An Examination Of Interest Rates And Their Effect On Valuation Of Mineral Deposits ? Introduction

In recent years, market rates of interest have risen well above their historical long-term average. Also during this period, the short-term variability of interest rates has been greater than in prior years. Interest rates have a significant effect on the operation of our economy. They influence the extractive industries in a number of ways. Their major long- range impact is on investment decisions - specifically the valuation of mineral deposits. An understanding of the factors that influence interest rates is important to the engineer or businessman who makes the investment decisions for the mining company. The effect of changes in the market rate of interest on the value of mineral reserves is critical to the future financial success of the mining enterprise. The most common simplification of the factors determining the level of interest rates is that they are a function of the demand for and the supply of money. While this is an oversimplification, most businessmen would be hard- pressed to provide a better explanation. The purpose of this paper is to explore certain fundamental economic aspects of interest rates and to examine their effect on the analysis of investment in mineral deposits.