PhD Project: Assessing the Real Option Approach for Mining Projects

Mine extraction involves major uncertainties that affect the estimated value of mining projects, most notably grade quality and metal price. Mathematical programming is the standard tool used in the mining industry for valuing mines, as it can accommodate large-scale problems involving a large number of physical constraints. However, this approach is ill-suited to deal with uncertainty, as its anticipative nature (i.e. assuming exact prior knowledge of the future) can produce overestimated, unattainable valuations that mask the true risk taken by mining companies. By contrast, the alternative real option (stochastic control) approach provides by definition accurate, non-anticipative policies. The aim of this PhD research project is to adapt and improve the latest methodologies in real option literature for solving realistic mining valuation and operation problems. The objective is to develop and demonstrate the value adding by using the real option approach for efficient and sustainable mining projects.

Keywords: Mining, real option, stochastic control, mathematical programming, geostatistics, mathematical finance, simulation