Legitimacy Value-at-risk
Using Legitimacy Value-at-risk to evaluate portfolio and project risk
Portfolio and project risk assessment
Our Legitimacy Value-at-risk assessment, calculates what value is likely to be lost due legitimacy risk for a project or portfolio of projects.
Value at Risk (VaR) is a widely used financial risk metric that estimates the maximum expected loss over a defined time period with a given confidence level. It answers this question:
“What is the most we could lose, with X% confidence, within Y time period?”
The value of this model is that it quantifies risk and allows project teams to understand it in terms of time and value.
Net Present Value (NPV) calculations discount future cashflows based on:
Production start date
Expected life-of-mine revenues
CAPEX and OPEX assumptions
Commodity pricing curves
Discount rate
However, NPV assumes the project actually enters production when planned.
In reality, permitting delays of 3–20+ years are now standard. Some projects never gain social licence and never produce. Many have licences revoked mid-development and some are permanently impaired. A static NPV approach doesn’t take these things into consideration.
Why it is important
Legitimacy Value-at-Risk matters because it changes decisions before value is destroyed. By quantifying how delay, loss of consent, or shutdown erodes value over time, it forces earlier choices about project design, sequencing, governance, community participation, and capital deployment. Instead of optimising a fragile NPV on weak foundations, boards can invest in the conditions that actually determine whether a project proceeds — and whether it endures.
How it works
Spektrum uses a combination of its proprietary frameworks, data analytics, and modelling to predict:
The type and severity of legitimacy issues.
The propensity for loss of support and the level of social antagonism.
Effectiveness of the proponent’s responses and strategies
Delays and NPV impact resulting from the issues
Spektrum runs this assessment and analysis using public information.
We present the results to the board of the proponent, providing an independent assessment of legitimacy risk in terms of financial loss.
