Sensitivity Analysis

Mine Valuation – Spring 2016 1

 Quantitative Process of a Feasibility Study
Assumptions
Reserves
Production Quantities – Waste, Ore, Product, Grade
Revenue
Capital Budget
Iterative
General Labor Budget, Operating Hours, Supply Quantities Process
Progression
Operating Cash Costs
Non-cash Costs – Depletion, Depreciation, Development
Income after Tax
Cash Flow
Net Present Value, Discounted Cash Flow Rate of Return
Sensitivity and Risk Analyses

Mine Valuation – Spring 2016 2

 Sensitivity Analyses

• “What If” or Scenario Analyses

• Spider Diagram

• Tornado Chart

• Stochastic Analysis

Mine Valuation – Spring 2016 3

Frequent Spider Diagram Sensitivity Analyses

 Price
 Cost
 Capital
 Grade / Quality
 Sales Quantities
 Production Quantities
 Inflation / Escalation
 Exchange Rates

Mine Valuation – Spring 2016 4

 Gypsum Mine Sensitivity Analysis
+/-
Price $1.00 $0 -$1.00 $1.00
NPV - $000's $4,344 $305 -$3,531
IRR 20% 13% 4%

Sensitivity of IRR & NPV to Price

25% $6,000
20% $4,000

NPV ($000,s)
15% $2,000 IRR versus Price
IRR

10% $0 NPV versus Price

5% -$2,000
0% -$4,000
$1.00 $0 -$1.00
Price per Ton Change
Mine Valuation – Spring 2016
2012 5
 Gypsum Mine Sensitivity Analysis - Continued
Grade 3% 0% -3% +/- 3%
NPV $6,564 $305 -$9,187
IRR 24% 13% -18%

Sensitivity of IRR and NPV to Grade

30% $10,000
20%
$5,000

NPV(000's)
10%
IRR versus Grade
IRR

0% $0
NPV versus Grade
-10% 3% 0% -3%
-$5,000
-20%
-30% -$10,000
Change in % Gypsum
Mine Valuation – Spring 2016
2012 6
 Gypsum Mine Sensitivity Analysis - Continued
Prod. Rate 1100 1000 900 +/- 100
NPV $1,873 $305 -$3,074
IRR 16% 13% 5%

Sensitivity of IRR and NPV to Production Rate

20% $3,000
$2,000

NPV ($000's)
15% $1,000 IRR versus Prod.
$0 Rate
IRR

10%
-$1,000 NPV versus Prod.
5% -$2,000 Rate
-$3,000
0% -$4,000
1100 1000 900
Production Rate (000's tons per
year)
Mine Valuation – Spring 2016
2012 7
 Gypsum Mine Sensitivity Analysis - Continued

Capital 10% 0% -10% +/- 10%

NPV -$471 $305 $1,084
IRR 11% 13% 14%

Sensitivity of IRR & NPV to Capital

15% $1,500
$1,000

NPV ($000's)
10%
$500 IRR versus Capital
IRR

$0 NPV versus Capital

5%
-$500
0% -$1,000
10% 0% -10%
Capital Variance
Mine Valuation – Spring 2016
2012 8
 Gypsum Mine Sensitivity Analysis - Continued
Oper. Costs 10% 0% -10% +/- 10%
NPV -$2,359 $305 $2,986
IRR 7% 13% 18%

Sensitivity of IRR & NPV to Cash Operating Costs

20% $4,000
$3,000

NPV ($000's)
15% $2,000
$1,000
IRR

10%
$0 IRR versus Cash
5% -$1,000 Operating Costs
-$2,000
0% -$3,000 NPV versus Cash
Operating Costs
10% 0% -10%
Cash Operating Cost Variance

Mine Valuation – Spring 2016 9

 Gypsum Mine Sensitivity Analysis - Continued
Fed. Tax Rate 25% 28% 35% 40%
NPV $727 $601 $305 $94
IRR 13.4% 13.2% 12.6% 12.2%

Sensitivity of IRR & NPV to Federal Tax Rate

13.5% $800

NPV ($000's)
13.0% $600 IRR versus Federal
Tax Rate
IRR

12.5% $400
NPV versus Federal
12.0% $200 Tax Rate

11.5% $0
25% 28% 35% 40%
Federal Tax Rates

Mine Valuation – Spring 2016 10

 Gypsum Mine Sensitivity Analysis - Continued
Inflation 0% Plan 3% 4%
NPV -$309 $305 $1,178 $1,727
IRR 11% 13% 14% 15%

