Net Present Value (NPV)

The value of a project's future cash flows discounted back to today — the headline number of every economic study.

Definition

The present value of future cash flows from a mining project, discounted at a specified rate (typically 5% for NPV5). Positive NPV indicates a project is economically viable. NPV is a key metric in feasibility studies.

Why it matters

NPV is how a deposit becomes a dollar figure, and it is the number most often compared to a company's market cap. A project trading at a fraction of its NPV may be cheap, or the market may simply disbelieve the assumptions.

In practice

Always read NPV with its discount rate and metal price. Junior studies typically use 5% or 8%; a lower rate and a bullish price will roughly double the same project's stated value.

Where people go wrong

Treating NPV as a valuation. It ignores financing, dilution and the years of execution risk between a study and a producing mine.

See also

  • Internal Rate of Return (IRR) The discount rate at which the net present value of a project equals zero. Higher IRRs indicate better project
  • Payback Period The time required for a mining project to recover its initial capital investment from net cash flows. Shorter
  • Preliminary Economic Assessment (PEA) An initial economic analysis of a mineral project that includes estimates of capital and operating costs, meta
  • Feasibility Study A comprehensive technical and economic study of a mineral project used to demonstrate whether the project is e

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