A new tool in financial decision-making under uncertainty
CIM Bulletin, Vol. 86, No. 968, 1993
Jean-Luc Collins, Department of Mining and Metallurgical Engineering, Universite Laval, Quebec, Quebec
This new tool can be used as a quick guide for the assessment of the potential economic wealth of any risky capital project. It does provide an unambiguous recommendation of the type "go or no go" to the decision-maker simply by comparing two different ratios profit/investment. One ratio determines the minimum value required to at least break even while the other measures a probable value based on the asymptotic theory of statistical extremes.
Its application is briefly illustrated by means of an underground gold mine extension project, an oil sands mine project and a poly-metallic open pit project. Once a favourable recommendation has been obtained then a detailed "cashflow after taxes" analysis can be carried out for the project.