3. • What is the probability that the NPV is negative? • What is the probability of losing more than US$100 million? • What is the likely range of the NPV? This ability to quantify transforms analysis into a decision-making tool, not just simple calculations. 4. Monte Carlo captures the correlations of the variables. Since mining projects are complex, the variables are not dependent. • The price of gold and silver are correlated. • Tonnage, grades and recoveries, you have a geological and metallurgical relationship. • CAPEX and OPEX often move together. • Exchange rates and commodity prices are related macroeconomic variables. Making the model very close to reality. 5. Monte Carlo simulation evaluates decisions under uncertainty (Risk based decision making). Monte Carlo not only analyzes but also allows for decisions such as: • Is it advisable to postpone an investment until the conditions are right? • Should we expand, reduce, abandon, or continue? • Which variables are worth mitigating or controlling? Enabling boards today to make decisions based on P50, P90 and more than just a single NPV. 6. Monte Carlo reveals the "left tail" (extreme risks) that classical methods conceal. Since knowing the average NPV is not sufficient. • How bad can the worst situation get? • How much venture capital should I protect? • Could this project jeopardize the entire operation? • Monte Carlo allows us to measure VaR (Value at Risk). This is critical for corporate financial and strategic management. 7. Monte Carlo simulation allows the identification of variables that explain risk (Risk Drivers). • What factors most affect NPV?
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