To pass this unit (requires a Mark of 50 or better) the student must pass the final examination.

CLASSES

Face-to-Face Teaching: Generally 20 hours

Timetable: Detailed timetable for classes are on the Centre’s web site www.mafc.mq.edu.au

Consultation Times: 

Students who wish to contact any of the teaching staff may do so through:

• The Unit’s iLearn site, in relation to general queries (so that all students may benefit); or 
• Individual consultation with the lecturer by email in the first instance, if necessary.

REQUIRED AND RECOMMENDED TEXTS AND/OR MATERIALS

Text: Nil

Additional Readings: 

• A reading pack will be made available prior to commencement of the unit.
• In addition to selected readings, the pack will contain case study materials and questions for discussion related to each case study. 
• These readings and lecture materials are examinable.

Lecture Notes: Available in printed form and electronically via iLearn. 

Study Problems: 

• Students are advised to work systematically through a suggested problem set. These problems will not be collected but they will help you prepare for the exams. Answers to the problems will be posted to iLearn.
• Note: the problem set should not be interpreted as a ‘practice exam’. Preparation for the exam will require review of all course materials and lecture notes.

Pre-Unit Materials: Information papers on statistics, regression, accounting and other material may be found at http://www.mafc.mq.edu.au/applications/minimum-knowledge-requirement/pre-course-materials1/. Students should work through this material prior to commencing the degree.  The material will remain a useful reference as students progress through the program.

Calculators: In examinations, hand held calculators are permitted. Mobile phones and computers are not permitted.

Assumed Access: Access to a computer with word processing and spreadsheet capability is assumed, as is general student computer literacy.

TECHNOLOGY USED AND REQUIRED

Unit iLearn Site: 

• Found by logging on to iLearn ilearn.mq.edu.au, then clicking on Resource Industry Investment Analysis.
• This is where you will find forums, downloadable resources and links to important pages. 
• The forum allows you to communicate with other students and lecturer(s) and may provide supplementary material. 

Important Notice: 

• It is important that you familiarize yourself with the Unit’s iLearn site. 
• Students should check the Unit’s iLearn site regularly (minimum twice a week and prior to all lectures) and look for updates and distribution of materials (including case studies) related to the unit or assessments and, if relevant, participate in forum discussions. 

SESSION 1: OVERVIEW OF THE RESOURCES INDUSTRY

Topics: 

• Unit introduction, objectives and requirements
• What is the resources industry?
• Base metals, precious metals, industrial minerals and energy
• How and where is value created in the resources industry?
  • Exploration
  • Extraction
  • Processing
  • Logistics
  • Market

SESSION 2: EXPLORATION, RESERVES AND RESOURCES

Topics: 

• How are exploration decisions made?  Where do we drill next?
  • Acquiring access to acreage
  • Making exploration investment decisions
  • Decision Trees
  • Expected Monetary Values
  • Farm in/Farm out agreements
• What are Reserves and Resources? What level of knowledge and confidence is required so that reserves can be “booked”?  What judgment should we make about field life if we want to value a resource?
  • Reserves and Resource definitions
  • Mine/field life
  • Translating reserves into future earnings
  • Replacing reserves: exploration versus acquisition
  • Example: Royal Dutch Shell Reserves writedown

SESSION 3: VALUATION APPROACHES

Topics: 

• How do we value un(der)explored but prospective acreage?  How do we value properties with known but uneconomic reserves? Issues in resource project valuation.
  • Valuing development properties
  • Cost of Capital issues - resource stock betas
  • Real option applications
  • Valuation of stranded resources
  • Framing project expenditure decisions
  • Acceleration economics

SESSION 4: COMMODITY MARKETS

Topics: 

• How are commodities marketed and sold?  What is the purpose of price hedging?  Why have hedging issues been at the centre of a number of corporate collapses?
  • Exchange traded commodities
  • Long term supply contracts
  • Hedging: objectives, instruments and strategies
  • Hedging: managing risk or creating risk?
  • Making price forecasts
• Case Study: Sons of Gwalia, Pasminco

SESSION 5: FISCAL REGIMES: RESOURCE RENTS, TAXES & ROYALTIES

Topics:

