Effect Of Different Financing Methods On The Profitability Of Mining Investments - Case Example: The Underground Mining Of Taconite

Generally, the different methods of financing new mining projects are not well understood by the engineers and supervisory personnel. Nor are the effects of these alternatives on depletion, taxes and profitability readily apparent to even the sophisticated management personnel without the aid of cash flow studies. Fortunately, with the advent of the computer it is possible now to simulate many different combinations of 1) equity, 2) loan and 3) production payment financing with little effort. A general computer program for cash flow analysis of mining ventures has been developed and applied as a case example to a 1967 feasibility study of the Underground Mining of Minnesota Taconite. The effects on profitability as measured both in rates-of-return and present value are presented for various financing combinations. In addition, percentage depletion rates were altered so as to measure the impact of this statuatory allowance. Based on the cost data as presented in the aforementioned 1967 feasibility study, and assuming 7% loans, the rates-of-return vary from 9. 9% to [00] % on equity variations and from 9. 9% to 11.4% on total invested funds.