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

AUTHOR/S: M. Z.NAGHADEHI
Sunday 1 August 2010 by Libadmin2007

7th International Scientific Conference - SGEM2007, www.sgem.org, SGEM2007 Conference Proceedings/ ISBN: 954-918181-2, June 11-15, 2007

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.

Keywords: Risk Analysis, Mineral Projects Evaluation, Monte Carlo Simulation,
Excel Spreadsheet.

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