Sensitivity Analysis and the Mine Development Decision

Traditionally, the development of a mineral resource project goes through a fairly set pattern of decisions from what commodities to search for; where to look; how to locate; what are the reserves; how can they be exploited with optimum returns for all stakeholders; where are the markets and what will be the price received; what financing arrangments? However, due to the unique nature of most mineral resource properties, the relative significance of individual parameters on the ultimate development decision will vary from project to project. Sensitivity analysis in its formal sense is most frequently related to the economic analysis of a project particularly in conjunction with the ultimate development decision making process, and acknowledges the uncertainty of the actual values with their impact on the corporate decision making yardsticks. In many cases, this analysis merely adds more values to confuse the decision makers who may well opt for some subjective rationale to overcome the numeric confusion. However, sensitivity analysis should be used more frequently to exploit the development dollar to its maximum, THROUGHOUT the phases leading to the development decision. It is essential to identify the critical inputs to the various decision tiers in a project as early as possible and direct the funds to ensure that these parameters are determined as accurately as possible. Examples are used to illustrate the need for an even-handed quantification of the parameters which affect the outcome of decisions en route to the final one while minimising the risk in making an optimum assessment in relation to development funds Available.