SWS Academic Research eLibraryEarth & Planetary Sciences

Scholarly record

THE APPLICATION OF RISK ANALYSIS IN EVALUATION OF MINERAL PROJECTS BASED ON THE MONTE CARLO SIMULATION TECHNIQUE; @RISK SOFTWARE APPLICATION

M. Z. Naghadehi

First published: 2007DOI pendingView metrics

Abstract

The mineral projects have a number of characteristics that make them somewhat different from other types, including the usual long-lived nature of the operation, the pronounced cyclical nature of mineral prices and so on. These increases the risk of mining ventures compared to other types of investment opportunities. Thus this paper has been prepared to presenting the methodology and application of Monte Carlo simulation technique as used in the evaluation of mineral projects to analyze and measure risk. The objective of Monte Carlo simulation is to provide the probability distribution of possible outcomes. During the simulation process, random scenarios are created using input values for the project’s key uncertain variables (e.g. costs, volume of sales, sales price), which are chosen from appropriate probability distributions. The results are gathered and analyzed statistically in order to reach a probability distribution of the future outcomes followed by analysis and identification of the risk characteristics of the project. The flexibility of spreadsheets and their statistical capabilities make them a common framework for simulation modeling. In this paper, the cash flow of a mineral project has been considered. Then, for the Monte Carlo simulation, Excel spreadsheet tools and also a powerful software (@Risk) have been used. Finally, the paper examines output data from analysis of the project for its risk assessment.

Publication details

Title
THE APPLICATION OF RISK ANALYSIS IN EVALUATION OF MINERAL PROJECTS BASED ON THE MONTE CARLO SIMULATION TECHNIQUE; @RISK SOFTWARE APPLICATION
Authors
M. Z. Naghadehi
Proceedings
7th International Scientific Conference - SGEM2007
Publisher
SGEM Scientific GeoConference
Year
2007
Pages
Not available yet
ISSN
1314-2704
ISBN
954-918181-2
Language
en
Publication type
Conference Paper
Keywords
Excel SpreadsheetGeoinformaticsMineral Projects EvaluationMonte Carlo SimulationRisk Analysis
References6

  1. Howard, R.A. 1988. “Decision Analysis: Practice and Promise”, Management Science, 34(6):122-136.

  2. Labys, W. 1992. “The Changing Severity and Impact of Commodity Price luctuations”, Overcoming the Third World Economic Crisis. Essays in honor of Alfred Maizels. Edited by M. Nissanke. Oxford, England: Oxford University Press.

  3. Torries, F.T. 1998. “Evaluating Mineral Projects: Applications and Misconceptions”, Societ af Mining, Metallurgy and Exploration, Inc. (SME).

  4. Davis, G.A. 1995a. “(Mis)use of Monte Carlo Simulations in NPV Analysis”, Mining Engineering, 47(1):75-79.

  5. Pindred, R.J. 1995. (Mis)use of Monte Carlo Simulations in NPV Analysis:Discussion. Mining Engineering, 47(12):861-862.

  6. Stermole, F.J., and J.M. Stermole. 1993. Economic Evaluation and Investment Decision Methods, 8th ed. Golden, Colo.: Investment Evaluations Corporation.

View or Download full articleAccess options
Full paper accessChoose SWS login, librarian support, or instant article download.

SWS access login

Login as SWS Scientific Committee

Authors and approved SWS contributors will read and export their own linked papers after identity matching by SWS profile, email and SGEM GlobalID.

For librarian assistance: [email protected]

Purchase Instant Access

48-hour online accessComing soon
Online-only accessComing soon
Download the full article in PDF formatEUR 35
  • Article can be downloaded after successful payment.
  • Article may be used according to SWS library access terms.
  • Article cannot be redistributed.
Get full paper

Back to publication list