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Mining Risk & Decision Analysis
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Mining Risk & Decision Analysis

2-Day Training Course: An Excel-based, hands-on examination of financial risk & decision analysis applied to investment in mining projects from exploration to pre-feasibility. Learn about the properties of hematite & magnetite, their processing requirements & what makes them a saleable iron ore that’s of market quality & meets customer requirements

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Key Learning Objectives

  • Evolve from risk-neutral decisions based on expected value to riskaverse decisions incorporating investors’ attitudes and risk tolerances
  • Identify and quantify risk using sensitivity and scenario analyses and Monte Carlo simulation
  • Examine recent developments in project modeling and evaluation using financial risk management principles such as Modern Asset Pricing (MAP) and Real Options Valuation (ROV)
  • Acquire skills to identify, model and evaluate simple real options common in mineral exploration and mining projects
  • Critically assess financial models generated by others

About the Course

Appreciate that a static Discounted Cash Flow (DCF) NPV only measures part of the value of a project value as it doesn’t capture the value of managerial flexibility.

By learning from emerging new information and circumstances, which progressively dispel uncertainty, managers of projects with a high level of flexibility become able to adjust their course of action to capitalise on emerging positive changes/events and/or avoid/minimise the impact of adverse ones.

This has the capacity to add significant Real Option Value (ROV) to the NPV of projects with natural or designed flexibility, particularly when their product is a commodity with a high level of price volatility. The course will help participants to recognize, model and value common sources of ROV in exploration and mining projects.

Laptops & some familiarity with Excel are a requirement at this course

Who Will Benefit

This course will be an ideal introduction to risk analysis and advanced project evaluation methodologies for professionals in the mineral exploration, mining and the securities industries, whose task is to evaluate risky investment opportunities.

Participants are expected to have some familiarity with Discounted Cash Flow (DCF) evaluation techniques, the use of Excel spreadsheets and with the mining industry in general


The instructor] has a lot of practical experience in actually applying the methods
Manager Business Development, Xstrata

I learnt most from the instructors] worked examples… His depth of knowledge and experience in mining/finance areas
Mining Engineer, Maccarthur Coal

Course Outline

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

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

On-site & in-house training

Deliver this course how you want, where you want, when you want – and save up to 40%! 8+ employees seeking training on the same topic?

Talk to us about an on-site/in-house & customised solution.


Still have a question?

Sushil Kunwar
Training Consultant
+61 (0)2 9080 4395

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