Deloitte Valuations Workshop

Deloitte Corporate Finance
Fundamentals of Valuation
Private and Confidential
November 5, 2014
Fundamentals of valuation
This evenings speakers
Ian Wanke
Vice President
Corporate Finance
(604) 640-3355
iwanke@deloitte.ca
Ian is a Vice President in our mid-market corporate finance practice in Vancouver. Focused on
mergers and acquisitions, and financing for growth, Ian has led several transactions which have
involved strategic private and public acquirers, as well as, private equity acquirers. Ian has experience
working in manufacturing, food and beverage, mining, real estate, forestry, and other business to
business operations.
Prior to joining the corporate finance practice, Ian gained experience working for a local private equity
company, assisting with the successful close of mid-market acquisitions. Ian is a Chartered Accountant
and a Chartered Business Valuator and he holds a Bachelor of Commerce Degree from the Sauder
School of Business. Ian serves as the Treasurer on the Board of the Dixon Transition Society and he
has been published by the Chartered Professional Accountants Association of BC for articles in M&A.
Kayli Clark
Senior Associate
Valuations
Vancouver
Direct: +1 604-640-4984
Email: kayclark@deloitte.ca
Chelsea Jiang
Analyst,
Corporate Finance
Vancouver
Direct: +1 604-601-3496
Email: chejiang@deloitte.ca
Kayli is a Senior Associate in our business valuations practice in Vancouver. During her time at Deloitte
Kayli has specialized in mining valuations in connection with mergers and acquisitions, disputes,
income tax planning and corporate restructurings. In addition to mining, Kayli has experience working in
manufacturing, forestry, healthcare and consumer goods.
Prior to joining the Valuations team at Deloitte, Kayli worked for a biotechnology investment fund
specializing in early stage medical device companies. Kayli is currently pursuing both her CA and CBV
designations and she holds an Honours Business Administration Degree from the Ivey School of
Business.
Chelsea is an Analyst in the Corporate Finance Advisory group in Vancouver. During her time at
Deloitte Chelsea has focused on research in the metals and mining sector, supporting public company
mergers and acquisitions, project financing and advisory mandates.
Prior to joining the team at Deloitte, Chelsea worked for an Equity Research firm in their metals and
mining team. Chelsea currently holds a Bachelor of Business Administration from the Simon Fraser
University.
Deloitte Corporate Finance: Fundamentals of Valuation
Deloitte LLP and affiliated entities.
Fundamentals of valuation
Agenda
Fundamentals of Valuation Workshop
Deloitte Corporate Finance Overview

Valuation concepts
Discounted cash flow
Market based approaches
Case Study: Premium food company valuation
Q &A

Overview
Deloitte at a glance
Corporate finance part of a complete solution
Audit
Financial
Advisory
Industry
Financial Services
Manufacturing
Mid-Market
Corporate Finance
Private Equity
Valuation
Services
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Dispute Services
Lender due
diligence
Purchase price
allocation
Forensic
investigations
Private equity
capital raise
Vendor due
diligence
Goodwill
impairment
Debt advisory
Acquisitions,
reverse takeovers
Structured finance
Analytic &
forensic
technology
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Finance
Fairness opinion
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and IPO advisory
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Services
Divestitures &
acquisitions
Options analysis
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Public Sector
Board advisory
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Shareholder value
analysis, strategic
partnerships and
joint ventures
Acquisition &
investments by
private equity
groups and
financial buyers
Business &
intangible asset
valuations
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Turnaround
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management
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distressed
advisory services
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consulting
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services
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services
Fairness opinions
Expert witness
Litigation support
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Improvement
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laundering
Merger
Integration
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intelligence
Anti-corruption

One of the largest practices in the world
Firm Revenue (2014)
In more than 150 countries, is the worlds largest

private professional services practice in terms of
headcount and fee income.
Offers sophisticated investment banking advice to
companies participating in public and private
transactions globally.
31%
Boutique levels of service and industry knowledge

integrated with the market reach and technical
resources of a global advisory network.
Last year, Deloitte advised on over 350 completed
M&A transactions globally.
69%
Deloitte is consistently ranked as a leading

Global Mid-Market Advisor by Thomson Financial
Advisory
Audit
Deloittes Global Footprint

