Mining project evaluation process for investment decisions: Risk variables in mining projects - part one

Risk is a major factor in all mining activities, arising from many internal and external variables. The authors? research has resulted in a systematic method for the quantification of risk in mining projects (Park, 2012). This research will be presented in a series of papers, this one and two more that will be published on Mining Engineering?s web site, www.me.smenet.com. This paper identifies the variables associated with risk in mining projects, and their effects. The second paper discusses methods of assessing the overall risk associated with those variables, and presents a statistical model based on a survey of 31 experts. The third paper presents an evaluation of the statistical model, using data from previous mining investment decisions in which the authors have been involved. There are several major competing entities, including BHP Billiton, Rio Tinto, Anglo American, Xstrata, Freeport-McMoRan, Chinese government- run companies and Japanese trading companies, that have large foreign holdings, controlling deposits in most of the world?s established and productive mining districts. In general, the mining industry considers the United States, Canada, Australia and the European countries to have good mining investment environments, but because the major companies have already achieved market dominance in those countries, large investments are required there. Newcomers seeking to enter the industry, either as producing companies or as investing partners, often have difficulty breaking into these established markets. Thus newcomers are increasingly turning to new areas like South America and Africa, which are relatively less developed. The competition among businesses to secure a share of the new market is intense, but there are still good investment opportunities. However, because most of the countries in these areas are not well developed, several additional risks are associated with participation in mining projects in those areas.