Value Of Mining Research Articles

Estimations of utility function and values of sustainable mining via the choice experiment method

Mining projects almost certainly influence the economy, society, and the environment. Accordingly, sustainable mining has economic, social and environmental attributes. Based on economic theories, researchers can obtain the value of mining based on the value of its attributes. The market may sometimes fail to evaluate some attributes, and thus researchers are increasingly using the “stated preference approach”. The present paper uses the “choice experiment” method, which is a subset of the stated preference approach for estimating the utility function and the value of effects caused by mining. A relevant questionnaire was handed out to individuals for this purpose. The conditional logit model and the calculated coefficients about the attributes of mining were shown to be capable of yielding relevant results for the utility function of sustainable mining. Furthermore, the value of sustainable mining in a mine as a case study was estimated equal to $ 11.3 per ton by calculating the willingness to pay for each of the attributes. This paper is quite new in terms of using the choice experiment technique for mine valuation as well as calculating this according to the sustainable development criteria. Estimating the preferences stated by individuals concerning the mining attributes can better assist in managing the effects. It is possible to design the mine to have the highest sustainable value and it can be the basis for comparing the mining projects.

Dynamic discount rate through Ornstein-Uhlenbeck process for mining project valuation

Discounted cash flow (DCF) is a conventional and widely used method for the mine valuation. The reason behind its wide use does not require complex mathematical computations. However, the technique is static; it does not allow the practitioner to react to the market changes. In DCF analysis, one of the important input is the discount rate, which, to some extent, represents the financial risk that the mining company may face in the future. The discount rate is sensitive to market and political uncertainties. Therefore, in fact, it is a dynamic parameter varying over the years. The application of DCF method is quite simple. As the life of mine prolongs, since the effect of discounting grows, DCF may not reflect the actual value of the project. This research proposes a way to find the discount rate for each year. The discount rate is calculated by a weighted average cost of capital formula by incorporating into the interest rate. The interest rate is treated by a stochastic process called Ornstein-Uhlenbeck (OU) process. This approach generates multiple realizations for the discount rate. Therefore, the proposed approach can quantify risks associated with the discount rate. Thus, the management of a mining project can make meaningful decisions. In doing so, a case study is conducted on a mining project to demonstrate the proposed approach.

Numerical methods for PDE models related to pricing and expected lifetime of an extraction project under uncertainty

Numerical techniques for solving some mathematical models related to a mining extraction project under uncertainty are proposed. The mine valuation is formulated as a complementarity problem associated to a degenerate second order partial differential equation (PDE), which incorporates the option to abandon the project. The probability of completion and the expected lifetime of the project are the respective solutions of problems governed by similar degenerated PDE operators. In all models, the underlying stochastic factors are the commodity price and the remaining resource. After justifying the required boundary conditions on the computational bounded domain, the proposed numerical techniques mainly consist of a Crank-Nicolson characteristics method for the time discretization to cope with the convection dominating setting and Lagrange finite elements for the discretization in the commodity and resource variables, with the additional use of an augmented Lagrangian active set method for the complementarity problem. Some numerical examples are discussed to illustrate the performance of the methods and models.

A model robust real options valuation methodology incorporating climate risk

Physical climate risk faced by companies is emerging as a significant concern for long term investors, such as sovereign wealth funds. For the mining sector, each physical asset may have a significant financial exposure to extreme climate events such as floods and droughts. Often, these financial risks are difficult to value given the paucity of data on climate extremes, and limited company assessment and disclosure of the associated financial liability. We propose a generalization of the Brennan-Schwartz approach to real option valuation to address this situation. A Poisson point process is used to model arrivals of extreme events that exceed the estimated design return period of the flood/drought mitigation infrastructure at the site. Using techniques from the field of robust performance analysis, we are able to calculate upper and lower bounds over all the probability models within a certain distance from the original model, that address the potential uncertainty of the risk and loss. We suggest two different approaches for mine valuation based on this technique. The first, and more direct approach, calibrates the distance of probability measures from a set of known mine transactions and prices a mine (with currently unknown value) relative to the training set of mines. The second approach uses historical precipitation data from a mine site, to calculate a “worst case” disaster arrival process from the actual physical data, and then the mine is priced using this process. Generalizations to a portfolio of assets are also considered.

