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Therefore, the engineering economic evaluations that follow assume that the
differential between cost and sales will remain constant in the future. No allowance for
inflation (or deflation) was used in the analysis. Additional economic evaluations that
assume probable fluctuations in costs and sales are given in another section of this study
(see Peter Anselmo, Section XIII).
VI-8
ENGINEERING ECONOMIC EVALUATION OF POTASH RESERVES
Simple discounted cash-flow analyses were performed on the known potash
resources, which allowed a determination of what portion of those resources could be
defmed as reserves using economic criteria that exist in the nearby mines. These criteria
are given in Table 4.
Tables 5 through 16 present the results of three cases for mining methods and
three development scenarios. The evaluations were done for three areas: within WIPP,
the additional study area, and the total of the two which were called the combined study
area. The results are summarized in Table 17.
Assignment of discount factor
A straightforward cash-flow analysis was used with a discount factor of 10%.
Higher and lower discounts could be used, but the results would show the same trend. In
other words, a higher discount rate will lower the present value of a particular product,
but it will not change the cut-off grade or tons of reserve determination.
There is little inherent risk involved in developing the reserves because the volume
and grade of the reserve are reasonably well defined and the experience gained by mining
similar deposits in nearby mines indicates that the mining and processing costs used are
in the same range as those operations.
CONCLUSIONS
Reserves within WIPP
None of the resources within WIPP met the criteria set for Scenario m. In that
scenario an cmirely new mine and processing plant would need to be constructed at a
total cost of $150 million, with $70 million shared for the 4th ore zone and $80 million
for the 10th ore zone. This finding is in essential agreement with the previous evaluation
by the US Bureau of Mines.
Both the 4th and 10th ore zones met the criteria for Scenarios I and n. These are
the two most likely scenarios for future development because they would probably be
mined in conjunction with the much larger reserves that lie outside of the WIPP area.
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