Discussion - Determination Of The Optimum Lifetime Of A Mining Project Using Discounted Cash Flow And Option Pricing Techniques - Cavender, B.

Discussion by P. Malozemoff I have no objection to using mathematics in the value appraisal of properties. The factor that is not emphasized in the paper is that very few important properties have a lifetime that reflects the initial ore reserves of the property divided by the rate of production adopted. In the majority of cases, major properties mine out several times the initial reserves. How much more will be mined out is not known, and only exceptionally gifted geologists can predict that additional reserves will be found. There is the further factor of metals price, which, over the long term, is not predictable. Another factor vitiating making calculations on initially established ore reserves is the speculative nature of exploration success. In my judgment, the life of a property, in addition to an established ore reserve, should include ample time for exploration to find additional reserves. The likelihood of additional reserves is based on the geological promise of the general area where the mine is established. This is especially important because of various risk factors associated with small orebodies, the economic life of which is about five to seven years. In underground mines, it is not economic to develop reserves beyond a certain depth, so the life of initially established reserves must be limited. In these cases, it is especially important to have a good geological understanding of the orebody and its continuity. To accommodate these concepts and present proof of economic soundness for a mining enterprise, a mathematical analysis should yield a life long enough to allow exploration and the development of additional reserves that would ensure a longer mine life and a more profitable result.