*By Jack Caldwell - Mining Engineer - Robertson GeoConsultants*

One of my colleagues recently noted that he had recently been at a meeting of the folk who run the INAP site. They had bemoaned the tendency for miners compiling feasibility studies to ignore mine closure costs - and in particular closure costs associated with acid drainage. I asked why this is.

“Because with standard accounting practices, it makes no difference what you estimate for closure. By the time you work out the Net Present Value, the sum is small. The pressure is to get the mine open. You will never have to face the closure costs as a factor of career advancement. You are supported in the myth by the numbers.”

The conversation drifted to issues of DCF. I did not know what that is. Discounted Cash Flow, I was told. I was reminded that at the EduMine course on Modelling Metal Project Finance there is the following description of DCF:

“The underlying philosophy in DCF analysis is that the project is to be compared with investing the same stream of cash flows elsewhere. Discounted cash flows can be used to determine the Net Present Value of the project, which is essentially a present valuation of the potential of the deposit to generate future profits. NPV is calculated as follows:

where *C* is the net cash flow at year *n* and *i* is the project discount rate.

I suppose a little math never hurt the investor. And the equation is rather beautiful, when you see it on the page.

In the EduMine course Economic Evaluation and Optimization of Mineral Projects there is a longer description and discussion of DCF. In inelegant prose we read:

The revenue and cost data are combined to calculate an after tax cash flow that can then be discounted (hence the term discounted cash flow, or DCF) to reflect the impact of time and interest rates on the value of money (the time value of money). The results of a DCF calculation is typically expressed as:

- a net present value (NPV), and/or
- an internal rate of return (IRR).

Then I was reminded of the EduMine course on acid drainage. At this link is the front page of a new course on Global Acid Rock Drainage. I had always thought drainage was local. The idea of a global plague intrigued me, so I read a bit. The course refers to a GARD Guide; I suppose the G is short for Global. Yet search as I did, I could not discern what global and local have to do with drainage. Maybe they just mean the guide is global in its application? If that is so, the following introductory warning was enough to make me sit up and pay attention, and wonder how they can ignore this by refuge in NPV and DCF equations:

Acid drainage is one of the most serious and potentially enduring environmental problems for the mining industry. Left unchecked, it can result in such long-term water quality impacts that it could well be this industry’s most harmful legacy. Effectively dealing with acid drainage is a formidable challenge for which no global solutions currently exist.

There we are, the G is for the fact that there is no global solution. I wonder if there is a local solution? Or does everybody sweep it away beneath the rug of NPV and DCF?