One thing you should always consider is the reasonableness
of any estimate. For example, Hycroft Mining recently announced that a gold
mine the company on which the company has begun work has an NPV
of $2.1 billion with an initial investment of $61 million! The project has an
IRR of 147 percent and a profitability index of more than 34 times. While this
certainly seems to be a fantastic project, we have some doubts about the
extremely high NPV and IRR estimates. We would also mention that the discount
rate of 5 percent, which was used by the company, seems low for a project of
this risk. The stock market doesn’t believe the NPV of this mine is anywhere
near $2.1 billion: The company’s current market capitalization is about $5 million.
