Capital Projects

Understanding Project Finance Risk with Integrated Valuation and Risk Modelling

2022 CIM Capital Projects Symposium

Toronto, Ontario

March 28–29, 2022

There are numerous methods of financing mining projects ranging from traditional project debt to alternative financing arrangements directly tied to metal prices such as net smelter royalties and offtake agreements.  A project’s ability to fulfill its financing obligations is often analyzed by calculating the internal rate of return and financing ratios with a static cash flow model.  A weakness with this approach is investment performance and risk are not adequately assessed across a range of future possibilities.

Integrated Valuation and Risk Modelling (IVRM) is a dynamic cash flow modelling framework that uses numerical methods, finance theory, statistical analysis, and risk management concepts to consider a project and its financing across a range of possibilities.  It extends a conventional project financing analysis by correcting the distortions inherent in static calculations of economic benefits and financial ratios while providing additional information about the possibility of early closure and risk exposure.  IVRM is a powerful analytical tool allowing project owners and financiers to design a financing package that shares project economic potential while explicitly recognizing exposure to financial market risk.

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