A Real Options Approach for Optimizing Long-Term Mining Plans

A proper valoration and operation of mining resources should consider the reaction capacity of decision makers who face contingencies and sources of uncertainty involved. The Real Options Approach makes use of financial tools to valorate real assets, incorporating these features. Although the works carried out so far now consider the abandoning, closing and reopening of a mine deposit, they have overlooked key aspects of mining operation such as the expansion of process capacity and the geological diversity of mining resources. Moreover, no realistic cost functions have been considered either. In this work we formulate and solve the problem of long-term operating planning in copper mining, introducing the option of investing in process capacity increases, considering the diversity of mineral resources, modelling the stochastic nature of output market price, taking into account realistic cost functions.