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Economic Evaluation of Zarshuran Gold Mine Project

Explore the economic evaluation and sensitivity-risk analysis of the Zarshuran Gold Mine Project in Iran. Learn about methodology, cost estimation, discounted cash flow analysis, sensitivity and risk analysis, and conclusions. This case study provides valuable insights for mining projects.

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Economic Evaluation of Zarshuran Gold Mine Project

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  1. AutumninColorado 18

  2. 2011 SME Annual MeetingFeb. 27-Mar. 2, 2011, Denver, Colorado, US Economic Evaluation and Sensitivity-Risk Analysis of Zarshuran Gold Mine Project Authors: Kazem Oraee; University of Stirling, UK Ahmad Sayadi; Tarbiat Modares University, Iran Mahdi Tavassoli; Tarbiat Modares University, Iran

  3. Outline • Introduction • Methodology • Case Study • Cost and Income Estimation • Discounted Cash Flow (DCF) Analysis • Sensitivity Analysis • Risk Analysis • Conclusions

  4. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Economic Evaluation of Mining Projects • Discounted Cash Flow- the most suitable method • Constraints • Uncertainty of internal data • Uncertainty of external data

  5. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Risk Analysis of Mining Projects • Sensitivity Analysis • Scenario Analysis • Decision Tree • Root Sum of Squares (RSS) • Mont Carlo Method

  6. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Methodology • Develop an economic model by COMFAR software- DCF table construction. NPV, IRR and Payback are calculated • Sensitivity Analysis • Finding the most effective parameters on variations of NPV • To determine the probability distribution of the most effective parameters • To perform the probability analysis of NPV with the help of Mont Carlo simulation by @Risk software

  7. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Zarshuran Gold Mine Project • The most important gold deposit in Iran • Discovered by: Anglo American Company in 1995 • Owned by: IMIDRO, a state-owned company

  8. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Zarshuran Gold Mine Project • Tonnage of inferred ore: 55 tons of Gold

  9. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Zarshuran Gold Mine Project • The mine is in construction phase/ planning stage • Planned ore production: 750,000 tons/year • Ultimate stripping ratio: 13.6

  10. Zarshuran Gold Mine Project Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis • Planned mill plant production: 3,060 kg of gold 1,270 kg of silver • Project’s lifetime: 18 years including 3 years as construction phase 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 10

  11. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Initial investment for the mine

  12. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Initial investment for the mill plant

  13. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Operating annual costs for the mine

  14. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Operating annual costs for the mill plant

  15. Annual income Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis • Average gold price (2003-2009): 621.17 $/oz 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 15

  16. Annual income Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis • Average silver price (2003-2009): 10.34$/oz 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 16

  17. Annual income Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Total Annual Income = 3,060 (kg/year) ×621.17 ($/oz) × 32.15 (oz/kg) + 1,270 (kg/year) × 10.34 ($/oz) × 32.15 (oz/kg) = $ 61.5 Million 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 17

  18. Net Present Value of the Project Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis • Discount rate = % 15.4 (The average inflation rate for the last 7 years) • NPV = + $ 36.6 Million 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 18

  19. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Net Present Value and Internal Rate of Return • IRR = 22.5% ($ Million)

  20. Cumulative Value of the Project(Payback Period) Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 20

  21. Cumulative Net Present Value of the Project (Discounted Payback Period) Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 21

  22. Cumulative Net Present Value of the Project (Discounted Payback Period) Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis ($ Million)

  23. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Sensitivity Analysis

  24. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Sensitivity Analysis Therefore, instead of absolute numbers for most effective parameters: GoldPrice, SilverPrice and Discount Rate probability distributions are used

  25. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Probability distribution of gold price($/oz Thousand)

  26. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Probability distribution of silver price($/oz)

  27. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Probability distribution of inflation rate

  28. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Results of Mont Carlo simulation NPV = $ 49.65 Million This is the most probable NPV and not$ 36.6 Million

  29. Sensitivity ranking by Mont Carlo Method Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 29

  30. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Risk Analysis Based on Forecast Data NPV is most sensitive to Gold Price Average price taken here to be 621.17 $/oz Future price estimation: World Bank forecasts that gold price will be 1,000 $/oz in 2020. This corresponds to growth in gold price of 5.4 % per year 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 30

  31. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Risk Analysis Based on Forecast Data Therefore: If total costs increase by less than 5.4 % per year, NPV will increase 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 31

  32. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Conclusion • Sensitivity Analysis showed that the selling price of gold and silver; and discount rate are the most important parameters. This is often the case in mining projects.

  33. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Conclusion • The NPV and IRR of the project are calculated to be + $ 36.6 Million and %22.5 respectively. This is an attractive project for most investors. Based on the results of risk analysis, the average value for NPV is +$ 49.65 Million. We call this expected NPV.

  34. Introduction Case Study Conclusion Methodology Cost & Income Estimation DCF Sensitivity Analysis Risk Analysis Conclusion • Mont Carlo simulation also ranks the importance of important parameters to be: • Gold Price • Discount Rate • Silver Price

  35. Thank you for your attention

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