Thursday, 19 March 2015

WHAT IS THAT THING ECONOMISTS CALL DISCOUNT RATES AND WHY IT IS IMPORTANT FOR MINING PROJECTS?

Any company considering investing in a mining venture, will need to evaluate the cost of developing and exploiting the mineral reserves based on different strategic operational options.

This financial evaluation is done by comparing projections of future (normally in an annual basis) cash flows (“CF”), generated by the mine operation over its Life of Mine (“LOM”), against initial investment capital. In order to express both future cash flows and initial investment on a consistent basis, Discounted Cash Flow (“DCF”) techniques are used to estimate the project Net Present Value (“NPV ”) under the different operational options.

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