Investment criteria and choice of production rate in the planning of gold-mine production

By use of a functional model of capital expenditure developed earlier, a prototype cash-flow model is formulated as a basis for the investigation of the economic consequences when the production rate of a mine is manipulated as fundamental design variable. The optimum production capacities that maximize the common economic criteria of net present value, present-value ratio, and wealth growth rate are determined. It is shown that these choices depend certain key groupings of the economic parameters, and that they have a fixed interrelationship. The basic cash-flow model is extended further to include the effects of a constrained rate of production buildup and the imposition of State taxation on generated income. An approximation to the initial tax-free period of a new mining venture is developed, and, by use of these results, the optimum choice of production level is analysed when both the buildup rate is constrained and tax is imposed. This extended model permits a comparison between the performance of existing mines and the predicted theoretical production levels for these mines.