Title: Assessing hard coal mining: an application with abandonment in the Czech Republic

Authors: Miroslav Čulík; Petr Gurný

Addresses: Faculty of Economic, Department of Finance, VŠB-Technical University of Ostrava, Sokolska třída 33, 700 21 Ostrava, Czech Republic ' Faculty of Economic, Department of Finance, VŠB-Technical University of Ostrava, Sokolska třída 33, 700 21 Ostrava, Czech Republic

Abstract: This paper aims to financially assess hard coal mining in a given region real option methodology. Hard coal mining in this mine resulted in a net loss for the owner during recent years due to the long-term unfavourable mining conditions and a drop in coal prices. Management plans to shut down the operation and abandon the project to reduce the loss. The goal is to assess whether shutting down the operation is the correct solution for this problem. In Section 4, the real option methodology procedure is described and applied to solve this problem. Results are subsequently commented and final solution is provided.

Keywords: real option; investment; mining industry; risk; flexibility; risk-neutral; valuation; payoff function; risk-free rate; intrinsic value.

DOI: 10.1504/IJMME.2017.085836

International Journal of Mining and Mineral Engineering, 2017 Vol.8 No.3, pp.187 - 206

Accepted: 23 Mar 2017
Published online: 04 Aug 2017 *

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