Real Options

Sustainable Mining by means of Operational Flexibility and Asset Efficiency applying Real Options

The complexity of surface mining processes requires continuous evaluation and mitigation of associated risks. Both external (market) and internal (operation) factors are affecting mining activities by uncertainties. They have the potential to impact the project either positively or negatively. Some mining specific sources of uncertainties are: prices, demand, grade and metal content, dilution, processing operation, process efficiency and machinery performance.

In addition to the mentioned uncertainties, the mining industry has been facing challenges related to decreasing ore grades and ore quality. This situation will most probably increase the already exiting cost pressure on the mining industry on the long term. However, despite uncertainties and risks, mineral raw material needs to be produced as a basis of modern societies.

In order to reduce the actual cost pressure on mining companies and to improve future cost structures while achieving more efficiency in the production chain and subsequently higher productivity, flexibility in production and decision making process can be implemented. Flexibility is implemented using the Real Option “In” theory and allows taking advantages of positive development and subsequently mitigating risks which is directly related to the improvement of the project value.

In the framework of a research project at the Institute of Mineral Resources Engineering we are in the process of creating a systematic for a jointed valuation of the impact of implemented flexibility on mine production key parameters. Thereby the effect of possible decision strategies on the project economics is observed. The goal is to develop a strategic decision evaluation tool which allows making optimal strategic decisions in terms of process efficiency and an increase in productivity.