Feasibility study of Gol-Gohar iron ore open cast mine operation of Iran

1. Feasibility study of Gol-Gohar iron ore open cast mine operation of Iran Professor Kazem Oraee Stirling University - UK

2. Introduction: • Feasibility study of all industrial projects is important, since it determines growth. • Intense competition has made this more important and more difficult. • Generally, feasibility study is difficult due to long term nature of industrial projects.

3. In particular, mining projects are the most difficult : • Longest life amongst all projects; • High initial capital; • Risk and uncertainties; • Relatively long time before full production: Exploration, development etc;

4. Other parameters can complicate the process more: • Inflation of prices • Externalities When variables change in future: • The amount of ore does not changes • But the economic value of the ore does change

5. No matter how accurately calculations are done, results can be grossly inaccurate. • This is mainly due to changes that occur in future. Important failures have happened: • Concord: Development of 747 and new environmental legislation in USA. • Channel tunnel: Appearance of cheaper alternatives : Ferries and airplanes.

6. 3 stages of feasibility studies: • Conceptual study • Pre-feasibility study • Feasibility study and economical analysis Feasibility study of a project is both iterative and continuous.

7. Conceptual study only determines whether or not any expenditure on data collection is warranted. It can be up to 50% inaccurate. Mainly based on guess work and assumptions. • Pre-feasibility study was added to the total process because feasibility study can be very expensive. This can give results with up to 20% inaccuracy. Not sufficient for bank financing. The Calculations are partly based on data gathered by making assumptions.

8. Feasibility study is an accept / reject process. Therefore economically very important. • Financiers expect accuracies of at least within 10%. • Generally, if own finance is used, then the company requires even more accurate calculations.

9. Final economic analysis is another new element added to the total process. This was addes to the process relatively recently. • The main component of this section is sensitivity analysis. • This part is now important because economic parameters change much more rapidly than they did before.

10. Appearance of oligopolies has made the business environment more sensitive. • Analyses are required to foresee all possible dangerous occurrences. • In mining, all internal and external variables are present and can fluctuate widely. • Generally, if own finance is used, then the company requires more accurate calculations.

11. Gol-Gohar deposit • One of the largest iron mines in Iran. • Historically, Iron ore mining in the region dates back to 900 years ago. • Total reserves ore about 1.2 B tons. • Output: 17 M tons per year, 11 M tons of ore and 6 M tons overburden.

12. There are 6 ore bodies in the area. No 1 is being exploited with 185 M tons of ore:

13. Machines-operation are:

14. Prime costs during last financial year

15. Accumulated depreciation during last financial year

16. Balance Sheet for last financial year

17. Income statement list for recent two financial years

18. Calculation NPV:

19. Conclusion • Iran has large high grade iron ore deposits. Approximately 2% of total iron ore of the world is in Iran. Population 1%. • Results that extracted from income statement show that net benefit has increased by 68.4% in only a year. • Balance sheet shows the value of properties and assets to have increased by 16.1% • If there is neither inflation nor risk in the economy Net Growth = 10% • If there is inflation in the economy equal to 8% then PVIF = 10 + 6 = 16% • If there is also risk in the economy or in the project, say equal to 6% then PVIF = 22% Therefore project becomes uneconomical. • In Sensitivity studies, different values of PVIF are considered and NPV is calculated in each case.