Discount rates and risk assessment in mineral project evaluations

Paper presented at the conference: Risk assessment in the extractive industries, held in Exeter, UK, 23-24 March 1994, and first published London: IMM, 1994, preprint volume. 22pp., 15 refs. The concept of risk is well established in the mining industry but it is difficult to provide a quantitative assessment of risk. A discussion is presented of the significant sources of risk in a mineral project and how they are addressed. The discount rate is examined as a fundamental means of reflecting risk in discounted cash flow evaluations. Current industry practice is discussed and a methodology for the analysis of risk levels is proposed which assesses the constituent components of the discount rate (real interest, mineral project risks and country risk)