North America: Vancouver, Toronto, Montreal, New York, Los Angeles, Chicago
Asia: Tokyo, Hong Kong, Seoul, Beijing, Mumbai
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Australia: Brisbane, Sydney, Perth
Africa: Johannesburg
Europe: London, Paris, Madrid, Brussels, Oslo, Frankfurt, Berlin, Moscow, Munich, Rome, Warsaw

Complete corporate finance advisory services
Mergers and Acquisitions
Strategy development
Acquisitions or
divestitures
Valuations
Execution
Capital Raising
Corporate Advisory
Outsource corporate
development
Strategic assessment
and analysis
Board, shareholder
services
Other
Capital raising
Fairness opinions
Option analysis
Capital projects
Private placements
Safety assessment
Strategic investors
Deloitte as one
Global mid-market advisory team

A global advisory platform for private companies in BC
Global Mid-Market Corporate
Finance Team
Core Mid-Market Advisory Team in BC
David Lam
Partner, MidMarket Advisory
Dallas Mcmurtrie
Partner, M&A Tax
Advisory
Doug Beaton
Vice President &
Director
Europe
Austria
Belgium
Central Europe
Denmark
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Finland
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Ireland
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North America
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United States
- Chicago
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Argentina
Brazil
Chile
Ian Wanke
Vice President
Ashton Scordo
Senior Analyst
Africa
South Africa
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Norway
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Spain
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Turkey
United Kingdom
Asia Pacific
Australia
China
India
Indonesia
Japan
Malaysia
New Zealand
Philippines
Singapore
South Korea
Taiwan
Thailand
Middle East
United Arab Emirates
Saudi Arabia
Kuwait
Qatar
Matt Miller
Analyst
Matt Meyer
Senior VP
Rob Olsen
Partner
Cahal Dowds
Vice Chairman
Los Angeles
Toronto
UK London
Simon Gisby
Partner, CF
New York
Will Frame
Senior VP
Ronald Chao
Partner
Avinash Gupta
Partner
Chicago
Beijing
India
Strong local team with a global network of 1,300 corporate finance

professionals across 30 countries
7
Deloittes financial sponsors group

Enhancing our private equity coverage through the acquisition of McColl
June 10, 2013 - Deloitte US has teamed up with McColl Partners LLC. Founded by former Bank of
America CEO Hugh McColl in 2001, McColl Partners focuses on strategic advice and assistance to
entrepreneurial clients in evaluating and executing mergers, acquisitions, divestitures, and private capitalraising assignments.
A Powerful Combination Deloitte US + McColl Partners
Overview
Central
20 professionals
Chicago
Detroit
Dedicated Financial Sponsors group to ensure unparalleled

understanding of private equity market dynamics
Proven track record under Mr. Hugh L. McColl Jr., former Chairman
and Chief Executive Officer of Bank of America
The Financial Sponsors Group maintains dialogue with over 300

financial sponsors in a wide variety of markets throughout the United
States and internationally.
DCF has real-time information on which groups are interested in

recapitalization transactions.
Regular dialogue with these financial sponsors provides meaningful

insight into the investment communitys interests in prospective
acquisitions. As a result of our close relationships, DCF has
developed a strong understanding of each sponsors investment
thesis and behavior during transaction processes.
Extensive experience providing mergers and acquisitions advice

exclusively tailored to middle market clients
Customized sell side process to meet clients specific goals
Northeast
15 professionals
New York
West
15 professionals
Los Angeles
Southeast
58 professionals
Atlanta
Charlotte
Mid-America
9 professionals
Dallas
Houston
Talent
Number of Partners/Principals/Directors: 25
Number of advisors: 120+
Illustrative transaction experience

Deloitte success stories
has acquired
has acquired
has acquired
Has acquired
Has acquired an interest in
Has sold 50% of its interest in
The undersigned acted as advisor to

Makin Metals Ltd.
The undersigned acted as advisor to

Northern Mat & Bridge Ltd.
The undersigned acted as

advisor to Lesley Stowe Fine
Foods Ltd.
The undersigned acted as advisor

to 4Refuel

to Eminata Group
The undersigned acted as

financial advisor to CPX
Agrifoods International
acquired selected business locations from
has acquired
(a Swander Pace Capital, Jefferson Capital &

United Natural Foods Inc. partnership.)
has acquired
Has acquired
invested in
Has acquired
&
Earths Own and Meadowfresh
INLAND PACIFIC DISTRIBUTORS LTD.
The undersigned acted as exclusive
advisor to Tom Harris Cellular

advisor to CBV Collection Services Ltd.
The undersigned acted as financial

advisors to the shareholders of
Inland Pacific Distributors Ltd.

