Error in calculation of profits in mining complex-structure deposits

Abstract

Mineral exploration and development are investigative activities prior to mining. The rewards of successful exploration and development can be large, if a mineral deposit is discovered, evaluated, and developed into a mine. For a mining company, successful exploration and development lead to increased profits. For a local community or nation, successful mineral exploration and development can lead to jobs-often well payingthat otherwise would not exist; to new infrastructure, such as roads and electric power supplies, that are catalysts for broader, regional economic development; and to increased government revenues that, in turn, can be invested in social priorities such as education, health care, and poverty alleviation.But mineral exploration and development carry with them risks, as well. For local communities and governments, the risks come from the possibility that there will be significant external (or spillover) effects from mining-for example, environmental degradation or strains on local communities and social services when there is an influx of new people into a booming mining town. These spillovers may outweigh the benefits from mining if most jobs go to outsiders, environmental degradation or community disruptions are large, tax revenues accrue to national governments and are not returned sufficiently to local communities, or governments spend mining revenues unwisely.These social risks associated with mineral exploration and mining are not the subject of this paper.Instead, this paper focuses on the perspectives of private investors in mineral exploration and development. It begins by summarizing the important characteristics of exploration and development, including the various sources of risk. It then discusses the factors that determine the geographic location of private investment in these activities. It closes by describing how exploration and development are financed. Characteristics of Mineral Exploration and DevelopmentMineral exploration and development are investments. As such, companies spend money today in the expectation that future revenues will be sufficient to cover all costs including a minimum acceptable profit. Possible investment projects in the mineral sector compete for funds with other investment opportunities, both within and outside the mining sector. The level and location of investment are determined by expected revenues and costs, adjusted for time and risk. The higher the expected revenues or the lower the expected costs, the more attractive an investment opportunity is. When comparing one investment opportunity with another, the longer an investor has to wait to receive revenues or the riskier the investment, the less attractive the investment is.In the mineral sector, the factors that influence expected revenues, costs, and risks can be grouped into four categories: