Real option assessment of the Au-Ag Fruta del Norte Project, South East Ecuador
Gold grades at major mining operations have declined steadily during the last decade. Meanwhile, new deposits are becoming more elusive to explorers. Dubbed the gold discovery of the decade, Fruta Del Norte remains at the evaluation stage with politics and mine economics struggling to extract value...
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| Formato: | Tesis de Maestría |
| Lenguaje: | eng |
| Publicado: |
Londres : Imperial College London
2014
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| Materias: | |
| Acceso en línea: | http://repositorio.educacionsuperior.gob.ec//handle/28000/1419 |
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| Sumario: | Gold grades at major mining operations have declined steadily during the last decade.
Meanwhile, new deposits are becoming more elusive to explorers. Dubbed the gold discovery of the decade, Fruta Del Norte remains at the evaluation stage with politics and mine economics struggling to extract value from the probable exploitation. An orebody hosting 6.8M
oz of gold in southeast Ecuador, Fruta Del Norte?s financial assessment is undertaken in the present study. An overall valuation of the project was obtained through discounted cash flow methodologies, probabilistic simulations, and quantitative finance pricing techniques. A benchmark for the study is given by the pre-feasibility study of Fruta Del Norte published by
Kinross Gold. Major improvements were implemented in comparison to Kinross? study; namely, an updated cost structure based on industry evidence, an updated fiscal regime from an agreement in principle between the Government of Ecuador and Kinross Gold, and an updated tax treatment provided by the latest reform to the Mining Law of Ecuador. A Net Present Value of US$ -240M, along with an Internal Rate of Return of 5.18% were estimated under a weighted average cost of capital of 8.17%. This compares with a US$ 479M NPV and 11.3% IRR under a discount rate of 5% obtained in the Kinross Gold pre-feasibility study. Monte-
Carlo simulation was undertaken proving that Fruta Del Norte holds an almost equal chance of having a positive or negative NPV. Furthermore, cash exposure is substantial and there?s a 76% chance the project will pay back to investors within the project life. Deemed a break-even project, real option assessment was compelling for Fruta Del Norte. The optionality of the project was evaluated through a deferral option with an estimated value of US$399M for the
project, and an improvement over simple NPV of up to US$555M. Such finding is remarkable and proves Fruta Del Norte needs to be delayed for 5 years in order for investors to extract the most value out of it. |
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