Multi-zone mine valuation using modern asset pricing (real options) techniques

This dissertation proposes a model of project structure, called the Flexible Discrete Mine Production (FDMP) model, for use within the modern asset pricing MAP valuation framework. The different zones within a mineral resource project are explicitly recognized and assigned a fixed development and production profile. Management operates the project for discrete intervals by choosing, at the start of each interval, an operating mode from a set of competing operating modes. Each mode specifies the combination of zones that will be active and the amount of mineral processing capacity that is built, abandoned or temporarily closed during the next period. Constraints may be placed on the choice of operating mode because of geological structure, reserve depletion or capacity restrictions.; The FDMP model is demonstrated with a MAP valuation of a stylized two-zone mine in which management must decide between competing development strategies for a satellite low-grade zone, given that current operations are focused on a developed high-grade zone. The model is run in both reverting and non-reverting mineral price environments and the results are compared to three high-grade and low-grade zone Set Production Plans (SPP; high-grade zone operations only, immediate low-grade zone development, and delayed low-grade zone development) valued within the DCF and the MAP pricing frameworks.; A comparison between valuation method results show that, when a 10% discount rate is used, the DCF technique returns a much higher value than the FDMP and SPP MAP models. The project has less value when the MAP approach is used because, in the given price environment, it is more risky than is reflected by the 10% discount rate used in the DCF valuation method.; Finally, a discrete geological (grade) uncertainty model is created for the low-grade zone to determine its influence on low-grade zone development policy. The low quality outcomes from the geological uncertainty model are also used to investigate selective temporary zone closure strategies. Temporary closure of the low-grade zone is shown to be preferred to abandonment in some low mineral price environments. (Abstract shortened by UMI.)...