Managing Financial Markets Risk in Mining Projects

摘要

Decision-making process - a historical perspective Most mining projects will involve some level of financial markets price risk. This is because commodities are generally traded in $US. The project will also incur costs in $A and if based in Australia will seek to generate a return in Australian dollars. Therefore the project faces commodity, foreign exchange and interest rates risk. As a business you may wish to maintain these risks within your business. However if the project requires financing to be provided then the financiers will want to ensure that there is a level of certainty attached to the cash flows to support the debt repayments. This is achieved by hedging the financial market risks. Traditionally the hedging process has been based on underlying assumptions within project models, which incorporate views on the direction of the underlying price risk. These views can be formed in an ad hoc manner. Gathering information from a variety of sources including economic forecasting and modelling, technical analysis, seeking market expert views. However, given the historical accuracy of such forecasts locking into long-term fixed hedging arrangements can create an inflexible environment that can restrict the opportunity to benefit from the underlying volatility of financial markets. A different way - portfolio approach Rather than trying to forecast the direction of future financial market movements we use Monte Carlo simulation techniques to create a distribution profile of the potential future price movements. These simulations are run through a model of the project to provide a visual picture of risk together with the capacity to quantify in a meaningful way the risks the project faces. The methodology then allows you to compare different hedging strategies in order to identify the best strategy that will deliver desired business objectives under a wide range of possible future outcomes. The methodology also considers the portfolio of risk that a project faces rather than considering each risk in a silo approach. This enables us to consider the correlations between these financial risks and take advantages of the natural offsets that your business may provide. Communication The methodology is currently considered best practice on a global basis. The output can be used to communicate to the various stakeholders of a project that where management of financial markets risk is concerned that you have a strategy that is quantitatively based, considers a broad range of outcomes, is business based rather than market based. In our experience communicating the strategy in place is seen as a positive for the project from a range of stakeholders including shareholders, bankers, the media and others.