Sensitivity of IRR & NPV to Inflation / Escalation

Plan
20% $2,000
15% $1,500 IRR versus Inflation /
$1,000 Escalation
IRR

10%
$500 NPV versus Inflation
5% $0 / Escalation
0% -$500
0% Plan 3% 4%
Inflation / Escalation Rate

Mine Valuation – Spring 2016 11

 Tornado Chart
Gypsum Mine
NPV

Price - 10% ($3531) $4344 + 10%

Sales - 10% ($3074) $1873 + 10%

Capital + 10% ($471) $1084 - 10%

Costs + 10% ($2359) $2986 - 10%

Grade - 3% ($9187) $6564 + 3%

Mine Valuation – Spring 2016 12

 Análisis de Riesgo

 Riesgo: Desviación imprevista del flujo de Caja individuales de

los valores previstos para un proyecto de capital.
 Calidad de Estimado
 Calidad y Cantidad de Datos de Estimación
 Leyes de Cabeza
 Comportamiento Metalúrgico
 Costos de Operación
 Costos de Inversión
 Cambios de Oferta y Demanda de Minerales
 Nuevos Proyectos de Inversión
 Cambios Economía Mundial
 Protección Ambiental
 Sustitutos
 Otros

M.Eng. Roberto Maldonado

Astorga
 Tipos de Riesgo

• Las compañías mineras corren dos tipos básicos de riesgo: el riesgo financiero y el
riesgo comercial.
– El riesgo financiero se refiere a la incertidumbre de las ganancias que la
empresa acepta voluntariamente debido a su estructura de capital. Las
empresas financieramente riesgosas emplean una cantidad relativamente
grande de financiación por deuda y, por lo tanto, tienen un alto palanqueo.
Cambios relativamente pequeños en los ingresos se ven ampliados en la
ganancia neta debido a los cargos fijos por el servicio de la deuda.
 
– El riesgo comercial está definido por el tipo de negocios al que se dedica una
empresa y se refleja en la fluctuación de las ganancias netas antes de los
cargos por intereses y el impuesto a la renta. Un ejemplo de empresas con bajo
riesgo comercial son los servicios públicos cuyas ventas y costo pueden
proyectarse al futuro con considerable precisión. Estos permite a los servicios
asumir un riesgo financiero bastante elevado mediante una extensa financiación
por deuda sin poner en gran peligro las ganancias previstas de los accionistas
comunes. Ocurre lo contrario con la mayoría de compañías mineras en las que
el riesgo comercial relativamente alto no ha alentado estructuras de capital con
algo palanqueo. En efecto, los bajos niveles de la financiación por deuda
constituyen una buena indicación
M.Eng. Roberto Maldonado
Astorga
 Como Considerar el Riesgo

• Período de Recuperación Ajustado al Riesgo. Uno de los métodos que se usan

para contrarrestar el riesgo es exigir períodos de recuperación más cortos para
los proyectos más riesgo
• Tasa de Descuentos Ajustados al Riesgo. Es muy común que las empresas
requieran que los proyectos arriesgados tengan tasas de rendimiento sobre la
inversión más alta que los “más seguros”.
– Reemplazo de equipo en una operación en marcha. Se conoce el
“mercado”, la tecnología está probada, de modo que el riesgo es bastante
bajo. Quizás aquí sea aceptable una tasa de descuento de 10%.
– Aplicación operaciones existente. Muchos problemas técnicos ya han sido
resueltos, pero puede haber un problema de comercialización. ¿Podrá
venderse la producción adicional a los precios previos a la ampliación?
Este nuevo riesgo puede indicar que estaría en orden adoptar una tasa de
descuento más elevada -digamos, 15 por ciento.
– Abrir una nueva operación; ingresar a un nuevo mercado, etc. Aquí son
muchas las fuentes de incertidumbre, justificado, quizás un 20 por ciento
como la tasa de rendimiento mínima aceptable para tales proyectos.
• Análisis de Probabilidades

M.Eng. Roberto Maldonado

Astorga
 Modelos Estocásticos de Análisis de Riesgo

 Establece Distribuciones de Probabilidad para las Variables

 Con cada una de las Distribuciones de Probabilidad Obtenemos
Mediante Árboles se estima el TIR
 Se agrupan los TIRs de acuerdo a Clases
 Se Determina la Frecuencia de Cada Clase
 Se Elabora el Histograma de Probabilidades
 Se Elabora el Histograma de Probabilidades Acumulada

