Simulating Mine Revenues with Historical Gold Price Data from the Bank of England

Bell, Peter (2018): Simulating Mine Revenues with Historical Gold Price Data from the Bank of England.

Abstract

This paper demonstrates a simulation method using historical prices for gold over a 40-year period. The simulation method can be used to assess variability in a mine plan. In this example, I use monthly gold data from the Bank of England. The total sample size is approximately 450 monthly data points, from which I consider 11 different continuous subsamples with length 100. Some of these blocks of data are overlap, but they are all different. For each block of data, I preform various calculations for a hypothetical mine plan that produces one ounce of gold per month. I report undiscounted total revenue over the 100-month period with real prices corresponding to different historical episodes and note how gold prices have changed over this 40-year period. I also use monthly price differences from each path to simulate gold price paths all starting with the same initial value, which allows for more apples-apples comparison. I show the Revenue Paths in such cases, report the present value for each path, and include a simple cost model in the mine plan to estimate net present value for each path with standardized initial prices.

• Item Type: MPRA Paper
• Language: English
• Keywords: Engineering Economics, Mining, Royalties, Finance
• Subjects: C - Mathematical and Quantitative Methods > C0 - General; G - Financial Economics > G0 - General; L - Industrial Organization > L7 - Industry Studies: Primary Products and Construction > L72 - Mining, Extraction, and Refining: Other Nonrenewable Resources

References

Bell, P. (2018). "Simulation Framework for Economic Modeling of Mineral Resources," MPRA Paper 85075, University Library of Munich, Germany. Retrieved from https://ideas.repec.org/p/pra/mprapa/85075.html

Quandl (October 8, 2018). Monthly Average Gold Price Against US: Bank of England Official Statistics.. Retrieved from link https://www.quandl.com/data/BOE/XUMAGPD