The Evaluation of Risk in Mining Ventures

"Mining executives are becoming increasingly involved with decisions of the ""What would happen if ... "" variety. Potential changes in government policy, such as tax incentives, E.G.M.A. allowances, etc. affect the economic future of present and proposed mining ventures.This paper will discuss various measures of effectiveness normally used in assessing this future, such as discounted cash flow, etc., and will describe means of introducing uncertainty into the computations. As the recognition of risk and attitudes toward accepting it are very important in the life of a mine executive, there will be a brief discussion of utility theory and its application to risk analysis.Risk models are usually of a size to warrant the use of an electronic computer. Therefore, to demonstrate the simple interaction necessary between a financial analyst and such a model, data will be read into a remote computer from a time-sharing terminal in the meeting room. It will be shown that changes may be rapidly made and alternative policies investigated ""on line"" to a computer."