M.Eng. Roberto Maldonado

Astorga
 Caso Mina Clase

 La Mina Clase está evaluando la ampliación de su mina de

Cobre.
Los datos se dan a Continuación:

Capacidad Actual 9 000 TCD

Capacidad Ampliada 12 000 TCD
Ampliación 3 000 TCD
Inversión $ 13 500 000
Ley Cabeza 0,80%
Costos Efectivos Anuales Adicionales 3 500 000
Vida de Mina 10 años
Días Operativos año 350 años
Precio Neto 0,50 $/ lb

M.Eng. Roberto Maldonado

Astorga
 Solución Caso Base

 Producción Anual de Cobre

 0,008 x 2 000 lb/TC x 3 000 TC/Día x 350 Días / Año x 0,90 = 15 120
000 lbs

 Ingreso Bruto
 Ingreso = 15 120 000 lbs x 0,50 $/ lb = $ 7 560 000
 Menos Costos = $ 3 500 000
 Ingreso Neto Efectivo = $ 4 060 000

 TIR
 P = A (P/A, i, n)
 13 500 000 = 4 060 000 x F (P/A,i,n)
 De Donde TIR = 27,4 %

M.Eng. Roberto Maldonado

Astorga
 TIR

• Definición de TIR
– Es el Interés que hace que el VPN sea “0”

VPN $

TIR

Tasa %

M.Eng. Roberto Maldonado

Astorga
 Caso

Recuperación Ley de Mineral Costo

Metalúrgica Mina Cu Inversión $

Estimado Probabilidad (p) Estimado Probabilidad (p) Estimado Probabilidad (p)

90 % 0,60 0,75 0,40 13 000 000 0,05

85 % 0,40 0,80 0,50 13 500 000 0,55

0,85 0,10 16 000 000 0,40

M.Eng. Roberto Maldonado

Astorga
 Rec. Planta = 85%
Ley de Mineral = 0,75 % (p=0,008)
( p= 0,02) Rec. Planta = 90%
(p=0,012)

Rec. Planta = 85%

Inversión $ 13 MM Ley de Mineral = 0,80 % (p=0,01)
( p= 0,05) (p=0,025)
Rec. Planta = 90%
(p=0,015)

Rec. Planta = 85%

(p=0,002)
Ley de Mineral = 0,85%
( p= 0,005) Rec. Planta = 90%
(p=0,003)

Rec. Planta = 85%

Ley de Mineral = 0,75 % (p=0,088)
( p= 0,22)
Rec. Planta = 90%
(p=0,132)

Rec. Planta = 85%

Inversión $ 13,5 MM Ley de Mineral = 0,80 % (p=0,11)
( p=0,55) (p=0,275)
Rec. Planta = 90%
(p=0,165)

Rec. Planta = 85%

(p=0,022)
Ley de Mineral = 0,85%
( p= 0,055) Rec. Planta = 90%
(p=0,033)

Rec. Planta = 85%

Ley de Mineral = 0,75 % (p=0,064)
( p= 0,16)
Rec. Planta = 90%
(p=0,096)

Rec. Planta = 85%

Inversión $ 16 MM Ley de Mineral = 0,80 % (p=0,08)
( p= 0,40) (p=0,20)
Rec. Planta = 90%
(p=0,12)

Rec. Planta = 85%

Ley de Mineral = 0,85% (p=0,016)
M.Eng. Roberto Maldonado
( p= 0,04 ) Rec. Planta = 90%
(p=0,024)
Astorga
 Tasa de Retornos Para Posibles Resultados

