Considerations Of Inflation In Lead Mine Evaluation - Introduction

Inflation has received much attention due to its effect on capital budgeting, associated cost overruns, and declining real profits. This study focuses on the effects of inflation on the evaluation of a mining investment and the estimation of a mining project's revenues. The study indicates that the best method for estimating future returns is the fore- cast dollar scheme. In this scheme, the metal price was held constant, and the operating costs were "inflated" along a historical regression line. The conclusion was reached by comparing the "actual" performance of a 3000 tpd (tonnes per day) lead mine model with 'its estimated performance during four time periods (1950-1960, 1955-1965, 1960-1970, 1965-1975). The individual data files for each time period and estimating method (6 files by 4 time periods) were pro- cessed by a suite of cash flow computational and investment analysis sub- routines. The analysis presumed that the mine was part of a large corporation which could utilize the expensed, development and exploration costs and any investment tax credits, in the year that they were incurred.