V. quickly, project financing needs to ass risk factors, and all projects are assessed via a NPV and IRR - somtimes a MIRR is used along with computer simulation.
The IRR is used to project cash flows as it takes into account eg. CAPEX. The NPV ignores the $s needed to extract a pound of tungsten for instance. eg. a NPV that is high does not mean it is more profitable than one that is lower. Also the MIRR can also be used as it takes into account the discount rate and possibility for re-investment. This is why in all DF Studies, both the IRR and NPV are released - along with perhaps a computer simulation. All 3 are used to project scenarios for cash flow analysis to enhance measures of risk assessment and identification in project financing/commercial decisions. None are perfect.
Also, the NPV does not take into account the scale of the project costs. This is why financiers use both. eg. If Project X has a NPV of $200m and Project Y has a NPV of $150m, using the NPV alone, you'd think Project X would have a higher profit margin. It may not, as Project Y's total cost of project may be 50% less. This is when the IRR comes in. To overcome any inefficiencies in the IRR, they may modify the IRR and use the MIRR. This is why THR has a discount rate.
So you're right, the IRR alone is not altogether vital, however when combined with the size of the resource and in particular, THR's short mine life, it was for me a fair indicator and is perhaps why THR will be going back to somehow lift the reource by multiples. The size of resource and mine life are very sig. when comparing and contrasting along with both the NPV, IRR and potenital MIRR.
Hope this helps.
THR Price at posting:
1.5¢ Sentiment: None Disclosure: Not Held
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