Risk and reward of investing in mining of polymetallic vein deposits in the Bolivian Altiplano.

Abstract

This study explores the impacts of physical and policy variables on the economics of the development of a hypothetical 500 t/d underground polymetallic (Zn-Ag-Pb) vein deposit in the Sud Lipez region of the Bolivian Altiplano. Because of recent changes in the legal system, it is more attractive, interesting and worthwhile to examine the effects of policy variables that reflect the implications of the new legal system. For this purpose, an holistic investment methodology defined as the Investment-Worth model is developed to evaluate the risks and rewards to capital investments. Results of the study confirm that even in risky environments development of mining activities remain primarily driven by the quality of the ore reserves and the market conditions for the commodities of interest. Under the most probable scenario, the deposit of interest would remain a viable investment opportunity at zinc ore grades greater than 9%. Furthermore, the model demonstrates that the investment worth of a project is not the same across firms in the industry. Attractiveness of a project varies with economic and risk-related characteristics of firms. Specifically, investment in the zinc-based polymetallic deposit in the Altiplano will be more attractive to firms of at least moderate size that possess the required technical knowledge and skills but are not currently involved in zinc production.