Title: Flexibility valuation in operating mine decisions using real options pricing

Authors: Sean Dessureault, Vassilios N. Kazakidis, Zachary Mayer

Addresses: Department of Mining and Geological Engineering, 1235 E. North Campus Drive, room 341C, The University of Arizona, Tucson, 85721 0012 AZ, USA. ' School of Engineering, Laurentian University, Sudbury, Ontario, P3E 2C6, Canada. ' Mineral Resources Engineering, School of Engineering, Laurentian University, Sudbury, Ontario, P3E 2C6, Canada

Abstract: The introduction of flexibility into the mine engineering process is required to counter the downturns and provide the ability to exploit the upturns that can develop. Flexibility can be assessed through real options techniques. However, the determination of volatility, a key variable in real options valuation, needs to be quantified. New information technologies are greatly expanding the capabilities of quantification of volatility. This paper presents the methods that can be used for the calculation of process and project volatility in operations and provides practical applications from mining operations in the USA and Canada.

Keywords: operating uncertainty; risk management; volatility; flexibility valuation; mining operations; simulation; data warehousing; real options; minerals industry; mine engineering; risk assessment; USA; United States; Canada.

DOI: 10.1504/IJRAM.2007.014092

International Journal of Risk Assessment and Management, 2007 Vol.7 No.5, pp.656 - 674

Published online: 18 Jun 2007 *

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