Assessment of the economic efficiency of investment projects for the development of solid mineral deposits

The growing capital intensity and extending periods for the development of solid mineral (SM) deposits along with high geological and economic uncertainties call for an adapted methodology for evaluating the efficiency of mining investment projects. The aim is to justify a methodological framework that combines discounted cash flow analysis (NPV, IRR, DPP, PI), sensitivity analysis and scenario analysis with an original integral scoring of the project's investment attractiveness. The methods used included a comparative analysis of six evaluation criteria; a model DCF example for three deposit types, i.e. large high-grade, medium-grade, and low-grade in a remote location; single-factor NPV sensitivity analyses for six factors; an assessment of the effect of the governmental support measures, i.e. profit-tax privileges, mineral extraction tax holidays, Agreement on protection and promotion of capital investment; and a risk matrix. The results are based on the authors' calculations: the NPVs for the three types are RUB 62.5 bn, 20.4 bn and 0.7 bn; the IRR – 25.0%, 21.9% and 16.7%; the DPP – 8.1, 9.7 and 13.9 years; the integral attractiveness index – 81.0, 69.9 and 52.7 points. The sensitivity analysis revealed a dominance of the sales price (the NPV spread RUB 47.3 bn at ±25%) and the discount rate (RUB 25.8 bn); the base project's scenario spread ranged from − 10.2 to +47.3 bn. A combination of the governmental support measures for the marginal project increases the NPV nine-fold (to RUB 6.8 bn), the IRR by 2.8 pp, and shortens the DPP by 4.8 years. Ranking of the three project types by the integral index is robust to variation in the criteria weights within ±0.05. The proposed integral model is applicable for screening and prioritising mining projects when designing investment programmes and allocating governmental support.