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VIII-8
uncendlfity may be considered a major source of potash mining operation risk.
The 15 % rate used in the results presented above is reasonable in light of the
market uncertainties faced by potash producers. Although the development risk associated
witr~ "otash deposits in the WIPP, additional, and combined areas is low, there is market
price risk that is faced by operators. A precise discount rate for different fIrms operating
in the WIPP area is diffIcult to estimate (particularly in the absence of debt/equity ratio
data for said fIrms). So, although pinpointing a discount rate for a 35 year project is quite
risky, current levels of activity in the region and market factors point to a 15 % discount
rate for Carlsbad area potash operations.
REFERENCES
Copeland, T., Koller, T., and Murrin, J., 1990, Valuation: Measuring and Managing the
Value of Companies: New York, Wiley.
Dixit, A. K., and Pindyck, R. S., 1994, Investment Under Uncertainty: Princeton, N.J.,
Princeton Press.
Economic Report of the President to Congress, February, 1994.
Karlin, S. and Taylor, H. M., 1975, A First Course in Stochastic Processes: New York,
Academic Press, 1975.
Levy, H. and Sarnat, M., 1994, Capital Investment and Financial Decisions: Englewood
Cliffs, N.J., Prentice-Hall.
Searls, J., 1992, "Potash", United States Department of the Interior, Bureau of Mines.
Stermole, F. J. and Stermole, J. M., 1993, Economic Evaluation and Investment
Decision Methods: GoldeL. Colo., Investment Evaluations Corporation.
Value Line Investment Survey, 17 March 1995
Weisner, R. C., Lemons J. F., and Coppa, L. V., 1980, Valuation of Potash
Occurrences Within the Nuclear "'aste Isolation Pilot Plant Site in Southeastern New
Mexico: United States Departme,)C of the Interior, Bureau of Mines.
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