The use of funds in gold mining companies is influenced by the total sources of funds and vice versa, whereas the dividend payments and each investment decisions are usually influenced by the sources of funds. Basically, financing and expenditure decisions of gold mining companies are found to be made simultaneously most the time. Gold mining companies perform their financial and expenditure operations under the constraint that the difference between their expenditures on alternative uses and their internal sources of financing must be covered either by decumulating working capital or by resorting to external financing. Gold mining companies try to achieve a balance between the amount of liquidity, which is the changes in working capital, and the amount of debt relative to the desired liquidity and the amount of debt relative to the determinants of safe debt.
A palpable aversion to the risk of indebtedness is usually indicated by the relative lack of debt of big of gold corporations. A study of the optimum financial structure of gold mining companies tends to confirm the fact that gold mining corporations could substantially increase their debt levels at no increase marginal cost of capital. The financial structure associated with minimum costs of capital is present, but credit supply institutions or management inertia prevent most gold mining companies from operating in the range of this optimum. The mining companies think carefully to acquire a high level of debt as the financial community is willing to supply.
With the time, some changes have occurred in the expenditure and financial behavior of gold mining companies and some factors affect the supply and demands for funds. Some aspects to be considered are policy issues regarding depletion allowances, investment tax credits and particular decisions of each company. The risk for mineral investment is greater than that of average business ventures because physical and economic characteristics of the gold deposit are never known with certainty. Considering that the merits of a potential mineral investment cannot be fully appraised without consideration of the impact of the investor of the possible favorable events associated with the adoption of the gold project, methods of risk analysis are important in gold project evaluation and investment selection. The conceptual framework for risk analysis and the means by which some of the recommended practices might be implanted are studied and analyzed during the development of the project.