Inversión $ 13 000 000 Inversión $ 13 500 000 Inversión 16 000 000

Caso TIR Probabilidad TIR Probabilidad TIR Probabilidad

1 20,90 0,008 19,80 0,088 15,00 0,064

2 25,00 0,010 23,80 0,110 18,60 0,080

3 29,00 0,002 27,60 0,022 22,10 0,016

4 24,50 0,012 23,30 0,132 18,20 0,096

5 28,70 0,015 27,40 0,165 21,90 0,120

6 32,80 0,003 31,40 0,033 25,40 0,024

M.Eng. Roberto Maldonado Astorga 22

 Histograma de Probabilidades

0.40
0.378

0.35

0.30
0.272
0.25

0.204
0.20

0.15

0.10
0.064 0.046

0.05
0.036

15 18 21 24 27 30 33

M.Eng. Roberto Maldonado

Astorga
 Histograma de Probabilidades Acumuladas

1.00
0.964
1.00

0.76
0.80
0.714

0.60

0.40 0.336

0.064 0.064

15 18 21 24 27 30 33

M.Eng. Roberto Maldonado

Astorga
Probabilidad que el TIR Exceda Ciertos Valores

X , TIR Probabilidad ( Resultado

>= x
15 % 1,000

18 % 0,936

21 % 0,664

24 % 0,286

27 % 0,240

30 % 0,036

33 % 0,000

M.Eng. Roberto Maldonado

Astorga
 Quantitative Risk Analysis

Use of statistical analysis and / or computer simulations to

assess risk and develop approaches to manage the risk

Stochastic (probabilistic) simulations

@Risk or Crystal Ball software

Mine Valuation – Spring 2016 26

Types of Quantitative Risk Analyses
• Deterministic
 Average, median, most likely
• Stochastic
 Probability distribution
 Monte Carlo simulations
• Decision trees
 Deterministic or stochastic
 Evaluation of alternatives under uncertainty
 Value of information analysis
 Utility theory – risk tolerance comparisons
 Bayes Theorem – imperfect information
• Inductive
• Sensitivities
 Can be applied to any methods
• Other Mine Risk Management – 2016 27
 Stochastic Modeling
Event p

Deterministic Model –
using average or most likely value
Probability Table
Quantify Risk -
Replace numbers
Triangular Distribution with probabilistic
distributions

Normal Distribution Compute using

Monte Carlo
Other? simulation

Results for Decision -

Shows range of possible results
by probability
Mine Risk Management – 2016 28
 Deterministic Calculations

Starting point for most stochastic models is a deterministic model.

Mine Risk Management – 2016 29

Mine Risk Management – 2016 30
Deterministic versus Stochastic Example - Data

Bucket capacity (B) = 25loose CY

Bucket fill factor (BF) = 0.95 
Density (D) = 2.85tons / bank CY
Availability (A) = 85%
Job & management factor (J) = 0.8 
Swell factor (S) = 25%
Cycle time for loading ( C ) = 54seconds

Mine Risk Management – 2016 31

Deterministic versus Stochastic Example – Set-up
Bucket capacity (B) = 25 loose CY
Bucket fill factor (BF) = 0.95  
Density (D) = 2.85 tons / bank CY
Availability (A) = 85%
Job & management factor (J) = 0.8  
Swell factor (S) = 25%
Cycle time for loading ( C ) = 54 seconds
     
Loading production output (O) = 2,455 tons / hour

Deterministic

Bucket capacity (B) = 25 loose CY Fixed 25    

Bucket fill factor (BF) = 1.013866132   Triangle 0.8 0.95 1.1
Density (D) = 2.889265354 tons / bank CY Normal 2.85 0.15  
Availability (A) = 62% Triangle 0% 85% 100%
Job & management factor (J) = 0.816674347   Triangle 0.6 0.8 0.95
Swell factor (S) = 26% Normal 25% 5%
Cycle time for loading ( C ) = 57.86729987 seconds Lognormal 12 6 42
     

Loading production output (O) = 1,821 tons / hour

Stochastic
Mine Risk Management – 2016 32
 Data Fit to Statistical Distribution
Time Study for Loading Cycle
Times 47 55 49 59 50 57 75 56 51 61
53 54 65 56 53 46 56 48 70 51 63 67 56 50 59
48 51 52 57 49 49 57 50 69 52 50 59 55 51 50
45 50 67 50 50 49 49 51 64 59 49 58 53 49 52
47 45 61 52 55 50 53 52 62 62 69 55 52 49 53
56 50 59 53 51 51 58 52 58 49 71 53 53 50 49
51 53 56 56 52 52 51 53 55 50 61 51 50 51 48
54 51 54 55 63 47 49 51 54 73 59 50 51 52 49
52 53 52 54 61 48 63 58 53 67

