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Out of the Comfort Zone: Quantifying Country Risk for Foreign Mining Project Investment Feasibilities

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Abstract

As high-quality mineral deposits are thoroughly exploited, mines of the future will have to move towards more remote and lower quality projects. With these projects comes an increased business risk to the operator. Even now, mining companies often turn to foreign countries for new deposits to produce, introducing the concept of country risk into their portfolio. Furthermore, feasibility studies often fail to accurately quantify the risks associated with various projects, and as such, this study proposes a technique of risk quantification which can both aid mining companies to evaluate the viability of investment and assist in risk disclosure to public investors for the mining industry of the future. This paper aims to quantify the effects of country risk on the valuation of potential mining projects, using a combination of modular and risk-weighting techniques to evaluate the country risk premium (CRP) required to obtain capital for operation of risky foreign mining projects. The techniques proposed in this paper are demonstrated using fictional examples and then evaluated for accuracy against a recently developed debt-funded precious metal project in a country in the Americas.

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Funding

The authors thank the Natural Sciences and Engineering Research Council of Canada (NSERC) for supporting this research (Fund number: 236482).

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  1. Mining and Materials Engineering Department, McGill University, 3450 Rue University, Montréal, QC, H3A 2A7, Canada

    Matt Renaud & Mustafa Kumral

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  1. Matt Renaud
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  2. Mustafa Kumral
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Correspondence to Mustafa Kumral.

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The primary author is currently employed by the De Beers Group of Companies. No information in this manuscript applies to or has been obtained through this relationship. The authors declare that they have no conflict of interest.

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Renaud, M., Kumral, M. Out of the Comfort Zone: Quantifying Country Risk for Foreign Mining Project Investment Feasibilities. Mining, Metallurgy & Exploration 38, 2323–2335 (2021). https://doi.org/10.1007/s42461-021-00495-8

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