Personal tools

Course Outline


Review of Discounted Cash Flow (DCF) Modeling and Evaluation of Mining Projects

Download Course Brochure

DCF modeling & evaluation

  • This session will bring participants who are a little “rusty” in DCF analysis up to speed
  • Review of fundamental DCF analysis principles
  • Simple financial models in both real and nominal money terms
  • Derivation of commonly applied financial criteria of value such as NPV, IRR etc.
  • Constructing a realistic financial model of a mining project
  • Avoiding common errors and pitfalls in modeling

Sensitivity & scenario analysis

  • Sensitivity tables and matrices
  • Spider and Tornado diagrams
  • Excel Scenario Manager facilities

Risk Analysis

  • Introduction to risk analysis principles
  • Fundamentals of uncertainty, risk and probability
  • Risk-neutral decisions
  • Expected value (EV), the binomial probability distribution and risk of gambler's ruin

Decision trees & conditional (Bayesian) probabilities

  • EV of an exploration program
  • Measuring the contribution of an exploration survey to improve the probability of discovery

Risk-averse decisions

  • Risk attitudes and profiles
  • From EV to the related certainty equivalent (Cx) and the price of risky projects
  • Risk-spreading and risk management by joint venturing

Monte Carlo simulation

  • The "expected" base case
  • Probability distributions of inputs
  • Resultant distribution of possible outputs and their interpretation

Modern Asset Pricing (MAP)

  • Overcoming the limitations and bias of discounted cash flow (DCF) analysis
  • Forward prices and hedging of commodity price risk
  • Constructing a MAP model of a mining project
  • Comparing a MAP and a corresponding DCF model

Risk Management


Examining real options valuation (ROV) methods

  • General option principles and characteristics
  • An introduction to Real Options Valuations (ROV)
  • Closed-form equations
  • Binomial lattices
  • Decision trees
  • Risk neutralisation methods:
    • Replicating portfolio
    • State prices
    • "Risk-neutral" probability
  • The “roll back” process to valuing real option in the present

Application of the Black & Scholes (B-S) formula

  • Evaluating a gold forward
  • Evaluating a marginal mining project
  • Limitations of the application of the B-S formula to real options

Application of the binomial lattice & decision tree methods to mining examples

  • Single, multiple, sequential and compound options
  • Single option - Evaluating a mine expansion project
  • Multiple option - Evaluating tonnage-grade trade-offs
  • Sequential/compound option - Evaluating a farm-in agreement
Keep updated with the latest news and happenings  Follow us on Linkedin  Follow us on Twitter  Featured speaker presentations  Watch event highlights and exclusive interviews  Google+  Flickr-Informa Australia