Review of net present value and internal rate of return as investment evaluation criteria for mineral projects

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Regardless of the complexity or the degree of sophistication that is associated with the evaluation of mineral projects, the evaluation criterion used in the evaluation process ultimately must indicate whether or not the project is economically viable. When the project being evaluated is to be compared with other alternatives, the criterion chosen should show the relative attractiveness of the project. The NPV and IRR evaluation criteria have enjoyed a widespread use in the mineral industry. ‘In this dissertation, a cash flow for a Ghanaian hypothetical gold project has been formulated. The cash flow analysis results in using the NPV and IRR as indicators on a 100% and 40% equity respectively shows that the project is economically viable. The values obtained for the 40% equity are much higher than that for the 100% equity. The information provided by the two criteria and their practicability has been discussed. It has been concluded that the NPV and the IRR complement each other to a very large extent as there is no clear dominance between the two criteria. It is therefore recommended that the two be used together whenever possible in order to obtain a sound basis for decision making as they almost always lead to the same evaluation decision.
A thesis submitted to the Board of Postgraduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of the requirements for the award of Postgraduate (Professional) Diploma in Mining Engineering, 1993