Determination of the effect of operating cost uncertainty on mining project evaluation

Mineral reserves under price uncertainty

“…We have already noted that ore-grade uncertainty is better utilized in reserve estimates than economic uncertainty. So beyond our explicit consideration of price uncertainty, one might wish to also consider including operating cost uncertainty (Dehghani and Ataee-pour, 2012), or interest rate and foreign exchange risk (provided they can be written in the form of a stochastic process, which these mentioned uncertainties generally can). Fortunately, the modelling approach we have used (the Feynman-Kac equation), is designed so as to include multiple uncertainties, and thus equation 4 and 6 can easily be extended to higher dimensions.…”

A proposed approach for modelling competitiveness of new surface coal mines

“…The model should consider unique project-specific variables and challenges, such as, for instance, the remoteness of the mine and the business environment in which it will operate. Dehghani and Ataee-pour (2012) state that mining companies do not know, with absolute certainty, how much they will be able to spend tomorrow, let alone next month or next year. Costs should thus be estimated using a method that will incorporate the effect of deposit-specific variables (such as quality and geography) as well as other external variables (such as policy and inflation) affecting costs during operation.…”

Optimal costless extraction rate changes from a non-renewable resource

“…These include interest rate variations, foreign exchange risks, geological estimation (Dimitrakopoulos & Sabour, 2007) and operating cost uncertainty (Dehghani & Ataee-pour, 2012). Precisely how these additional uncertainties affect the valuation and optimal control regime will clearly be more complex to calculate and heavily depend upon the nature of the uncertainty.…”

“…It also provides a common foundation to build costless decision-making analysis upon because price uncertainty has been widely considered within irreversible decision-making studies. That said, clearly the ultimate goal of this area of work is to appropriately amalgamate all of the key uncertainties an extraction project faces (Atkinson & Isangulov, 2010), such as the consideration of uncertain operating costs (Dehghani & Ataee-pour, 2012) or the inclusion of natural growth (or refilling) of the resource (Provencher, 1995;Sarkar, 2000;Singh et al, 2006). We discuss these potential extensions of our work within Section 6.…”