Economic and financial risk analysis for the evaluation of mining project

Program of economic and financial risk analysis for the evaluation of mining project using a probabilistic method. The program is written in basic language and works on an IBM computer and compatibles. The model carries out two types of evaluation, which consist in Economic Evaluation and Financial Evaluation.

Economic Evaluation
The program treats economic risks by carrying out several aleatory run off that take into account the evolution of the market de metals, the expenses, reserves etc. and affects a repartition function of the actual net value that represents the risk profile of the project thanks to the calculus of probability of loss, of medium loss and deviation standard.

The analysis is done in a constant currency and refers to the beginning point of the project. Profitability is calculated as if an auto financing of the project of the project existed at 100 percent. The Treasury flow is calculated without taxes. The criteria of economic profitability used is the calculus of the actual net value and the debt coverage ratio.

Financial Evaluation
In order to carry out the financial evaluation the structure of the investment is taken into account, as well as the ratio of individual funds and loans, investment program, relationship with the reference currencies: local and those of loans.

The analysis is done in average currency and takes into account the taxes and inflation if one so desires. It also distinguishes the risks from the point of view of the loaner and the promoters. In the case of the loaner, in other words a bank, they are interested in the capacity of the project to see how it is going to be able to provide the treasury flow that will allow the debtor to pay up the external debt.

The promoter risk allows putting into evidence the capacity of the mine to adapt to problems originated by modification in the rhythm of production, costs of operation and others. The economic parameters that are considered are the means of the simulations that has to do with the calculus of the actual net value and the financial debt coverage ratio.

Conclusion
We have presented the needs for financing for the mining industry and especially for the development of auriferous projects. Without lines of financing there is not much that can be done to re-launch the mining industry. The evaluation of mining projects should follow along with certain rules in order to obtain more knowledge of the project that is going to be financed. We have also mentioned the main problems that can be found in the evaluation of credits and the actual state of the mining operations. We presented some criteria that need to be kept in mind when a project is being evaluated. We also highlight on the importance of the verification of the reserve calculus and the proof sampling. We also place special attention to the importance of dimensioning the needs of each project and carrying out the stages of development according to the level of recognition of the deposit.

It is important to re-launch projects that are already known of gold, and to choose the best strategy for its development. We have also looked at the techniques that are being used in France to the evaluation of mining projects with the help of microcomputers. The participation in the elaboration of the MAFMO program allows transmitting it to the mining industry in the country. The concept of risk analysis is a new methodology that should be used in the financial entities. Passing from the determined method to the probable method will present the technical information and will quantify the risk and this then allows the managerial levels to have certain elements of judgment in order to make better decisions. The modern evaluation of a mining project should keep in mind the sensibility analysis concerning internal factors of a deposit such as tonnage, external factors like variation on the prices in the markets of metals and interest rates.

The uncertainty of what is to come is a characteristic of mining activity that has always been a high-risk business. Inside certain limits, it is possible to quantify that risk though. The development of micro-informatics puts at reach of the mining industry the utilization of tools that were put away until now to bigger companies and investigation institutes.