lev-os Modeling Mining Project Economics
Builds mining project financial models with resource estimation, mine plan integration, and commodity price sensitivity analysis.
When To Use
- Evaluating a mining project at PEA, pre-feasibility, or bankable feasibility stage
- Modeling acquisition economics for an operating or development-stage mineral asset
- Running commodity price sensitivity on an existing mine plan
- Stress-testing capital structure or financing scenarios for a mining investment
- Comparing multiple deposit or project alternatives on a risk-adjusted basis
Inputs To Gather
- Resource/reserve statement — NI 43-101 or JORC-compliant technical report with measured, indicated, and inferred tonnages and grades
- Mine plan — annual production schedule (tonnes mined, strip ratio or development metres, processing throughput), mine life, and phasing
- Metallurgical recovery — process flow, expected recoveries by ore type, and concentrate specifications
- Capital cost estimates — initial capex (direct and indirect), sustaining capex schedule, closure/reclamation costs, and contingency percentages
- Operating cost breakdown — mining cost per tonne moved, processing cost per tonne milled, G&A, transport, and refining/treatment charges (TC/RC)
- Commodity price assumptions — spot, forward curve, broker consensus, and long-term real price deck; specify currency and inflation basis
- Fiscal regime — royalty structure (NSR, ad valorem, profit-based), corporate tax rate, depreciation/amortization rules, withholding taxes, and any stability agreements [VERIFY jurisdiction-specific rates and royalty formulas]
- Financing terms — debt quantum, interest rate, tenor, repayment profile, hedging commitments, stream/royalty obligations if applicable
- Discount rate inputs — risk-free rate, equity risk premium, country risk premium, beta, and any project-specific risk adjustments
Workflow
Structure the production model
- Map annual mine plan into the model: ore tonnes, waste tonnes, strip ratio, mill feed, head grade, and recovery
- Separate open-pit and underground if both methods apply
- Apply grade-tonnage curves to test sensitivity around cut-off grade assumptions
Build the revenue module
- Calculate payable metal production (recovered metal × payable percentage)
- Deduct treatment charges, refining charges, and transport costs to arrive at net smelter return (NSR)
- Link revenue to the commodity price deck; allow toggling between spot, consensus, and user-defined scenarios
Model operating costs
- Structure costs as mining, processing, G&A, and selling/transport on a per-unit basis (cost per tonne mined, cost per tonne milled)
- Escalate costs annually using relevant inflation indices (CPI, diesel, labour, power)
- Calculate all-in sustaining cost (AISC) and all-in cost (AIC) per payable ounce/pound/tonne for benchmarking
Populate the capital schedule
- Phase initial capex across the construction timeline; apply drawdown curves
- Schedule sustaining capex, deferred stripping or development, and expansion capex
- Include closure and rehabilitation provisions with timing assumptions
Apply the fiscal regime
- Model royalty calculations specific to jurisdiction (NSR-based, profit-based, sliding scale) [VERIFY]
- Build tax depreciation schedules (straight-line, declining balance, or units-of-production as applicable) [VERIFY]
- Calculate taxable income, tax losses carried forward, and cash tax payable
- Include any tax holidays, investment incentives, or stability agreement terms [VERIFY]
Construct the cash flow waterfall
- Build pre-tax and after-tax free cash flow (FCF) from revenue through capex and taxes
- Layer in debt service (drawdowns, interest, principal repayment) to derive levered FCF and equity cash flows
- If streaming or royalty financing exists, model as a separate cash flow deduction
Calculate valuation metrics
- NPV at multiple discount rates (typically 5%, 8%, 10% real)
- IRR (project-level and equity-level)
- Payback period (simple and discounted)
- NPV/capex ratio as a capital efficiency indicator
Run sensitivity and scenario analysis
- One-variable sensitivity: commodity price, grade, recovery, capex, opex, discount rate, FX rate
- Two-variable tornado chart: price vs. grade, price vs. capex
- Scenario analysis: base case, upside (higher price / higher grade), downside (lower price / cost overrun / delayed ramp-up)
- Monte Carlo simulation inputs if probabilistic analysis is required (define distributions for key variables)
Output
- Executive summary — project NPV, IRR, payback, and AISC at base case with 2–3 key sensitivities highlighted
- Annual cash flow schedule — production, revenue, opex, capex, taxes, and FCF by year over the mine life
- Sensitivity tables — NPV and IRR across a matrix of commodity prices and discount rates
- Tornado chart — ranking of variables by impact on NPV
- Unit cost analysis — cash cost, AISC, and AIC benchmarked against industry peers
- Financing summary — debt coverage ratios (DSCR, LLCR) if project finance is modeled
- Assumption register — every input with source, date, and [VERIFY] flags for jurisdiction-dependent items
Quality Checks
- Confirm resource classification (measured/indicated vs. inferred) matches the study stage — do not include inferred resources in feasibility-level economics without flagging
- Reconcile total mine production in the model against the mine plan in the technical report (within ±2%)
- Verify that AISC calculation follows World Gold Council or equivalent industry standard methodology
- Cross-check tax and royalty calculations against published fiscal terms for the jurisdiction [VERIFY]
- Ensure discount rate assumptions are consistent with the project's risk profile and peer comparables
- Validate that the model balances: opening cash + sources = uses + closing cash in every period
- Test boundary conditions — zero price, zero grade, and maximum capex overrun should produce logical (negative) results, not errors
- Flag any circular references (e.g., tax ↔ interest ↔ debt sizing) and document the resolution method (iteration or hard-code break)