Abstract
Preliminary Economics Assessments (PEA) of gold projects commonly use discount rates of 5%, rarely more than 8%. How realistic is this in terms of portraying the project risk at the PEA level, which is the lowest level of economic evaluation often used to make a decision on further investment? I have compiled data on gold project PEAs in order to examine the relationship between NPV (5% after-tax) and either the value of a transaction on the project or the adjusted market capitalization of a junior company for which the project is its major asset. Interestingly, the transaction value or market cap is a fraction of the NPV in most of the projects reviewed. In order to better quantify the risk at the PEA level, I have calculated the discount rate needed to bring each project NPV into line with the transaction value or the market cap.