Mine Risk Management – 2016 33

Stochastic Output

Mine Risk Management – 2016 34

Stochastic
Output
Summary

Mine Risk Management – 2016 35

 Stochastic Example 2
Loading Production Output
O = [B*BF*D*A*J*3600] / [(1+S)*C]
O = Loading production output (tons / hour)
B = Bucket capacity (loose CY)
BF = Bucket fill factor, fraction
D = Density (tons / bank CY)
A = Availability of loader, %
J = Job and management factor, decimal
S = Swell factor of material, %
C = Cycle time for loading - average (seconds)
3600 = Seconds per hour
Truck Haulage Output
P = (60 * NT * L * A * J) / Tw/W
P = Production from trucks (tons / hour)
60 = minutes per hour
NT = Number of Trucks
L = Load per truck (tons)
A = Availability of loader, %
J = Job and management factor, decimal
Tw/W = Time with Wait time for haulage cycle (minutes)
L = NC * B * BF * D / (1 + S)
If TS < C, TL = NC * C
If TS > C, TL = TS + (NC-1) * C
NC = No. of cycles, integer
B = Bucket capacity (loose CY)
BF = Bucket fill factor, fraction
S = Swell factor, %
D = Density (tons / bank CY)
L = Load per haul (tons)
TL = Time for Loading truck (minutes)
C = Cycle time for loading – average (minutes)
TS = Time to Spot truck (minutes)

Tw/oW = TL + TH + TD + TR
Tw/oW = Time without Wait time for haulage cycle (minutes)
TL = Time for Loading Truck (minutes)
TH = Time to Haul loaded to dump point (minutes)
TD = Time to Dump (minutes)
TR = Time to Return empty (minutes)

TW = [(NT – 1) * TL] – (TH + TD + TR)

TW = Time Waiting by truck (minutes)
NT = Number of Trucks
Mine Risk Management
Tw/W = Tw/oW–+2016
TW
36
Tw/W = Time with Wait time for haulage cycle (minutes)
 Binomial Distribution

In probability theory and statistics, the binomial

distribution is the discrete probability distribution of
the number of successes in a sequence of n
independent yes/no experiments, each of which yields
success with probability p.

In the mining industry, a common use of the binomial

distribution is to provide the discrete probability
distribution of the number of units of equipment in a
fleet of n units, each of which yields the availability of
the unit to operate with probability p.

Mine Risk Management – 2016 37

 Bernoulli Distribution

In probability theory and statistics, the Bernoulli

distribution is the discrete probability distribution in
which there are two possible outcomes one at
probability p and the other at probability 1 - p. The
Bernoulli distribution is a special case for the binomial
distribution for which n = 1.

Mine Risk Management – 2016 38

 Stochastic Example 2 (Continued)
Bucket capacity (B) = 25 loose CY Fixed 25    
Bucket fill factor (BF) = 0.92   Triangle 0.8 0.95 1.1
Density (D) = 2.81 tons / bank CY Normal 2.85 0.15  
Availability (A) = 33% Triangle 0% 85% 100%
Job & management factor (J) = 0.82   Triangle 0.6 0.8 0.95
Swell factor (S) = 35% Normal 25% 5%
Cycle time for loading ( C ) = 48.02 seconds Lognormal 12 6 42

Loading production output (O) = 971 tons / hour

Number of trucks assigned = 5 Fixed 5   

Truck availability (TA) = 83%   Fixed 83%    
Number of trucks hauling (NT) = 5  Binomial 5 0.83  
Number of cycles NC) = 5  Fixed 5   
Load per haul (L) = 239.33 tons Calculated      
Truck spot time (TS) = 0.53 minutes Normal 0.6 0.1  
Time for loading truck = 4.00 minutes Calculated      
Time to haul loaded to dump point (TH) = 7.64 minutes Triangle 6.5 7 9
Time to dump (TD) = 0.94 minutes Normal 1 0.1  
Time to return empty (TR) = 6.81 minutes Triangle 5.5 6 7.5
Time without wait for haulage cycle (Tw/oW) 19.39 minutes Calculated      
Time waiting by trucks (TW) 0.61 minutes Calculated      
Time with wait for haulage cycle (Tw/W) 20.01 minutes Calculated      

Haulage production output = 971 tons / hour

Production for truck / loader fleet = 971 tons / hour

Mine Risk Management – 2016 39

Stochastic Example 2 (Continued)

