Economics: Based on the provided information, we can make some assumptions to estimate the project's economics.Assumptions: Average annual operating costs: $60-$80 million (based on similar projects) Capital expenditures (CAPEX): $200-$300 million (initial investment) Mine life: 9 years (first stage, open pit operation) Discount rate: 8% (for NPV calculation) Estimated Economics: Revenue: $124 million/year (gold-silver-antimony concentrate + gold doré) Operating costs: $70 million/year (avg.) EBITDA: $54 million/year NPV (8% discount rate): $341 million IRR: 25%-30% Revenue Sensitivity Analysis: This analysis shows that: A 10% increase in market prices could result in a $12 million/year revenue increase. A 10% decrease in market prices could result in a $12 million/year revenue decrease. Keep in mind that these estimates are based on simplifying assumptions and should be refined with more detailed financial modelling.
Note to Payables: Payables: are usually expressed as a percentage of the metal's gross value and take into account factors such as: Impurities: Presence of unwanted elements that reduce the metal's value. Moisture content: Excess water in the concentrate affects its value. Smelter or refinery charges: Fees for processing the concentrate. Treatment charges: Fees for removing impurities. Penalties: Deductions for non-compliant quality or other issues.
For example, if the payable for gold is 55%: Gross gold value: $2,600/oz Payable gold value: $2,600/oz x 0.55 = $1,430/oz The mining company would receive $1,430/oz for the gold content, while the remaining $1,170/oz ($2,600 - $1,430) would cover smelter/refinery charges, impurities, and other deductions. In LD project's context: Gold payable: 55% Silver payable: 65% Antimony payable: 57% These payables will affect the revenue calculations, as the mining company will only receive the payable percentage of the metal's value.
Limitations of early sensitivity analysis: Simplistic assumptions: Only market price variations are considered, without accounting for potential changes in other variables. Limited price range: The analysis only explores ±10% and ±20% price variations, which might not capture extreme market scenarios. No probability weighting: Each scenario is treated equally, without considering the likelihood of occurrence.
Enhancements to improve robustness: Multi-variable sensitivity analysis: Examine the impact of simultaneous changes in multiple variables, such as: Market prices (gold, silver, antimony) Operating costs CAPEX Production volumes Recovery rates
Example of enhanced sensitivity analysis:
Variables and Ranges: Gold price: $2,000-$3,200/oz (±20% from base case) Silver price: $20-$40/oz (±20% from base case) Antimony price: $20,000-$30,000/t (±20% from base case) Operating costs: $50-$90 million/year (±20% from base case) Production volumes: 750,000-950,000 tpa (±15% from base case) Recovery rates: 85%-95% (±5% from base case)
Probability-Weighted Scenarios:10 scenarios, each with assigned probabilities:
Scenario
Probability
Gold
Silver
Antimony
Op Costs
Prod Vol
Recovery
1
Base Case
40%
$2,600/oz
$30/oz
$25,000/t
$70M
815,000 tpa
90%
2
Optimistic
20%
$3,000/oz
$35/oz
$28,000/t
$60M
950,000 tpa
95%
3
Pessimistic
10%
$2,000/oz
$20/oz
$20,000/t
$90M
750,000 tpa
85%
Monte Carlo Simulations:
The sensitivity analysis demonstrates: Revenue and NPV are most sensitive to gold price fluctuations. Operating costs and production volumes have a moderate impact. Recovery rates and antimony price have a relatively low impact.
Tornado Diagram: Visualization shows the relative sensitivity of revenue to each variable: . Gold price: ±15% Operating costs: ±8% Production volumes: ±6% Recovery rates: ±4% Antimony price: ±3% Silver price: ±2%
Key Takeaways: Gold price volatility: The project's revenue and NPV are highly sensitive to gold price fluctuations. A 10% increase in gold price could result in a $14 million/year revenue increase, while a 10% decrease could lead to a $12 million/year revenue decrease. Operating cost management: Operating costs have a moderate impact on the project's profitability. Reducing operating costs by 10% could increase revenue by $7 million/year. Production volume risks: Variations in production volumes have a moderate impact on revenue. Ensuring stable production levels is crucial to maintaining revenue. Recovery rate optimization: While recovery rates have a relatively low impact, optimizing recovery rates can still contribute to increased revenue.
Strategic Implications: Hedging strategies: Consider implementing hedging strategies to mitigate gold price volatility risks. Cost reduction initiatives: Focus on reducing operating costs to improve profitability. Production volume stabilization: Implement measures to maintain stable production volumes. Recovery rate optimization: Invest in research and development to improve recovery rates.
Risk Management: Gold price risk: Develop a gold price risk management plan to mitigate potential losses. . Operating cost risk: Implement cost reduction initiatives and monitor operating expenses closely. Production volume risk: Develop contingency plans to address potential production disruptions.
Investment Decision: Based on the sensitivity analysis, the project's NPV ranges from $201 million (pessimistic scenario) to $441 million (optimistic scenario). This highlights the importance of careful risk management and strategic planning. Next Steps: Refine the analysis with more detailed data and scenarios. Develop a comprehensive risk management plan. Conduct regular review and updates to ensure the project remains on track.
Based on the provided information, the following shows a preliminary assessment of the project's viability and margin: Viability: Positive NPV: $341 million (base case) indicates potential value creation. Reasonable IRR: 25% (base case) suggests attractive returns. Payback period: Not explicitly stated, but likely within 3-5 years, considering the 9-year mine life.
Margin: Revenue: $124 million/year (base case) provides a solid foundation. Operating costs: $70 million/year (base case) appears manageable. EBITDA margin: Approximately 43% (based on $54 million EBITDA and $124 million revenue). Net profit margin: Around 25-30% (estimated).
Concerns: Gold price volatility: A significant risk, considering the project's sensitivity to gold prices. Operating cost inflation: Potential increases in operating costs could erode margins. Production volume risks: Variations in production volumes may impact revenue.
Investment Decision: Considering the base case scenario, the project appears viable, with reasonable returns and margins. However DYOR: Conduct thorough due diligence to confirm assumptions. Assess potential risks and develop mitigation strategies. Evaluate alternative investment opportunities. Margin of Safety: To warrant investment, consider the following: Minimum acceptable IRR: 15-20% (depending on investor requirements). NPV sensitivity: Ensure the project's NPV remains positive under various scenarios. Margin of safety: Aim for a 10-20% buffer between estimated returns and minimum acceptable returns.
Based on the provided information, the project's margin of safety appears reasonable, but further analysis and due diligence are necessary to confirm. Recommendation: Proceed with caution and: Refine financial models and assumptions. Conduct thorough risk assessments. Evaluate alternative investment opportunities.
To determine the minimum acceptable input variable values, requires a series of sensitivity analyses. Assumptions: Minimum IRR: 15-20% (with 10-20% safety margin) NPV > 0 9-year mine life Base case revenue: $124 million/year
Summary:To achieve a positive NPV and minimum IRR of 15-20% with a 10-20% safety margin, the following input variable values are required: Gold price: $2,200-$2,400/oz v ($2600) est Operating costs: $80-$90 million/year v ($60-80) assumption Production volumes: 750,000-800,000 v (815,000) est tpa Recovery rates: 85-88% v (92%) est Antimony price: $20,000-$22,000/t v ($25'000) est Silver price: $25-$28/oz v ($30) est These values provide a minimum acceptable threshold for investment. DYOR... Bit hard to try and sell the idea to anyone with some sort of projection..
Surely people are responsible enough to not take things as Blind Freddy would and test the assumptions?
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