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This feature of the analysis will reappear when langbeinite results are presented
below. Caution should be used when attempting to aggregate potash valuation data via
summing E(PV) and E(NPV) figures. Rather, figures ,or a given area should be
considered separately, but in light of data from other areas.
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VIII-4
Langbeinite:
In the first mining scenario (mining height = 6 leet and mining recovery =
60 %), if no new development costs are incurred, the E(NPV) of mining
langbeinite in the combined area to a single firm is estimated at $42 million. In
the second mining scenario (mining height = 6 feet and mining recovery = 80 %),
if no new development costs are incurred, the E(NPV) (, mining laD"heinite in
the combined area to a single firm is about $38 million " the thin: , lIning
scenario (mining height = 4.5 feet and mining recovery = 90%), if no new
development costs are incurred, the E(NPV) of mining langbeinite in the
combined area to a single firm is about $53 million see Table 3. Langbenite
E(NPV) data for the other two development scenarios and the three mining cases
are presented in Tables 4 and 5.
Simulation method
Potash reserve estimates for the WIPP site, additional area, and combined area
were provided by consultants and specialists at the New Mexico Bureau of Mines &
Mineral Resources. A simulation model was constructed cor bC" notash and langbeinite
in each of the three areas of interest that incorporated the miniE" eases (langbeinite) and
development scenarios (no capital investment, $5 million invested, or new plant
construction). Key model inputs, in addition to reserve data, included the price of the
commodity, the unit cost of extraction, severance-tax rates, state and federal corporate
taxes, the depreciation schedule assumed for capital investments, and the discount rate.
Development of a method to anticipate future market prices for potash was a key issue,
Time units were years, and the time frame simulated was 1995-2030.
Forecasting is as much an inexact an as a science, panicularly when the
forecasting horizon is 35 years. Although historical prices for Eddy County potash were
modeled using time-series methods, a simulation approach was used to value these
resources. Annual market prices were simulated using a random-walk methodology (an
excellent reference is Karlin and Taylor, 1975), which is discussed below. Depletion was
calculated using the standard methodology, which may be found in Stermole and Stermole
(1993).
The time frame considered was 1995-2030. Market prices and extraction and
maintenance costs were considered on an annual basis. A sample (this sample does not
include actual data used in the study for both market prices and operating costs)
simulation run for the years 1995-2000 is provided in Table 1.
Key assumptions and features associated with the oil and gas cash flows used in