Real options applications in the valuation of flexible underground mining system design alternatives

Mineral resource projects are often large, multifaceted projects that are associated with diverse sources of both internal and external risks. These risks can cause delays on the planned schedule of the mine, add a significant cost to the project, and can greatly influence its profitability. Mine engineers can now plan for these changes by incorporating flexible alternatives into the mining system to counteract the risks, or to take advantage of new opportunities as they develop.; By using discrete event simulation, the effects of risk on a particular project value can be examined, project volatility can be calculated, and potential flexible mining alternatives can be identified. Real options provide a means for mine planners to determine the value of incorporating flexible alternatives into the mine plan. Several examples and a detailed case study are examined, which go through the various steps of the real options valuation process. The valuation methods examined include analytical, simulation, binomial tree, and cash flow simulation.; A methodology is proposed, that allows for the calculation of the value of flexibility for both flexible opportunity and insurance options in mine planning. This research demonstrates a viable method for introducing flexibility into mine plans by using simulation and real options valuation methods. It demonstrates that flexibility can become an equal partner among the key parameters in the decision-making process for underground mining systems.