Simulating Mine Revenues with Historical Gold Price Data from the Bank of England

This paper demonstrates a simulation method using historical prices for gold over a 40-year period. The simulation method can be used to assess variability in a mine plan. In this example, I use monthly gold data from the Bank of England. The total sample size is approximately 450 monthly data points, from which I consider 11 different continuous subsamples with length 100. Some of these blocks of data are overlap, but they are all different. For each block of data, I preform various calculations for a hypothetical mine plan that produces one ounce of gold per month. I report undiscounted total revenue over the 100-month period with real prices corresponding to different historical episodes and note how gold prices have changed over this 40-year period. I also use monthly price differences from each path to simulate gold price paths all starting with the same initial value, which allows for more apples-apples comparison. I show the Revenue Paths in such cases, report the present value for each path, and include a simple cost model in the mine plan to estimate net present value for each path with standardized initial prices.