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Risk Elements Characteristics of Mining Investments

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Author Wellmer FW
ID P198601089

Description

The exploration and mining risks are investigated and compared to the risks of smelting, secondary processing and other normal industrial activities. This study concentrates on the risk before, or at the investment decision. Internal and external risks are distinguished. Internal risks are the risks inherent in every engineering design and common to all projects. The main external risks are the financial risk, changes in prices, location problems and geological factors. Financial risks concern every capital-intensive and export-oriented project and cannot be considered as typical mining risks. Changes in prices, i.e. the market risk, concern every industry using raw materials, but the market risk is especially accentuated in the mining industry. Problems of location and infrastructure are normally more significant in mining than in other projects, and geological risks are unique to mining. All these risks associated with mining projects combine to form a risk at least twice as high as that for other normal industrial activities. Within the range of profitability of mines, which on average is the same as in the manufacturing industry, only a few highly profitable mines exist. These few mines are the sole reward for the high risks taken.