Economic risks in mining investments: A prospective analysis of capital cost estimation in copper mining projects

Abstract

Mining projects are highly exposed to cost overruns, ahead of oil and gas, power generation and infrastructure projects. Precisely, warnings related to sharp increases in capital and production costs of around 40% are expected to be found in the corresponding literature. This paper analyses the economic risks related to capital cost presented by public investment offers in copper mining projects. To detect the economic risks of copper mining projects presented to the public, the research pays particular attention to the existing methodologies for the valuation of mining assets, as well as for the preparation of technical reports with internationally recognised codes that aim to offer the expert in charge of the valuation a series of guidelines to carry out this work. For this purpose, an in-depth study and analysis of four National Instrument 41–101 technical reports of current copper mining projects selected following criteria of geographic, business, exploitation and size diversification is carried out: Arctic Project (Northwest Alaska, United States), Kutcho Project (British Columbia, Canada), Josemaría Copper-Gold Project (San Juan, Argentina) and Eva Copper Project (Queensland, Australia). The research concludes that it would be advisable that mining companies and, especially, Competent persons responsible for preparing technical reports apply the recommended practices, being extremely conservative with the ranges of precision and contingencies contemplated in each phase. It should be a significant turning point for the sector, which, to prosper and reinforce investment decisions, must leverage transmitting trust, transparency, cleanliness and professionalism to the market.