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.

Request the whitepaper on our website

DOES REAL OPTIONS ANALYSIS ALWAYS INCREASE MINE PROJECT VALUE

http://www.rompev.com/Does_ROA_always_increase_project_value.html

This is a note about Real Option Analysis (“ROA”) always improving project value.

The result from a ROA is the Expanded Net Present Value (“ENPV”) which is equal to the traditional NPV, named the Base case NPV, plus the additional value of all identified operational and managerial strategies or options that can be implemented over the Life of Mine (“LOM”).

That is, by definition ROA will in general either provide a better value than the Base case NPV or the same value – in case no options are seen to increase project value over time.

Sometimes, however, experience has shown that after running a ROA "IN" the resulting ENPV is either similar or less than the Base case NPV. These results may suggest that the ROA did not have an effect on the value of the project, even it reduced the value of the mine project.

Then, the mandatory questions are why these outcomes happen and how to interpret them.

This white paper will analyse and answer these questions from a realistic viewpoint.

http://www.rompev.com/Does_ROA_always_increase_project_value.html

ROMPEV released a presentation showing how mine projects can increase in value by leveraging uncertainty

Uncertainty is always present in a mining venture. This is because the value of a mine project is typically influenced by many underlying economic and physical uncertainties. However, uncertainty is a double edged sword; it brings both risk for losses and potential for larger than expected returns. If uncertainty is managed appropriately, these higher returns can be realised. This is done by establishing optimal operational and managerial strategies over time to maximise value. These provide a roadmap for how the project should react to positive or negative future events. The result is an increase in the average project value.
ROMPEV started a Channel on YouTube and posted a video presentation on this topic.
Don't forget to visit ROPMEV's webpage for additional interesting topics.