Evaluation vs. Valuation in Mining: Why the Distinction Matters

The mining industry involves a diverse set of stakeholders, from exploration companies and technical experts who assess project viability, to investors and financiers who fund development, and governments and regulators who enforce compliance. Mining projects are long-term, capital-intensive, and exposed to significant technical, financial, and social risks, which makes effective communication and precise terminology essential to shaping a project’s success.

This became clear during a recent discussion with colleagues, when the terms evaluation and valuation were used interchangeably. Although they sound similar, they carry different meanings. The result was a misunderstanding about whether we were discussing the technical requirements to prove a project’s economic viability or to determine its worth. Let’s look more closely at the differences between evaluation and valuation, and why they matter.

Evaluation: A Technical-Economic Assessment

An evaluation is the systematic assessment of the physical, technical, legal, environmental, economic, and other relevant factors undertaken through preliminary economic assessment (PEA), pre-feasibility, or feasibility studies to determine whether an asset can be developed into an economically viable mine.

Evaluation is technical and economic in nature, grounded in geology, mining methods, metallurgy, CAPEX, OPEX, and financial/economic assumptions such as commodity prices, tax, foreign exchange, and the discount rate.

The outcome of an evaluation is a decision based on an estimate of the asset’s technical value. This value represents the net economic benefit of the project under defined assumptions, but it excludes market premiums or discounts (VALMIN, 2015).

The most widely applied methodology for calculating technical value is the discounted cash flow (DCF) model. DCF analysis generates key financial metrics such as net present value (NPV), internal rate of return (IRR), payback period, and sensitivity analysis. These metrics allow a company to estimate expected investment performance and then decide whether to build, defer, sell, or abandon a project.

Valuation: A Market-Based Assessment

A valuation seeks to determine what a property is worth in the open market. In simple terms, it asks: “What price would a willing buyer and a willing seller agree upon, both having access to the same information and neither being compelled to transact?”

Unlike evaluation, which focuses on internal project economics, valuation is market-centred. It considers not only technical data but also market factors such as market premiums, and discounts.

The outcome of a valuation, in line with international codes such as VALMIN, CIMVAL, and SAMVAL, is an estimate of market value (historically referred to as fair market value).

To estimate Market Value, three principal approaches are recognised:

• Income Approach – relies on DCF analysis to estimate the present value of future economic benefits. The DCF result, often referred to as the technical value, forms the starting point.
• Market Approach – benchmarks the asset against comparable transactions or publicly traded peers, metrics such as Enterprise Value (EV)/Resource or Price (P)/Net Asset Value (NAV).
• Cost Approach – assesses value based on historical expenditures or replacement cost, often applied to early-stage exploration properties.

The choice of approach depends on the asset’s stage of development, data availability, and the purpose of the valuation. In practice, at least two complementary approaches are usually applied, such as one income-based (DCF) and one market-based (comparable transactions). This dual approach enables cross-validation, reduces reliance on a single set of assumptions, and provides a more defensible estimate of market value by reconciling the Technical Value with current market conditions.

Why the Distinction Matters

The difference between evaluation and valuation is more than terminology, reflecting two separate but complementary practices.

Conf these concepts can lead to misaligned expectations, breakdowns in communication among stakeholders, and flawed decision-making.  I remember the similar confusion that arose when international reporting codes were first introduced, particularly between the terms resource and reserve. Even today, I still come across misunderstandings but that’s a topic for another article.

Failing to distinguish between these concepts risks overestimating a project’s market appeal based on its technical merit or undervaluing its strategic potential due to narrow financial modelling. For professionals in mining, finance, consulting, and investment, clarity between evaluation and valuation is essential for defensible analysis, credible reporting, and informed negotiations.