Abstract
Long-term open pit mine planning is a complex process which deals with numerous uncertainties, whether they are economical (commodity price, operational costs, production schedule, discount rate, inflation, among others); geological (grade distribution, density, hardness, etc); or physical constraints (property limits, environmental issues, legislation, etc). In this context, this paper aims to evaluate the effects of the variation of two important variables: commodity price and discount rate, with regard to the economic criterion, represented by the Net Present Value (NPV) of the mining business. Starting from a baseline value of US$ 80/t, the commodity (phosphate rock was used as a case study) price was varied within a 50% range, above and below the baseline value, obtained from historic values from the last 5 years. The discount rate values adopted in the analyses were 6%, 8%, 10%, 12%, 14%, 16%, 18% and 20%. The results showed increases in the market price yielded higher NPV and life of mine values. On the other hand, it was noted that increases in the discount rate can significantly alter the NPV, materially reducing the value of the mining undertaking. It is also worth noting that, in contrast to more robust approaches such as Real Options Theory (ROT), traditional Discounted Cash Flow (DCF) methods, such as NPV, assume variables, such as commodity price, to be fixed, which could either lead to the undervaluation or overvaluation of a project.
Highlights
Mining activities have, for thousands of years, constantly contributed to the development of society as a whole, with the high living standards of modern day’s society being completely dependent upon the production of mineral goods
Long-term open pit mine planning is a complex process which deals with numerous uncertainties, whether they are economical; geological; or physical constraints
This paper aims to evaluate the effects of the variation of two important variables: commodity price and discount rate, with regard to the economic criterion, represented by the Net Present Value (NPV) of the mining business
Summary
For thousands of years, constantly contributed to the development of society as a whole, with the high living standards of modern day’s society being completely dependent upon the production of mineral goods. The success of a mining business from a production standpoint is not always followed by its success from an economic perspective. The mining industry has contributed to 4.3% of Brazil’s Gross Domestic Product (GDP) in 2017, peaking at a value of US$ 21.6 billion, of which 62% came from iron ore concentrate [1]. Mining projects are complex businesses which constantly demand risk evaluation [2 - 4]. The evaluation and estimation of a mining project’s value, not to mention the risks of future losses (or opportunities), could certainly lead to unsatisfactory
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