic value. In the minerals industry value is usually derived from assessing the intrinsic value, i.e. value based on the unique technical characteristics of the asset being value. The CV must ascertain the type of value that is required.

Valuation Approaches

There are three valuation approaches, namely, Market Approach, Cost Approach and Income Approach from which the CV is required to use the two most appropriate approaches for the type of valuation being undertaken. Valuation methods are a subset of valuation approaches. Valuation approaches and methods may be more generally acceptable depending on the circumstances and this should be considered. Table 1 provides guidance how the various approaches may be generally applied to different stages of exploration and mining properties.

Table 1. Relationship between stages of development and valuation approaches for Mineral Assets

Whatever approaches and methodologies selected for the valuation by the CV, all relevant technical and related parameters, assumptions, premises, constraints and modifying factors used need to be disclosed, including but not limited to Mineral Resources and Mineral Reserves, mine plans, production schedules, mining recovery, mining dilution, metallurgical test work, metallurgical recovery, process plant design, project engineering, construction schedules, environmental impacts, permitting, socio-economic aspects, political risk reclamation and rehabilitation, capital costs, operating costs, smelter terms, product marketing and sales contracts, commodity prices, exchange rates, inflation and escalation rate, the cost of capital and discount rates.

Mineral Resources and Reserves

All Exploration Results, Mineral Resources and Mineral Reserves should be considered in Mineral Asset Valuations. The valuation approach used should be commensurate with the level of confidence in the Mineral Resources and Reserves. Mineral Resource and Reserves Statements relied upon in a MAV should be confirmed by a Competent Person (CP) according to SAMREC or other CRIRSCO reporting code and the Effective Date must be relevant to the Valuation Date and if not, this should be qualified by the CV.

Income approaches can be used for Proved and Probable Mineral Reserves and also for Measured and Indicated Mineral Resources, where Mineral Reserves are also present and scheduled to be mined prior to Mineral Resources and where the CV considers the mineral Resources are like to be economically viable.

Valuation of Inferred Resources, Exploration Properties and Exploration Targets

Although Inferred Resources are not included in Mineral Reserves, markets still attach a value to these resources. Valuation of exploration properties, exploration targets and Inferred Resources include but may not be limited to valuations of exploration assets in terms of IFRS6, valuation of exploration properties for sale, merger or acquisition, valuation of prospecting or mining rights that include Inferred Resources and/or Exploration targets, justification of future exploration expenditure to increase the level of confidence in Exploration Targets or Mineral Resources. A Mineral Resource Statement may not be available for exploration targets and the appropriate valuation approach should be selected.

Valuations that include exploration targets and Inferred Resources are associated with a higher level of risk due to the low level of confidence in the estimates. The CV should qualify such a valuation by stating the level of confidence in the resource and its concomitant risks, whether the valuation is based on a SAMREC/CRIRSCO compliant Resource Statement, the reason for the valuation approach and the modifying factors applied. It is not acceptable to use terms such as ‘potential resources’ or hypothetical resources as these do not conform to SAMREC and CRIRSCO definitions of Mineral Resources and Mineral Reserves. If an income approach is used for the valuation of Inferred Resources, this should be justified by the CV who should also indicate the risks associated with the valuation. All valuations of early stage projects should include a risk assessment.