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Abstract

The objective of this project is to develop a prototype software for valuation of investments in mining projects. The software is intended to be able to deal with a variety of situations. They include the use of different valuation methods (both traditional - net present value, internal rate of return, and real options-based - mainly an option value), as well as different types of decisional situations (deferral, abandonment or expansion options). In order to be user friendly and easily accessible, the software uses Visual Basic as a front end.

Keywords: Project valuation, real options, mining projects, software for investments

1. Introduction

A wide range of methods and techniques is available to valuate an investment. Along the life cycle of a mining project, appropriateness of use of a given method might depend on the specifics of the decisional situation involved. People involved in the investment decision making process for such a kind of project - either analysts or investors, might then face the hassle of choosing not only a valuation method but also a software. To make matters worse, most of the available commercial software is either: (1) linked to a single specific valuation method or type of methods, (2) not easily accessible (in terms of cost, technical complexity, availability - as might be the case of some less developed countries), and (3) not appropriate for a straightforward application for mining investment projects.

On the other hand, people involved in the decision making process in the above type of projects usually has a somehow structured knowledge of the behavior of the variables that might affect the project profitability.

This paper presents a prototype software which for a given decisional situation:

1. Allows the user to select alternative valuation methods - either conventional [8, 9, 10] or ROA-based [1, 5, 6, 7], and the profitability measure(s), and

2. Assumes some sort of basic knowledge by the analyst on the behavior over time and the nature - either deterministic or probabilistic, of a set of uncertainty sources (such as the commodity market price, the size of the deposit, the rate and cost of its depletion) which are used as inputs to model the net cash flows over the economic life of the project.

Furthermore, aimed at...

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