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Autumn in Colorado

Autumn in Colorado. 18. 2011 SME Annual Meeting Feb. 27-Mar. 2, 2011, Denver, Colorado, US.

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Autumn in Colorado

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  1. AutumninColorado 18

  2. 2011 SME Annual MeetingFeb. 27-Mar. 2, 2011, Denver, Colorado, US Economic Evaluation and Sensitivity-Risk Analysis of Zarshuran Gold Mine Project Authors: Kazem Oraee; University of Stirling, UK Ahmad Sayadi; Tarbiat Modares University, Iran Mahdi Tavassoli; Tarbiat Modares University, Iran

  3. Outline • Introduction • Methodology • Case Study • Cost and Income Estimation • Discounted Cash Flow (DCF) Analysis • Sensitivity Analysis • Risk Analysis • Conclusions

  4. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Economic Evaluation of Mining Projects • Discounted Cash Flow- the most suitable method • Constraints • Uncertainty of internal data • Uncertainty of external data

  5. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Risk Analysis of Mining Projects • Sensitivity Analysis • Scenario Analysis • Decision Tree • Root Sum of Squares (RSS) • Mont Carlo Method

  6. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Methodology • Develop an economic model by COMFAR software- DCF table construction. NPV, IRR and Payback are calculated • Sensitivity Analysis • Finding the most effective parameters on variations of NPV • To determine the probability distribution of the most effective parameters • To perform the probability analysis of NPV with the help of Mont Carlo simulation by @Risk software

  7. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Zarshuran Gold Mine Project • The most important gold deposit in Iran • Discovered by: Anglo American Company in 1995 • Owned by: IMIDRO, a state-owned company

  8. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Zarshuran Gold Mine Project • Tonnage of inferred ore: 55 tons of Gold

  9. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Zarshuran Gold Mine Project • The mine is in construction phase/ planning stage • Planned ore production: 750,000 tons/year • Ultimate stripping ratio: 13.6

  10. Zarshuran Gold Mine Project Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis • Planned mill plant production: 3,060 kg of gold 1,270 kg of silver • Project’s lifetime: 18 years including 3 years as construction phase 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 10

  11. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Initial investment for the mine

  12. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Initial investment for the mill plant

  13. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Operating annual costs for the mine

  14. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Operating annual costs for the mill plant

  15. Annual income Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis • Average gold price (2003-2009): 621.17 $/oz 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 15

  16. Annual income Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis • Average silver price (2003-2009): 10.34$/oz 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 16

  17. Annual income Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Total Annual Income = 3,060 (kg/year) ×621.17 ($/oz) × 32.15 (oz/kg) + 1,270 (kg/year) × 10.34 ($/oz) × 32.15 (oz/kg) = $ 61.5 Million 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 17

  18. Net Present Value of the Project Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis • Discount rate = % 15.4 (The average inflation rate for the last 7 years) • NPV = + $ 36.6 Million 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 18

  19. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Net Present Value and Internal Rate of Return • IRR = 22.5% ($ Million)

  20. Cumulative Value of the Project(Payback Period) Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 20

  21. Cumulative Net Present Value of the Project (Discounted Payback Period) Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 21

  22. Cumulative Net Present Value of the Project (Discounted Payback Period) Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis ($ Million)

  23. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Sensitivity Analysis

  24. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Sensitivity Analysis Therefore, instead of absolute numbers for most effective parameters: GoldPrice, SilverPrice and Discount Rate probability distributions are used

  25. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Probability distribution of gold price($/oz Thousand)

  26. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Probability distribution of silver price($/oz)

  27. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Probability distribution of inflation rate

  28. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Results of Mont Carlo simulation NPV = $ 49.65 Million This is the most probable NPV and not$ 36.6 Million

  29. Sensitivity ranking by Mont Carlo Method Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 29

  30. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Risk Analysis Based on Forecast Data NPV is most sensitive to Gold Price Average price taken here to be 621.17 $/oz Future price estimation: World Bank forecasts that gold price will be 1,000 $/oz in 2020. This corresponds to growth in gold price of 5.4 % per year 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 30

  31. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Risk Analysis Based on Forecast Data Therefore: If total costs increase by less than 5.4 % per year, NPV will increase 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 31

  32. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Conclusion • Sensitivity Analysis showed that the selling price of gold and silver; and discount rate are the most important parameters. This is often the case in mining projects.

  33. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Conclusion • The NPV and IRR of the project are calculated to be + $ 36.6 Million and %22.5 respectively. This is an attractive project for most investors. Based on the results of risk analysis, the average value for NPV is +$ 49.65 Million. We call this expected NPV.

  34. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Conclusion • Mont Carlo simulation also ranks the importance of important parameters to be: • Gold Price • Discount Rate • Silver Price

  35. Thank you for your attention

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