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Gold Claim at Sturgeon Lake
A freelance geologist was asked for advice regarding two mining claims to property on Sturgeon Lake, near Thunder Bay, Ontario. Specifically, he was asked if there was enough gold on the property to pursue an economically feasible mining opportunity. The geologist determined that an analytical approach would best aid the analysis of the multiple factors he would need to consider in arriving at a decision about whether or not to proceed with the mining operation. The first stage in ore extraction involved building an access road, and the second stage was to implement a drilling program. There was considerable uncertainty surrounding the costs and actual feasibility of completion of these stages; yet only when these stages were completed could actual mining of the property begin. If mining proceeded, it was assumed it would take 10 years to extract all the gold from the site, and the total amount of gold in the mine would be extracted at an even rate over the 10-year period. Mining costs were assumed to be $30 an ounce, and the geologist used a discount rate of 20 per cent before taxes when evaluating projects.
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