Estimating cost of equity in project discount rates using the capital asset pricing model and Gordon's wealth growth model

Since the 2008 global financial crisis, mining projects have to invariably compete for scarce capital under depressed market conditions. The discounted cash flow analysis commonly used for the valuation of mining projects relies on using a discount rate. However, an appropriate discount rate is sometimes the subject of contestation since factors such as the stage of development of the mineral project affect the rate. This paper independently tests the reliability of capital asset pricing model and Gordon's wealth growth model estimates of cost of equity in discount rates and concludes that Gordon's wealth growth model provides better estimates under depressed market conditions.