To Norsat

financial advisor to Earths Own and
Meadowfresh
September 2012
advisor to Kicking Horse Coffee.
Illustrative transaction experience

Deloitte success stories
CIBT Corporation
Has acquired
Has acquired an interest in
Has invested in

to West Coast Engineering

to Sequel
Has acquired
Has acquired
Has acquired

to Fitness World

to Sprott-Shaw
a subsidiary of

to Vancity

to Eminata Group
Has acquired
Has acquired
Has acquired
Has acquired
Has acquired
Has acquired
The undersigned acted as advisor to PJ

White Hardwoods Ltd.
The undersigned acted as due diligence

advisor Yellow Point

to Pizza 73

to Datawave

to Soyaworld

to SASD
10
R.S.T. Instruments Ltd.

Location:
Maple Ridge, BC
Line of business:
Manufacturer of geotechnical equipment
Ownership:
Private; 3 Entrepreneurs
Assignment:
Majority sale of equity

Overview:
Hammond Kennedy, Whitney &

Company, Inc.
has invested in
R.S.T. Instruments Ltd.

The undersigned acted as exclusive financial
advisor to R.S.T. Instruments Ltd.
RSTs products provide critical data and geotechnical measurement information for: civil
infrastructure projects, mine site construction and monitoring, oil and gas and pipeline
developments, as well as, environmental and utility projects. RST has customer around
the globe.
Process:
Educated management on various opportunities available: minority sale, majority sale,

100% sale.
Prepped the business for sale, completed a vendor due diligence assignment, and
reached out to a list of 128 prospective purchasers developed by Deloitte.
Outcome:
Maximized value by maintaining competitive tension and encouraging increased bids to

gain exclusivity privileges.
~ 70% equity sale to HKW was completed on July 31, 2014 allowing the vendors to
realize the majority of their share capital appreciation.
Ensured that all three shareholders were permitted to retain equity ownership going
forward, even if they choose to retire at a later date, consistent with their objectives.
We are glad to have Deloitte on our side. Their level of execution, experience and access to global investors ensured that we had all the right
players at the table. We have now secured a partnership for our company that will accelerate further growth and opportunities for us. From
transaction readiness, to marketing, to negotiations, the Deloitte team guided us every step of the way to achieve the best possible results. Thank
you Deloitte and a job well done to David and Ian.
Rob Taylor, President & CEO of R.S.T. Instruments Ltd.
11
Valuation concepts
12
Valuation concepts
Use of valuation
What is the purpose of a valuation exercise?
Value a purchase
Value a sale
Calculate a liquidation value
Price an Initial Public Offering
Perform scenario analysis
Evaluate managerial performance or decisions
13
Valuation concepts
Elements of value
What is the difference between Equity Value and Enterprise Value?
Fundamental valuation equation
Enterprise Value
= FMV of equity + FMV of debt Redundant assets
Re-arranged
Equity Value
= Enterprise value - FMV of debt + Redundant assets
14
FMV of Equity
= Common shares + Preferred
shares +Minority interest
Enterprise Value
= Discounted free cash flows +
Terminal value
Valuation concepts
Capital structure
Mortgage
(aka Debt)
Down
Payment
(aka
Equity)
What is the Enterprise Value of the house?

15
Mortgage + Down Payment

How do you measure value?

