Circular 137Computer program for Monte Carlo economic evaluation of a mineral deposit
By R. J. Roman and G. W. Becker, 1973, 23 pp., 2 tables, 2 figs., 2 appendices.
Supersedes Progress Report E-5. Describes how computer science can be used
in analyzing a mineral property. The NM Bureau of Mines and Mineral Resources
provides computer time and assistance in adapting the program to individual
needs. Raising capital to develop a mineral property depends largely upon
good economic evaluations. The program outlined here is designed to help
promoters take advantage of computer science in analyzing potential mineral
areas. Results of the economic evaluation, however, are only as good as
the data provided for the evaluation. The importance of this aspect of the
evaluation, therefore, is emphasized.
Before any business venture can attract risk capital the promoter must demonstrate that this venture will yield a return on investment commensurate with the risk involved. The usual procedure has been to prepare an estimated cash flow statement for the business venture listing all incomes and expenditures for the life of the venture, and to calculate a return on investment (ROI) for the venture. In addition to an estimated cash flow statement a sensitivity analysis is usually included in the report. The sensitivity analysis shows the changes in ROI to be expected if input estimates are wrong, that is, how sensitive the ROI is to each input item.
During the past 10 years a third dimension has been added to financial analysis:
probability. Monte Carlo simulation sets forth in quantitative terms the
elements of uncertainty in estimating the various cash flow items. Monte
Carlo simulation differs from the sensitivity analysis. In Monte Carlo simulation,
the elevator recognizes and defines the uncertainty in the estimated deposit
size, feed grade, recovery and every other input variable; and these uncertainties
are transformed into uncertainties in the ROI calculated. The purpose of
this circular is to present a versatile computer program which uses data
supplied by the promoter to calculate the expected ROI, make a sensitivity
analysis and do a Monte Carlo simulation on the venture. The techniques
of evaluation are not discussed, but several good references on this topic
are listed in the bibliography.
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supersedes Progress Report E-5