• The natural resources of a country are the property of the state or crown.  Resource companies therefore face two levels of taxation: a “rent” tax, to compensate the state/crown for the development of a finite resource, and general corporate taxation.  How are these “rent” taxes levied?  What impact will they have on our investment decisions?
  • Taxation of the resources industry
  • Government take versus exploration prospectivity
  • Royalties and levies
  • Resource rent taxes (PRRT)
  • Production sharing contracts
• Case Study: The Australian Petroleum Resource Rents Tax vs the Indonesian Production Sharing Contract

SESSION 6: INTERPRETING RESOURCE STOCK FINANCIAL STATEMENTS

Topics: 

• Investors external to a resource company must make judgments about future profitability on the basis of published accounting reports.  What are the critical accounting issues that relate to resource companies?
  • Resource company accounting conventions
  • How is the value of in-ground reserves presented?
  • Accounting for exploration success/failure
  • Depletion of mine development
  • What is “impairment”? When is a property “impaired”?
  • Provisions for rehabilitation
  • Unit costs: full costs and cash costs
• Case Study: Western Area NL

SESSION 7: RESOURCE STOCK VALUATION

Topics: 

• How can we combine reserves reports, accounting statements, fiscal regimes and commodity prices to create an earnings and free cash flow forecast for a resource stock?  What stock valuation approaches are most applicable to resource stocks?
  • Forecasting sustainable earnings
  • Stock valuation approaches
• Assignment Preliminaries: Ground rules, objectives, expectations and company selection

​Fail Hurdle grade added to grading descriptors table.

This Unit Guide may be subject to change. The latest version is on the Centre’s web site www.mafc.mq.edu.au.

Students should read the Unit Guide carefully at the start of semester.  It contains important information about the Unit.  If anything is unclear, please consult one of the unit lecturers.  

University Policy on Grading:

• Macquarie University’s Academic Senate has established a Grading Policy available at http://www.mq.edu.au/policy/docs/grading/policy.html. Your final result will include: 
  • A Grade ranging from Fail Hurdle to High Distinction; and
  • A numerical Mark which is a summation of the individual assessment components, providing the examination component is passed.
• It is important to note:
  • The Policy does not require that a minimum or maximum number of students are to be failed in any unit; 
  • Grades will not be allocated to fit a predetermined distribution; and
  • Grades for all individual assessment items will be released to students, but Marks may not necessarily be released.

Specific Unit Grading: 

• To pass this unit (requires a Mark of 50 or better) the student must pass the final examination.
  • Students who have attained a total raw mark of 50% or greater in a unit, but have failed the Unit’s exam requirement and who have demonstrated “sufficient effort” in the exam, will be granted a single opportunity to sit a Supplementary Exam which will be graded on a pass/fail basis. The unit mark and grade for students who pass this examination will be those corresponding to the original total raw mark of all their assessment tasks, including the original exam. That is, the Supplementary Hurdle Exam only determines the meeting of the hurdle requirement. Students who have attained a raw mark of 50% or greater in a unit, yet failed all attempts at the requirement, will be awarded an FH grade with a final mark of 49.
• All final Marks and Grades in the Applied Finance Centre are determined by a grading committee and are not the sole responsibility of the unit convenor.
• The core criteria used to assess student work in this unit are: 
  • Knowledge and understanding: Understanding key ideas, knowledge and use of concepts.
  • Application: Ability to apply theoretical ideas and frameworks in practice and in a critically reflective way. 
  • Reasoning and analysis: Ability to analyse, use critical reasoning and principles to formulate a position, balancing theory and personal reflection. 
  • Professional literacy and research: Understanding of professional factors (language and landscape) and ability to undertake appropriate research. 
  • Communication and presentation: Ability to communicate and present effectively (written and oral, as relevant).
  • Use of mathematical and statistical ideas: Ability to use mathematical and statistical ideas, methods and formulae appropriately. 
• Performance in relation to each of these criteria are assessed against the University’s grading descriptors:

Review of Grade and final examination Script viewing:

• A student who has been awarded a final grade for a unit and who does not believe it is an accurate reflection of their performance, and has grounds for such a claim and can demonstrate those grounds, may apply to have their grade reviewed. 
• For information on requesting a review of grade and/or viewing your final exam script, please refer to the University’s Grade Appeal Policy at http://www.mq.edu.au/policy/docs/gradeappeal/policy.html and MAFC Program Rules & Procedures at http://www.mafc.mq.edu.au.