Financial model is built to plan future work, taking into account the work that has already been done. The two main indicators to consider when developing a financial model are costs and income. They are a kind of dynamic plan for future development by means of financial modeling of processes occurring during the use of subsoil.
Financial model combines two purposes: managing own funds and understanding the costs and profitability of an object at a particular stage and is a kind of guarantee for the investor and the main lever in negotiations when buying and selling an asset.
Financial modeling is a solution to scale your business
While reviewing the company's geological materials and assets, the investor needs to see the prospects of the subsoil area, the terms of investment and the timing of the project implementation and its efficiency.
In particular, preparation of a financial model can be used in your own business to control and compare theoretical planning and practical work.
Financial model is a ready-made analytical scale for your business. With regular accounting of assets, it can help you anticipate all risks and positive aspects.
Preparation of a financial geological model for the subsoil plot are all possible ways to achieve the goals set out in figures and calculations, based on the characteristics of the object and the plans set by the investor.
At the moment of creating the financial model, it is possible to consider various scenarios for the development of the mining business, including:
options for developing the subsoil area;
budgeting costs before the start of development and for the period of operation;
changes in the cost of production and the cost of selling raw materials;
change in the value of the subsoil use object;
inclusion of all additional indicators that are individual for each facility.
! A financial model is a mandatory component of a business plan when attracting investors and partners.
Structure of the financial model
The financial model includes:
Transition from geological exploration to production activities*
Plan to reach design capacity
Repair and support works
Financial expenses
Making profit
*(if required)
All these points are interconnected, which makes it possible to assess all the positive aspects and possible risks, and gives an understanding of the feasibility of the project as a whole.
Stages of the financial model development
The preparatory stage includes a full geological, legal and economic audit to determine the residual value of the property.
The project stage is carried out with the aim of making the expected main investments, attracting technical means and intangible assets (reports, approvals, technical documentation) in a calculated manner.
The consolidated stage is to build a dynamic financial model that allows to change the indicators depending on the economic situation, market situation, demand for products and production volumes on a monthly/yearly basis.
Indicative indicators to be included in the development of the financial model structure
When developing a financial model, it is important to analyze the current state of the object and forecast the expected results, which will be set out in the Financial Model, including:
the company's main tangible and intangible assets;
cash flow plan (several scenarios);
project implementation schedule;
financial results plan - P&L (several scenarios);
a cost plan for multiple scenarios;
calculation and evaluation of project efficiency;
plan for the cost of the asset at the time of calculation (dynamic indicator);
analysis of hazards and risks at all stages of project development;
investment capital plan;
calculation of variable indicators, which shows an estimate of the parameters of the corresponding result.
Timeline for preparing a financial model
Timeline for preparing a financial model depend on the stage of geological exploration of the subsoil area and the amount of geological, technical and economic information on each individual subsoil use object.
Financial model is a roadmap for your successful business.
Our company provides services for the development of a financial model, attracting the best industry experts with experience in all types of minerals.