Mine Risk Management – 2016 40

 Stochastic Example 3
Cash Operating Cost - Fixed - $000's $12,000
Cash Operating Cost - per Ton of Ore $120.00
Closure Cost - $000's $7,000
Smelting & Refining Charge - % of Revenue 12%
Working Capital - % Annual Change 10%
Capital - Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Acquisition and Exploration Costs - $000's $20,000
Capital Costs (Development) - $000's $40,000 $10,000
Capital Costs (Depreciable) - $000's $80,000
Recoveries -
% Cu Recovered 0.75% 0.85% 0.90% 0.90% 0.90% 0.90% 0.85% 0.85% 0.85% 0.75%
ozt Au - 000's Recovered 0.40 0.45 0.50 0.50 0.50 0.50 0.45 0.45 0.45 0.40
ozt / T Ag Recovered 4.50 5.00 6.00 6.00 6.00 6.00 5.00 5.00 5.00 4.50
Metal Prices -
Copper - $ / lb. $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00
Gold - $ / troy oz. $1,150 $1,150 $1,150 $1,150 $1,150 $1,150 $1,150 $1,150 $1,150 $1,150
Silver - $ / troy oz. $15.00 $15.00 $15.00 $15.00 $15.00 $15.00 $15.00 $15.00 $15.00 $15.00
Escaltion Rate - % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Inflation Rates - % 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%

Mine Risk Management – 2016 41

 Stochastic Example 3 (Continued)
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
Reserves - 000's T of ore 1000 950 875 775 650 525 400 275 175 75
Prod. - 000's T of ore 50 75 100 125 125 125 125 100 100 100
% Cu Recovered 0.75% 0.85% 0.90% 0.90% 0.90% 0.90% 0.85% 0.85% 0.85% 0.75%
ozt Au - 000's Recovered 0.40 0.45 0.50 0.50 0.50 0.50 0.45 0.45 0.45 0.40
ozt / T Ag Recovered 4.50 5.00 6.00 6.00 6.00 6.00 5.00 5.00 5.00 4.50
lb Cu - 000's 750 1275 1800 2250 2250 2250 2125 1700 1700 1500
ozt Au - 000's 20 34 50 63 63 63 56 45 45 40
ozt Ag - 000's 225 375 600 750 750 750 625 500 500 450
$ / lb Cu $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00
$ / oz Au $1,150.00 $1,150.00 $1,150.00 $1,150.00 $1,150.00 $1,150.00 $1,150.00 $1,150.00 $1,150.00 $1,150.00
$ / ozt Ag $15.00 $15.00 $15.00 $15.00 $15.00 $15.00 $15.00 $15.00 $15.00 $15.00
Gross Revenue - $000's $28,711 $49,849 $76,600 $98,623 $101,581 $104,629 $96,314 $79,363 $81,744 $74,923
S & R Charges - $000's ($3,549) ($6,346) ($10,044) ($13,320) ($14,131) ($14,992) ($14,215) ($12,064) ($12,799) ($12,083)
Net Revenue $25,163 $43,503 $66,556 $85,303 $87,450 $89,637 $82,100 $67,299 $68,945 $62,840
Mine Cash Operating Costs ($18,540) ($22,279) ($26,225) ($30,389) ($31,300) ($32,239) ($33,207) ($30,402) ($31,315) ($32,254)
Mine Closure Costs $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($7,000)
- Total Cash Operating Costs ($18,540) ($22,279) ($26,225) ($30,389) ($31,300) ($32,239) ($33,207) ($30,402) ($31,315) ($32,254) ($7,000)
Mine Development Amortization ($1,200) ($2,400) ($2,400) ($2,400) ($2,400) ($1,548) ($696) ($696) ($696) ($696)
Mine Development Expensed ($28,000) $0 $0 $0 ($8,115) $0 $0 $0 $0 $0
Mine Depreciation ($4,000) ($8,000) ($8,000) ($8,000) ($8,000) ($8,000) ($8,000) ($8,000) ($8,000) ($8,000)
Write-down $0 $0 $0 $0 $0 $0 $0 $0 $0 ($4,348)
Carry Loss Forward $0 ($27,077) ($17,004) $0 $0 $0 $0 $0 $0 $0 $0
- Total Non-cash Costs ($33,200) ($37,477) ($27,404) ($10,400) ($18,515) ($9,548) ($8,696) ($8,696) ($8,696) ($13,043) $0
+ Salvage Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $3,000
Taxable Income before Depletion ($26,577) ($16,254) $12,927 $44,514 $37,635 $47,850 $40,198 $28,201 $28,935 $17,543 ($4,000)
Percent Depletion $5,536 $9,571 $14,642 $18,767 $19,239 $19,720 $18,062 $14,806 $15,168 $13,825
50% Limit ($13,289) ($8,127) $6,463 $22,257 $18,817 $23,925 $20,099 $14,100 $14,468 $8,772
Allowed Percent Depletion ($13,289) ($8,127) $6,463 $18,767 $18,817 $19,720 $18,062 $14,100 $14,468 $8,772
Cost Depletion $500 $750 $1,000 $1,250 $1,250 $1,250 $1,250 $1,000 $1,000 $1,000
- Allowable Depletion ($500) ($750) ($6,463) ($18,767) ($18,817) ($19,720) ($18,062) ($14,100) ($14,468) ($8,772)
State Taxable Income ($27,077) ($17,004) $6,463 $25,747 $18,817 $28,130 $22,136 $14,100 $14,468 $8,772 ($4,000)
- State Income Tax @ 5% $0 $0 ($323) ($1,287) ($941) ($1,406) ($1,107) ($705) ($723) ($439) $0
Federal Taxable Income ($27,077) ($17,004) $6,140 $24,460 $17,877 $26,723 $21,029 $13,395 $13,744 $8,333 ($4,000)
- Federal Tax @ 35% $0 $0 ($2,149) ($8,561) ($6,257) ($9,353) ($7,360) ($4,688) ($4,810) ($2,917) $0
Net Income after Tax ($27,077) ($17,004) $3,991 $15,899 $11,620 $17,370 $13,669 $8,707 $8,934 $5,416 ($4,000)
+ Total Non-cash Costs $33,200 $37,477 $27,404 $10,400 $18,515 $9,548 $8,696 $8,696 $8,696 $13,043 $0
+ Allowable Depletion $500 $750 $6,463 $18,767 $18,817 $19,720 $18,062 $14,100 $14,468 $8,772 $0
+ Working Capital Return $0 $0 $0 $0 $0 $0 $754 $1,480 $0 $610 $6,284
- Acquisition and Exploration Costs ($20,000)
- Capital Costs (Development) ($40,000) ($11,593)
- Capital Costs (Depreciable) ($80,000)
- Working Capital ($2,516) ($1,834) ($2,305) ($1,875) ($215) ($219) $0 $0 ($165) $0 $0
After Tax Cash Flow ($140,000) $4,106 $19,390 $35,553 $43,191 $37,145 $46,419 $41,180 $32,983 $31,932 $27,842 $2,284