Geostastical Appraisal of Mining Data for Study of Mineralization Pattern

Prediction of geological problems is complex in nature. Multidisciplinary approach is deemed necessary to understand such enigmatic problems. Economically exploration of the ore is very crucial in mining. Trend surface analysis - a geostastical technique is useful in mine valuation studies and definitely sheds the light in this direction to delineate economically viable zones for the development of the mines.

Avaliação de capacidade de um depósito típico de níquel laterítico aproveitado através de rota de lixiviação ácida sob pressão

Avaliou-se a capacidade de produção de uma operação de níquel laterítico, aproveitado através de rota de processo de lixiviação ácida sob pressão, para escalas de produção entre 45000 t/ano Ni e 300000 t/ano Ni, usando parâmetros da indústria. A análise econômica foi feita utilizando a metodologia de fluxos de caixa descontados e análise de sensibilidade. Os indicadores de desempenho foram interpretados no contexto de avaliação de empreendimentos em mineração, o que permitiu delinear cenários para a recomendação de escala. A escala recomendável é de 120000 t/ano Ni, que representa a melhor solução de compromisso tendo em vista a rentabilidade do empreendimento, a maturação da tecnologia e o tamanho do mercado.

Geology and Mining System (GMS) for computer‐aided mine valuation

AbstractIn this study, the software Geology and Mining System (GMS) has been developed for the education of geology and mining engineering students in mine valuation courses. The GMS has been applied in education for 2 years and it has been observed that the system serves to cognitive education purposes. © 2007 Wiley Periodicals, Inc. Comput Appl Eng Educ 15: 78–87, 2007; Published online in Wiley InterScience (www.interscience.wiley.com); DOI 10.1002/cae.20105

Mineral reserve risk in continuous-time stochastic mine valuation

In this paper, the authors develop a valuation model (2DPM) to overcome the limitation of constant reserve (CRM) assumption in derivative mine valuation. It develops and solves equilibrium equations that characterise the value of mineral project under price uncertainty and reserve variability due to cutoff grade flexibility. Results show that the determination of cutoff grade independent of optimal operating policies may not always add to asset value. At copper price of $1.5/lb, a 127.8mt reserve is valued at $1,134 and $996 million dollars by CRM and 2DPM respectively. Using 2DPM delays the investment decision and early abandonment of projects.

On accounting for sustainable development and accounting for the environment

Economic sustainability or intergenerational equity entails maintaining social well-being by decisions about investments in different types of assets. Under certain conditions, consumption can be sustained by depleting resources, or various kinds of natural capital, while building up other kinds of capital. Theoretically, the choices involve the use of a set of accounting prices. The question becomes one of finding and implementing accounting prices that express the roles of the various capital goods in achieving the objective of the economy. Hartwick's rule holds that an economy can be sustained if the value of the total, net investment in the economy, evaluated at those accounting prices, is zero. The rule applies to a special, abstract economic model which expresses a social objective different from the discounted-utilitarian objective on which national accounting is based. Different objectives give rise to different accounting prices. Because the prices may not be right, the zero net-investment rule using available national-accounting prices cannot generate a condition for sustaining an economy. Still, environmental accounting is a tool which, used prudently, can make an important contribution to social decision-making. This paper expands upon these ideas by discussing the incorporation of natural resource and intangible environmental costs and benefits into green accounting at the firm as well as the economy level. Common techniques of mine valuation and standard corporate accounting are the bases for this extension to the valuation of and accounting for decisions concerning the environment.

Rejecting the Hotelling Valuation Principle

In correcting our regressions for heteroskedasticity, Joseph Eisenhauer strengthens our case that the Hotelling Valuation Principle is not valid and that mine valuation must recognize technological constraints on production.

