The Use Of Quantitative Methods In Forecasting Trends In The Metals Industry

Quantitative methods are, by now, a standard tool of the mining industry, and are commonly used by Research Departments in their evaluation of production methods and schedules, and their associated costs. Indeed, much sophisticated computer work has been devoted to such evaluation of controllable costs and capital requirements. These data are an important input into the project evaluation formula, which is probably the most important single calculation per formed by a mining company, since the result decides whether a particular project is viable. It is instructive to summarize the broad principles of project evaluation, since they are crucial to the remaining sections of this paper. PROJECT EVALUATION The most widely used method of appraising projects is known as Discounted Cash Flow (DCF) method. Two main variants are used; they are known as the 'not present value' (NPV) approach and the 'internal rate of return' (IRR) approach respectively. The difference between the two is that the former takes the firm's interest rate as given and uses this knowledge to calculate the present value of the project; whereas the latter calculates the highest interest rate the project could tolerate and still just breaks even. The technique is more simply discussed in terms of the first method (NPV).