Decision Making- Investment, Financial & Risk Analysis in Mining Projects

Abstract

When it comes to mining it is well-known that the investment projects in this industry involves substantial amount of capital, long time periods, sequential decision making related to investment strategies and also a complex mosaic of various unknown factors which affects the value of a project. Apart from that the mining projects also consists of a number of geological, economic, environmental, social, technological as well as financial risks. It is very difficult to predict and evaluate these risks well in advance unless a thorough analysis is carried out. So it shows a project value, as a function of random variables is a random variable itself. In this project we have dealt with the three most important aspects i.e. financial, investment and risk part on which the project feasibility depends. First we did the financial analysis of the 8 major coal mining companies in India and studied their financial positions by comparing and evaluating their financial ratios. 20 financial ratios are taken which depicted the liquidity, solvency, profitability and operational turnover capacity of the companies. Then the investment analysis of three variants of the Lajkura project of MCL was performed using the traditional capital budgeting techniques like NPV, IRR (both financial and economic) and Profitability Index. Before that a thorough study of all the cash flow data, unit cost estimates, economic analysis etc. of the three Variants were properly made. After the investment analysis part, the risk analysis was performed on the most efficient variant of the Lajkura project. The Monte Carlo simulation was implemented after using the basic data and assumptions of the Variant. 10000 NPV data were generated and analyzed. Many statistical tools were used to have a profound knowledge of the risk involved in the project. Then according to the results of all the three analysis processes final conclusion was given.