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The cost of mine suspension from social conflict: A decision tree model

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  • Teschner, Benjamin
  • Holley, Elizabeth

Abstract

This paper presents a method which incorporates the risk associated with project suspension from social conflict into a mining project's net present value (NPV). The model applies a series of decision trees to a project's discounted cash flow (DCF) allowing for the chance of project suspension from a company-community conflict event. The model determines a social-risk-adjusted NPV for the project based on the likelihood of project suspension and the potential loss of future opportunity. This paper applies the model to a generic mining cash flow using two different approaches to estimating the project's likelihood of suspension and compares the efficacy of each method. The paper then applies the model to the proposed Pebble Project in Southwestern Alaska. The work concludes that after the risks associated with stakeholder opposition are accounted for, the NPV of the Pebble Project drops from approximately $6 billion to $1.1 billion. The model translates stakeholder concerns and priorities into potential financial consequences for investors, thereby demonstrating the business case for incorporating stakeholder positions into mine design and planning.

Suggested Citation

  • Teschner, Benjamin & Holley, Elizabeth, 2021. "The cost of mine suspension from social conflict: A decision tree model," Resources Policy, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:jrpoli:v:74:y:2021:i:c:s0301420718305853
    DOI: 10.1016/j.resourpol.2019.101443
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    References listed on IDEAS

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    1. Humphreys, David, 2000. "A business perspective on community relations in mining," Resources Policy, Elsevier, vol. 26(3), pages 127-131, September.
    2. Campbell, Gary & Roberts, Mark, 2010. "Permitting a new mine: Insights from the community debate," Resources Policy, Elsevier, vol. 35(3), pages 210-217, September.
    3. Prno, Jason, 2013. "An analysis of factors leading to the establishment of a social licence to operate in the mining industry," Resources Policy, Elsevier, vol. 38(4), pages 577-590.
    4. David Espinoza & Jeremy W.F. Morris, 2013. "Decoupled NPV: a simple, improved method to value infrastructure investments," Construction Management and Economics, Taylor & Francis Journals, vol. 31(5), pages 471-496, May.
    5. Holley, Elizabeth A. & Mitcham, Carl, 2016. "The Pebble Mine Dialogue: A case study in public engagement and the social license to operate," Resources Policy, Elsevier, vol. 47(C), pages 18-27.
    6. Espinoza, R. David & Rojo, Javier, 2015. "Using DNPV for valuing investments in the energy sector: A solar project case study," Renewable Energy, Elsevier, vol. 75(C), pages 44-49.
    7. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    8. Paul C. Godfrey & Craig B. Merrill & Jared M. Hansen, 2009. "The relationship between corporate social responsibility and shareholder value: an empirical test of the risk management hypothesis," Strategic Management Journal, Wiley Blackwell, vol. 30(4), pages 425-445, April.
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    Cited by:

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