Investment Risk Evaluation of Siirt Madenköy Copper Mine in Turkey

Year 2019, Volume: 3 Issue: 1, 39 - 50, 30.03.2019

Merve Karaabat Varol , İBRAHİM Uğur SELAMET G. Erçelebi

https://doi.org/10.30516/bilgesci.487621

Cited By: 8

Abstract

Mining investments are high-risky investments due to mineral deposit uncertainties. Therefore,

before any investment decision is given, an economic assessment should be performed and several risk

situations must be taken into consideration. In this study, it was examined whether or not an investment

made in a copper mine in Siirt, Turkey is economical by using Sensitivity Analysis and Monte Carlo

Simulation. The aim of this study is to construct cash flows for this copper mine with an average grade of

2.35% Cu and 39.821.000 tons reserve throughout 25 years for two different situations. In the first case, it

was assumed that the total investment amount will be covered by 100% equity, while in the second case the

total investment amount was assumed to be 30% equity and 70% bank loan. In the Sensitivity Analysis,

mineral processing and operating costs, the average grades and ore concentrate sale prices were evaluated

over optimistic and pessimistic forecasts. Changes in the net present value and internal rate of return were

examined without risk. Monte Carlo Simulation was run by using computer software program @Risk 6.0

and applied to investment criteria for this copper mine field. The analysis of the output modelling situations

where decisions were made under uncertainty gave reliable results by quantifying the degree of risk for this

mining project. Consequently, if the investment was provided with 100% equity, NPV was 136.369.150,7 $

and IRR was 32% with a discount rate of 15%, probably as likely to harm the project was about 0,018. If

the investment was provided with 30% equity, NPV was 111.742.245,4 $, IRR was 28% with a discount

rate of 15%, probably as likely to harm the project was about 0,05. In accordance with the results, the

investment can be said to be a profitable project in both assumptions.

Keywords

Mining Investment, Uncertainty, Risk Analysis, Monte Carlo Simulation Method, Sensitivity Analysis

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