Investment Risk Evaluation of Siirt Madenköy Copper Mine in Turkey


Karaabat Varol M., Uğur İ., Erçelebi S. G.

Bilge International Journal of Science and Technology Research, vol.3, no.1, pp.39-50, 2019 (Peer-Reviewed Journal)

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.