Valuation approaches and methods
Asset
Approach
Liquidation
Modified net
assets
Income
Approach
Capitalization
Discounted
cash flows
Market
Approach
Guideline
public
companies
M&A
transactions
Valuation methodology descriptions

Asset approach
Income approach
Market approach
The current value of a companys net

assets as the prime determinant of value.
Value is ascribed based on the companys

ability to generate future discretionary cash
flow and earn a reasonable return on
investment after consideration of risks
related thereto.
Involves determining the fair market value

of a company based on activity ratios
derived from the analysis of guideline
public company trading prices and market
transactions that can be applied to the
company in question.
This approach is used when:

1. A business is not viable as a going
concern and it maximizes value under
liquidation; or
2. A company is properly valued as a
going concern but where the going
concern value is closely related to the
value of its underlying assets
16
The DCF method is a form of the income

approach whereby projected cash flows,
attributable to an asset, are converted to
the present value through discounting.
Both merger and acquisition activity and

stock market activity are considered in
deriving various value measures to apply.
17

Overview
What is it?
Ascribes value to a company based on its ability to generate future discretionary cash flow and earn a reasonable return on
investment after consideration of risks related thereto
Limitations
Risk of realization, limited historical information (e.g., start-ups), forecasting Income
When is it used?
When comparable companies / precedent transactions
are not available
When the cash flows are expected to change
significantly (i.e. Unprecedented growth)
When there are multiple business streams with different
levels of risk
For start-ups when the company does not have a history
of earnings
Major cornerstones
1. Cash is King
- If it dont jingle it dont count
2. Time value of money
- Opportunity cost
- Reflection of risk
3. Net present value
- Only undertake transactions with positive NPV
When IRR is a key factor in the investment making

decision
18

Step 1 Determine free cash flow
C$000
EBIT
Add:
Depreciation
EBITDA
Less:
Tax
Capital expenditures
Change in WC
FCFF
Discount factor
PV FCFF
Sum of FCFF
Terminal value
Enterprise value
2014F
100
2015F
119
2016F
141
2017F
169
2018F
209
2019F
274
20
25
32
38
40
25
120
144
173
207
249
299
(24)
(50)
(1)
(29)
(50)
(1)
(35)
(50)
(1)
(41)
(50)
(2)
(50)
(50)
(2)
(60)
(50)
(2)
45
64
87
114
147
186
0.91
41
441
994
0.83
53
0.76
66
0.70
79
0.64
93
0.58
108
1,435
Can start a DCF with net income, NOPAT, EBT, EBIAT, etc.
19

C$000
EBIT
Add:
Depreciation
EBITDA
Less:
Tax
Change in WC
FCFF
Discount factor
PV FCFF
Sum of FCFF
Terminal value
Enterprise value
2014F
100
2015F
119
2016F
141
2017F
169
2018F
209
2019F
274
20
25
32
38
40
25
120
144
173
207
249
299
(24)
(50)
(1)
(29)
(50)
(1)
(35)
(50)
(1)
(41)
(50)
(2)
(50)
(50)
(2)
(60)
(50)
(2)
45
64
87
114
147
186
0.91
41
441
994
0.83
53
0.76
66
0.70
79
0.64
93
0.58
108
1,435
Add back non-cash expenses and deduct non-cash gains. Remember Cash is King
20

C$000
EBIT
Add:
Depreciation
EBITDA
Less:
Tax
Change in WC
FCFF
Discount factor
PV FCFF
Sum of FCFF
Terminal value
Enterprise value
2014F
100
2015F
119
2016F
141
2017F
169
2018F
209
2019F
274
20
25
32
38
40
25
120
144
173
207
249
299
(24)
(50)
(1)
(29)
(50)
(1)
(35)
(50)
(1)
(41)
(50)
(2)
(50)
(50)
(2)
(60)
(50)
(2)
45
64
87
114
147
186
0.91
41
441
994
0.83
53
0.76
66
0.70
79
0.64
93
0.58
108
1,435
DCF is used to estimate how much the company is worth which includes impact of taxation
21

C$000
EBIT
Add:
Depreciation
EBITDA
Less:
Tax
Change in WC
FCFF
Discount factor
PV FCFF
Sum of FCFF
Terminal value
Enterprise value
2014F
100
2015F
119
2016F
141
2017F
169
2018F
209
2019F
274
20
25
32
38
40
25
120
144
173
207
249
299
(24)
(50)
(1)
(29)
(50)
(1)
(35)
(50)
(1)
(41)
(50)
(2)
(50)
(50)
(2)
(60)
(50)
(2)
45
64
87
114
147
186
0.91
41
441
994
0.83
53
0.76
66
0.70
79
0.64
93
0.58
108
1,435
Capital expenditure is a cash outflow required to support continued growth and working capital is the
cash required for day to day operations
22

