One of the requirements of NI 43-101 for Item 22 Economic Analysis is “sensitivity or other analysis using variants in commodity price, grade, capital and operating costs, or other significant parameters, as appropriate, and discuss the impact of the results.”
The result of this 43-101 requirement is typically the graph seen below, which is easily generated from a cashflow model. Simply change a few numbers and then you get the new economics. The usual main conclusions derived from this chart are that metal price has the greatest impact on project economics followed by the operating cost. Those are probably accurate conclusions, but is the chart itself telling the true story?
I myself have created the same chart in several economic studies so I understand the limitation with it. The main assumption is that sensitivity economics are generated on the exact same reserve and production schedule as for the base case. That assumption may be applicable when applying a variable capital cost but may not be applicable when applying varying metal prices and operating costs. Does anyone think that in the example show, the NPV is still $120M with a 20% decrease in metal price or 20% increase in operating cost? Potentially a project could really be uneconomic with such a significant decrease in metal price but that is not shown by the sensitivity analysis.
Increasing the operating cost changes the cutoff grade, which changes the waste-to-ore ratio within the same pit. So assuming the same the life-of-mine production tonnage is not entirely correct in this scenario.
Reducing the metal price would also result in a change to the cutoff grade. If one were to go all the way back, these changes in economic parameters would impact on the original pit optimization used to define the pit upon which everything is based. A smaller pit size results in a different pit tonnage, which may require a smaller processing plant, which would then have new (higher) operating and lower capital costs than assumed. A smaller reserve would produce a different production schedule and shorter mine life. It can all get quite complex.
So due to all the changes these sensitivities generate, it does require a lot of work to properly examine them. However generally the project proponent does not want to incur the costs necessary to run multiple pit designs and multiple life of mine plans simply to examine sensitivities. Hence the shortcut is to simply change inputs to the cashflow model and generate outputs that are questionable but meet the 43-101 requirements.