modeling-mining-project-economics

name	modeling-mining-project-economics
description	Builds mining project financial models with resource estimation, mine plan integration, and commodity price sensitivity analysis. Use when modeling mining investments, analyzing feasibility studies, or evaluating mineral assets.
tags	["modeling","real-assets-and-natural-resources","investment"]
metadata	{"author":"casemark","practice_areas":["Natural Resources","Energy Capital","Commodity Investment"],"document_types":["Financial Model"],"skill_modes":["Modeling","Forecasting"]}

Modeling Mining Project Economics

Builds mining project financial models with resource estimation, mine plan integration, and commodity price sensitivity analysis.

When To Use

• Evaluating a mining project at PEA, pre-feasibility, or bankable feasibility stage
• Modeling acquisition economics for an operating or development-stage mineral asset
• Running commodity price sensitivity on an existing mine plan
• Stress-testing capital structure or financing scenarios for a mining investment
• Comparing multiple deposit or project alternatives on a risk-adjusted basis

Inputs To Gather

• Resource/reserve statement — NI 43-101 or JORC-compliant technical report with measured, indicated, and inferred tonnages and grades
• Mine plan — annual production schedule (tonnes mined, strip ratio or development metres, processing throughput), mine life, and phasing
• Metallurgical recovery — process flow, expected recoveries by ore type, and concentrate specifications
• Capital cost estimates — initial capex (direct and indirect), sustaining capex schedule, closure/reclamation costs, and contingency percentages
• Operating cost breakdown — mining cost per tonne moved, processing cost per tonne milled, G&A, transport, and refining/treatment charges (TC/RC)
• Commodity price assumptions — spot, forward curve, broker consensus, and long-term real price deck; specify currency and inflation basis
• Fiscal regime — royalty structure (NSR, ad valorem, profit-based), corporate tax rate, depreciation/amortization rules, withholding taxes, and any stability agreements [VERIFY jurisdiction-specific rates and royalty formulas]
• Financing terms — debt quantum, interest rate, tenor, repayment profile, hedging commitments, stream/royalty obligations if applicable
• Discount rate inputs — risk-free rate, equity risk premium, country risk premium, beta, and any project-specific risk adjustments

Workflow

1. Structure the production model

   • Map annual mine plan into the model: ore tonnes, waste tonnes, strip ratio, mill feed, head grade, and recovery
   • Separate open-pit and underground if both methods apply
   • Apply grade-tonnage curves to test sensitivity around cut-off grade assumptions

2. Build the revenue module

   • Calculate payable metal production (recovered metal × payable percentage)
   • Deduct treatment charges, refining charges, and transport costs to arrive at net smelter return (NSR)
   • Link revenue to the commodity price deck; allow toggling between spot, consensus, and user-defined scenarios

3. Model operating costs

   • Structure costs as mining, processing, G&A, and selling/transport on a per-unit basis (cost per tonne mined, cost per tonne milled)
   • Escalate costs annually using relevant inflation indices (CPI, diesel, labour, power)
   • Calculate all-in sustaining cost (AISC) and all-in cost (AIC) per payable ounce/pound/tonne for benchmarking

4. Populate the capital schedule

   • Phase initial capex across the construction timeline; apply drawdown curves
   • Schedule sustaining capex, deferred stripping or development, and expansion capex
   • Include closure and rehabilitation provisions with timing assumptions

5. Apply the fiscal regime

   • Model royalty calculations specific to jurisdiction (NSR-based, profit-based, sliding scale) [VERIFY]
   • Build tax depreciation schedules (straight-line, declining balance, or units-of-production as applicable) [VERIFY]
   • Calculate taxable income, tax losses carried forward, and cash tax payable
   • Include any tax holidays, investment incentives, or stability agreement terms [VERIFY]

6. Construct the cash flow waterfall

   • Build pre-tax and after-tax free cash flow (FCF) from revenue through capex and taxes
   • Layer in debt service (drawdowns, interest, principal repayment) to derive levered FCF and equity cash flows
   • If streaming or royalty financing exists, model as a separate cash flow deduction

7. Calculate valuation metrics

   • NPV at multiple discount rates (typically 5%, 8%, 10% real)
   • IRR (project-level and equity-level)
   • Payback period (simple and discounted)
   • NPV/capex ratio as a capital efficiency indicator

Output

• Executive summary — project NPV, IRR, payback, and AISC at base case with 2–3 key sensitivities highlighted
• Annual cash flow schedule — production, revenue, opex, capex, taxes, and FCF by year over the mine life
• Sensitivity tables — NPV and IRR across a matrix of commodity prices and discount rates
• Tornado chart — ranking of variables by impact on NPV
• Unit cost analysis — cash cost, AISC, and AIC benchmarked against industry peers
• Financing summary — debt coverage ratios (DSCR, LLCR) if project finance is modeled
• Assumption register — every input with source, date, and [VERIFY] flags for jurisdiction-dependent items

Quality Checks

• Confirm resource classification (measured/indicated vs. inferred) matches the study stage — do not include inferred resources in feasibility-level economics without flagging
• Reconcile total mine production in the model against the mine plan in the technical report (within ±2%)
• Verify that AISC calculation follows World Gold Council or equivalent industry standard methodology
• Cross-check tax and royalty calculations against published fiscal terms for the jurisdiction [VERIFY]
• Ensure discount rate assumptions are consistent with the project's risk profile and peer comparables
• Validate that the model balances: opening cash + sources = uses + closing cash in every period
• Test boundary conditions — zero price, zero grade, and maximum capex overrun should produce logical (negative) results, not errors
• Flag any circular references (e.g., tax ↔ interest ↔ debt sizing) and document the resolution method (iteration or hard-code break)