Analysis of risk in mining projects

CIM Bulletin, Vol. 75, No. 843, 1982

T. ALAN O'HARA, Vice-President, Technical Development, Hudson Bay Mining and Smelting Co., Limited, Anglo American Corporation of Canada Limited, Toronto, Ontario

The decision to invest capital in developing a mine and constructing a mineral processing plant and services is usually made after a feasibility study shows that the estimated future cash flow from mine operations will yield an adequate return on the estimated capital expenditures.The actual return on investment may differ substantially from that estimated in the feasibility study, because of the probabilities of errors in estimating capital costs, ore reserves, operating costs, mineral revenue and operating productivity. This paper outlines the R.S.S. (root sum of squares) risk analysis procedure of computing the overall probability of the actual project D.C.F. (rate of discounted cashflow), differing from that estimated in the feasibility study.
Keywords: Mineral economics, Mining projects, Risk analysis Investment, Cash flow, Probability curves, Simulation.