Analysis of the discount rate for mining projects

Authors: Ovalle, A

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This paper is hosted with the kind permission of the Universidad de Chile, Eighth International Conference & Exhibition on Mass Mining, 2020.


DOI https://doi.org/10.36487/ACG_repo/2063_76

Cite As:
Ovalle, A 2020, 'Analysis of the discount rate for mining projects', in R Castro, F Báez & K Suzuki (eds), MassMin 2020: Proceedings of the Eighth International Conference & Exhibition on Mass Mining, University of Chile, Santiago, pp. 1048-1064, https://doi.org/10.36487/ACG_repo/2063_76

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Abstract:
The discount rate is one of the key planning parameters for defining and ranking mining projects. As miners, we assume that it is determined by a higher authority and take it as given. However, from the standpoint of a mining project, it warrants analysis. This paper discusses its definition and calculation, looking at the discount rates used in different sectors of the economy, including mining. In the case of mining, 100 projects were selected from the SEDAR database and discount rates were analysed by country-location, stage of development, size, the metals and minerals involved and project life. The average discount rate of the 100 projects was 7.18%, including 35 projects that used 5%. When these projects were excluded, the average rate was 8.36%. The discount rates used by a mining corporation over the last 50 years and an example of the effect of the discount rate on reserve determination for a block caving project are also shown and lower discount rates are recommended for long-life mining projects.

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