THE FLAW OF AVERAGES IN MINE PROJECT EVALUATION
Traditionally, mine organisations use various types of quantitative methods to estimate profit and loss associated with a proposed mine project. Among all these measures of profitability, the net present value (NPV), which is based on the discounted cash flow (DCF) technique, is the most widely used in the mining industry. This is because it recognises the time value of money and accounts for risk via an adjusted discount rate, giving the mine analyst a tool for making financial investment and dividend decisions. One consequence of using expected values when estimating cash flows is that the resulting NPV value is also assumed to be an expected value, which may not be reflecting the real project’s value leading to incorrect decisions.
