DISCOUNT RATES AND RISK ASSESSMENT IN MINERAL PROJECT EVALUATIONS

The concept of risk ir; well established in the mining industry. It ir acknowledged when estimates of reserves are expressed as proven or pr obable, when mining and metallurgical recoveries are applied to the or e, and when contingencies are added to costs. However, it is difficult to provide a quantitative assessment of risk. The significant sources of risk in a mineral project and how these are addressed in project e valuations are discussed. The discount rate is examined as a fundament al means of reflecting risk in discounted cash flow evaluations. Curre nt industry practice is discussed, and a methodology for the analysis of risk levels is proposed that assesses the constituent components of the discount rare: real interest, mineral project risks, and country ride.