C$000
EBIT
Add:
Depreciation
EBITDA
Less:
Tax
Change in WC
FCFF
Discount factor
PV FCFF
Sum of FCFF
Terminal value
Enterprise value
2014F
100
2015F
119
2016F
141
2017F
169
2018F
209
2019F
274
20
25
32
38
40
25
120
144
173
207
249
299
(24)
(50)
(1)
(29)
(50)
(1)
(35)
(50)
(1)
(41)
(50)
(2)
(50)
(50)
(2)
(60)
(50)
(2)
45
64
87
114
147
186
0.91
41
441
994
0.83
53
0.76
66
0.70
79
0.64
93
0.58
108
1,435
Free unlevered cash flow available to all capital providers

23

Discount rate
Free cash flow to firm WACC = cost of equity (x%) + cost of debt (y%)
Discount rate is compensation required (opportunity cost) for the stakeholders (FCFF) or
equity holders (FCFE)
It accounts for the time value of money and adjusts the riskiness of the forecasted cash
flows
Target weights for capital structure are the best choice
Trends in the firms financing
Trends in the industry
Explicit statements from management
24

Cost of equity CAPM
Capital Asset Pricing Model
Market Risk Premium (rm rf)
Ke = rf + (rm rf)
Geometric average excess return of the

market index over rf
TSE 300 or S&P 500
Long term average preferred
Risk Free Rate (rf)
Beta () Company specific risk
Long term sovereign bonds
Regression analysis
Pre-calculated data sources
Comparable companies
25

Cost of equity CAPM
Market Risk Premium (rm rf)
Ke = rf + (rm rf)
Market return = 12.0%
Therefore, market risk premium = 7.0%
Risk Free Rate (rf)
Beta () Company specific risk
Risk free rate = 5.0%
Assume Beta = 1.2
26

Cost of equity CAPM
Ke = 5.0% + 1.2 (12.0% 5.0%) = 13.4%
27

Cost of debt
Cost of debt
Kd = * (1 t)
Sources:
Cost of debt is adjusted for the tax rate
Credit spread or yield of liquid

company bonds traded in the market
Yield on recent bond issues
Credit spread of similar companies

over government bonds
28

Cost of debt
Cost of debt
Kd = 7.0%* (1 20.0%) = 5.6%

Cost of debt is adjusted for the tax rate
Assumptions:
Kd = 7.0%
Tax rate = 20.0%
29

Weighted average cost of capital
Ke = 5.0% + 1.2 (12.0% 5.0%) = 13.4%
Cost of Debt
Kd = 7.0% (1 20.0%) = 5.6%

Weighted average cost of capital
WACC = 13.4%(50.0%) + 5.6%(50.0%) = 9.5%
30

Step 2 Determine discounted cash flow and terminal value
C$000
EBIT
Add:
Depreciation
EBITDA
Less:
Tax
Change in WC
FCFF
Discount factor
PV FCFF
Sum of FCFF
Terminal value
Enterprise value
0.5
2014F
100
1.5
2015F
119
2.5
2016F
141
3.5
2017F
169
4.5
2018F
209
5.5
2019F
274
20
25
32
38
40
25
120
144
173
207
249
299
(24)
(50)
(1)
(29)
(50)
(1)
(35)
(50)
(1)
(41)
(50)
(2)
(50)
(50)
(2)
(60)
(50)
(2)
45
64
87
114
147
186
0.91
41
441
994
0.83
53
0.76
66
0.70
79
0.64
93
0.58
108
1,435
Discount factor = 1/(1+0.095)^mid-period

31

Terminal value
Terminal Value Considerations
Forecast Period Cash Flow vs. Terminal Value
When the company reaches a

representative mature steady growth
phase
140%
Factors to consider:
100%
Cyclicality
120%
80%
Representative year
Depreciation and CapEx
60%
40%
Terminal Value Approaches

P/CF multiples
Dividend discount models
Capitalized cash flows
20%
0%
-20%
-40%
Utilities
Tobacco
Sporting Goods
Value of forecast period cash flow
32
High Tech
Terminal Value

