Financial risk analysis provides the tools to examine
the uncertainty of capital decisions in new mining
ventures. This paper explores the methodology by which
financial risks can be studied and quantified. The most commonly used risk evaluation methods,
such as sensitivity analysis and discount rate adjustment,
are presented as an introduction to a more
comprehensive discussion of stochastic methods of
discounted cash flow analysis using Monte Carlo
sampling. The discussion is illustrated with examples of
a stochastic discounted cash flow. The advantages of Monte Carlo sampling in risk
analysis are discussed together with its problems,
particularly those originating from the correlation
amongst the variables that determine the economic
output of a mining venture, and the difficulties created
by insufficient data, imperfect knowledge and
complexity. The paper also surveys the most commonly
used software used in risk analysis.