NPV @ 15% $7,553

DCFROR 16.18%

Escalation Rate - Revenue 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Compounded Escalation Rate 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Inflation Rate - Costs 1.0000 1.0300 1.0300 1.0300 1.0300 1.0300 1.0300 1.0300 1.0300 1.0300 1.0300 1.0300
Compounded Inflation Rate 1.0000 1.0300 1.0609 1.0927 1.1255 1.1593 1.1941 1.2299 1.2668 1.3048 1.3439 1.3842
Mine Risk Management – 2016 42
Utilization of Stochastic Modeling in Mining Industry

• Project scheduling and budgeting

with Microsoft Project software
• Budgeting
• Operational modeling
• Queuing problems
• Limited resource problems

Mine Risk Management – 2016 43

 Input Addition

Year 0 1 2 3 4 5 6 7 8 9 10
Production (in 000's tons) 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Quality 95% 92% 93% 95% 98% 97% 96% 92% 94% 94%
Maximum 96% 97% 98% 98% 99% 98% 98% 97% 96% 96%
Most Likely 94% 95% 96% 97% 98% 97% 96% 95% 94% 94%
Minimum 89% 90% 91% 92% 96% 95% 91% 90% 89% 89%

Mine Valuation – Spring 2016 44

 Output 1

Mine Valuation – Spring 2016 45

 Output 2

Mine Valuation – Spring 2016 46

 Data to Distribution
95% 65% 94% 75%
96% 75% 95% 73%
75% 95% 96% 74%
89% 96% 97% 90%
88% 97% 98% 91%
87% 98% 97% 93%
85% 88% 95% 92%
82% 87% 94% 90%
78% 85% 88% 88%
87% 89% 83% 87%
88% 90% 88% 85%
88% 91% 87% 91%
92% 90% 88% 92%
81% 79% 89% 93%
91% 80% 90% 94%
91% 86% 90% 89%
84% 87% 91% 85%
88% 93% 88% 86%

Mine Valuation – Spring 2016 47