Terminal value capitalized cash flow
C$000
FCFF
Discount factor
PV FCFF
Sum of FCFF
Terminal value
Enterprise value
0.5
2014F
1.5
2015F
2.5
2016F
3.5
2017F
4.5
2018F
5.5
2019F
45
64
87
114
147
186
0.91
41
441
994
0.83
53
0.76
66
0.70
79
0.64
93
0.58
108
1,435
Terminal value calculation
1. Take the final year of cash flow and multiply by (1+ growth rate)
Free cash flow: 186 * (1+0.03) = 111
2. Divide the free cash flow by the (discount rate - growth rate)
Capitalized cash flow: 111/ (0.095-0.03) = 1,713
3. Discount the terminal value to present using the discount factor in the final year
Terminal value: 1,713*0.58 = 994
33

Step 2 Determine discounted cash flow and terminal value
C$000
EBIT
Add:
Depreciation
EBITDA
Less:
Tax
Change in WC
FCFF
Discount factor
PV FCFF
Sum of FCFF
Terminal value
Enterprise value
0.5
2014F
100
1.5
2015F
119
2.5
2016F
141
3.5
2017F
169
4.5
2018F
209
5.5
2019F
274
20
25
32
38
40
25
120
144
173
207
249
299
(24)
(50)
(1)
(29)
(50)
(1)
(35)
(50)
(1)
(41)
(50)
(2)
(50)
(50)
(2)
(60)
(50)
(2)
45
64
87
114
147
186
0.91
41
441
994
0.83
53
0.76
66
0.70
79
0.64
93
0.58
108
1,435
Equity value: Enterprise value less net debt plus redundant assets
34

Forecasting assumptions
To forecast cash flows, what assumptions do you need to make?
Common Assumptions
Sources
Growth
Rates
Revenue
Working Capital
Expenses
Tax
Rates
Tax break incentives

Long term rate
Margins
Gross margin
EBITDA margin
Analyst
Reports
Often most accurate public info

May not be specific enough
Terminal
Value
Timing
Terminal growth rate
Management
Product / customer life cycle

Assessment of market potential
35
Historical
Averages
Management
5 year geometric average

AR, Inventory, AP turnover
Historical margins
Forecast and targets
Corporate strategy

Summary
Forecast future cash

flows after cash
taxes
Estimate future
working capital and
capital expenditure
Assess reasonableness of results
Select the correct

discount rate
Discount the cash

flows and terminal
value
Compare results
Cash is King
Comparable companies analysis
Assess the timing of the investment
Precedent transactions analysis
Sensitivity analysis
36
37

Overview
Common methods
Comparable company analysis
Precedent transaction multiples
Comparable Company Analysis
Precedent Transaction Multiples
Public market valuation
Sale transactions
Markets shortcut to DCF
Focused on change of control situations
Does not reflect M&A control premium
Includes a control premium
Limitations
Difficult to identify pure-play comparable companies or transactions
Market inefficiencies
Approach is often used as a quick methodology, and can be misapplied
38

Theory and methodology
Consists of a comparison of several companies operating and trading statistics
Methodology
Advantages
Disadvantages
Criteria for a good

comparable
Price that the market is willing to pay for a dollar of cash flows or assets for companies
that have similar growth prospects or risk profiles
Precedent transactions are typically an easy analysis to perform

Market determined value precedent has been established
Include control premium and synergy assumptions, which are not public knowledge
and are often transaction-specific
Precedent transaction valuations are easily influenced by temporary market
conditions
Operate in a similar industry and geographic region
Have a similar size of operations and type of products

Have similar growth opportunities and risk profile
39

Multiple overview
Multiple
Price /
Earnings
Price /
Cash Flow
Enterprise
Value /
EBITDA
40
Attributes
Well known and widely used, easy to understand
Forward looking (forecasted earnings)
Hard to compare companies with low or negative earnings,
or multiple-sector corporations
Distorted by capital structure
Selection of proper comparables is key
Examples
Large caps
Blue chip stocks
Older, steady earnings companies
Focuses on cash flow most closely aligned with

shareholders interests
Eliminates most accounting / financing distortions
Can be used with negative earnings
Short-term focus
Subjectivity in choosing proper comparables
Eliminates capital structure distortion

Widely accepted methodology, especially in takeovers
More cash flow oriented than earnings oriented
More complex to calculate
Higher needs for consistency between numerator and
denominator

Multiple overview
Multiple
41
Attributes
Examples
Price /
Net Asset
Value
NAV describes the company's current asset and liability

position
Easy to calculate a target price
Fair value of assets on a fully liquidated basis
Enterprise
Value /
Reserves
Proven and probable (2P) refers to geologic reserves 50%

chance of recovery
Not cash-flow based
Mining companies
Oil & Gas companies
Enterprise
Value /
Revenue
Doesnt account for cost structure

Can be used to compare start ups with negative cash flow
Technology companies
Restaurants
Mining companies
Large asset bases

Illustrative example
Public Companies
Ticker
Flagship Asset
Coal Type
Stage
Location
Market Cap
EV
Total
Resources
EV / Total
Resources
NAV*
(C$M)
(C$M)
(Mt)
(C$/t)
(C$M)
P / NAV
Junior & Mid-Tier Producers

Rhino Resource Partners LP
NYSE:RNO
Appalachia
Metallurgical
Production
117
192
356
0.54
n/a
n/a
SouthGobi Resources Limited
TSX:SGQ
Mongolia
Thermal and met
Production
109
211
912
0.23
585
0.19x
Cockatoo Coal Limited
ASX:COK
Australia
Thermal
Production
63
104
1,892
0.06
n/a
n/a
Xinergy Ltd.
TSX:XRG
US
Thermal
Production
20
249
72
3.45
n/a
n/a
Pacific Coal Resources Ltd.
TSXV:PAK
Colombia
Thermal
Production
17
46
88
0.52
n/a
n/a
Atlantic Coal plc
AIM:ATC
US
Metallurgical
Production
12
25
14.27
n/a
n/a
Buffalo Coal Corp.
TSX:BUF
South Africa
Thermal and met
Production
28
83
0.34
57
0.13x
Average
2.77
0.16x
Average excl. high & low
1.02
n/a
Developers
Atrum Coal NL
ASX:ATU
Canada
Metallurgical
Feasibility
218
208
1,567
0.13
n/a
n/a
Rey Resources Limited
ASX:REY
Australia
Thermal
DFS completed
56
53
457
0.12
n/a
n/a
Resource Generation Limited
ASX:RES
South Africa
Thermal and met
Development
72
39
3,031
0.01
n/a
n/a
Fortune Minerals Ltd.
TSX:FT
Canada
Metallurgical
Development
36
35
472
0.07
88
0.41x
Coalspur Mines Limited
ASX:CPL
Canada
Thermal
Development
15
86
756
0.11
1,593
0.01x
Jameson Resources Limited
ASX:JAL
Canada
Thermal and met
PFS completed
25
22
99
0.23
96
0.26x
Stanmore Coal Limited
ASX:SMR
Belview
Thermal and met
Development
19
920
0.00
n/a
n/a
Goldsource Mines Inc.
TSXV:GXS
Canada
Thermal
PEA completed
14
13
150
0.09
n/a
n/a
Prophecy Coal Corporation
TSX:PCY
Mongolia
Thermal
Production
19
20
3,754
0.01
n/a
n/a
Morien Resources Corp.
TSXV:MOX
Canada
Thermal and met
PFS completed
11
10
120
0.08
n/a
n/a
Colonial Coal International Corp.
TSXV:CAD
397
0.01
143
0.05x
Cardero Resource Corp.
TSX:CDU
Canada
Metallurgical
PFS completed
11
525
0.02
37
0.17x
EastCoal Inc.
TSXV:ECX.H
Ukraine
Thermal
Development
96
0.07
n/a
n/a
Compliance Energy Corp.
TSXV:CEC
Canada
Thermal and met
PFS completed
131
0.01
n/a
n/a
Average
0.07
0.18x
Average excl. high & low
0.06
0.16x
42
Precedent transactions
Theory and methodology
Looking at historical prices for completed M&A transactions involving similar companies
to get a range of valuation multiples
Methodology
Basis for a precedent transaction analysis is that a rational investor should place a
similar value on similar assets
Why do precedent multiples tend to be higher than comparable company multiples?
Advantages
Disadvantages
Precedent transactions are typically an easy analysis to perform

Market determined value precedent has been established
Include control premium and synergy assumptions, which are not public knowledge
and are often transaction-specific
Precedent transaction valuations are easily influenced by temporary market conditions
Criteria for a good

transaction
43
Operate in a similar industry
Consist of a similar transaction size and within a reasonable time frame

Similar transaction type (i.e. share or asset transaction)

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