Simulation and Numerical Methods in Real Options Valuation

This paper provides an overview of numerical methods and its applicability for solving real option problems. It discusses alternative approaches and shows that both forward and backward induction procedures have a place in real options valuation. A case-project with the option of investing in the future contingent on a stochastic output price is valued using binomial trees, finite differences, and simulation. The Black and Scholes (1973) analytical solution to this problem is used as a benchmark. All four methods provide similar results. The extension of simulation methods to American-Type options is discussed and a solution to Brennan and Schwartz's (1985) classic mine valuation problem is presented. The benefits of this approach, with its better handling of complex uncertainty modeling and path-dependent cash flows, are discussed.

Stochastic model of mineral prices incorporating neural network and regression analysis

In mine valuation commodity price forecasts are required to assess the economic viability of a project. The forecast must cover a relevant period to capture the trend and volatility in prices within a mining business cycle. Mineral commodity prices are volatile, which means that the results of evaluation tools that do not treat the stochasticity of metal prices rigorously may be misleading.A model has been set up in which the gold price is modelled by a three-step procedure: a multivariate, normally distributed random variable generator (MNDRVG), the method of multilayer feed-forward neural networks (MFNN) and multiple regression analysis. The first step uses MNDRVG to generate the input data. In the second step the data are fed into an orthogonal projection model to estimate the parameters of a linear regression. In the third step the estimated regression is used to forecast the gold price. Because not all the input data are known at the time of the forecast, MFNN is used to generate the unknown input data of the exogenous factors of the forecasting equation. Data on forecasting variables are normally available for a few years; to obtain realistic estimates from the MFNN and multiple regression models more data are needed to train the network. The MNDRVG model provides a convenient method for extending the data set since it takes into account the uncertainty in the parameters and the spread of the data around the mean. A data set of an identified socio-politico-economic cycle was used to validate the model. Analysis of the results shows that the estimated mineral price model predicts the annual average gold price with very high precision. The main novelty of the methodology is the simulation and rigorous analysis of the randomness property associated with mineral price to reduce the estimation and forecasting errors.

Derivative mine valuation: strategic investment decisions in competitive markets

Successful management in competitive markets requires evaluation methods that respond to global market dynamics and provide investors with relevant information to make strategic investment decisions. These strategic decisions include decisions on investment timing, feasibility study and risk management and mine operating options. Conventional methods do not have the built-in capabilities to help investors handle these strategic issues. Advances in modern finance have had profound impacts on financial markets for options, futures and collaterized securities and offer appropriate tools in solving these problems. In this paper, the authors have extended the Brennan and Schwartz mineral resource model to develop the derivative mine valuation method based on the dynamic arbitrage theory. A copper mining venture has been evaluated using the derivative mine valuation and conventional methods. The results show that the derivative mine valuation method allows investors to maximize the venture's market value by exercising these strategic options.

A study of geohydrological and rock engineering environment at Lappvattnet experimental mine

The paper describes a hydrogeological and geotechnical study of rock mass at an experimental nickel mine at Lappvattnet, Sweden. The mine is situated 30 km south-west of the twonship of Skelleftea and was mainly developed for the exploration purposes. The mine consists of 1000 m of underground roadways from where a number of diamond cored boreholes were drilled for geotechnical studies and mine valuation. The main problem encountered during the development stage of the mine was very high quantities of ground water inflows at relatively high hydraulic pressures. The geological and hydrogeological conditions along the length of the drifts are described together with the methods used for ground-water inflow control. The study shows that there is a strong need for modifying the grouting methods to suit the rock conditions in order to control the ground-water inflows. A discussion regarding the need for a detailed geotechnical investigation prior to the planning and design stage of the project is also included.

Disjunctive kriging: Comparison of theory with actual results

The method of disjunctive kriging is applied to the evaluation of blocks of ore in a gold mine, and the estimated block values are compared with the true block values. First the theory of disjunctive kriging as applicable to mine valuation is presented from the user's viewpoint. The theory is then applied to process sample values originating from a large gold mine. Using the computer simulation of a number of sampling programs, estimated values and true values are compared. The disjunctive kriging estimates are also compared with estimates obtained by other methods of evaluation, including logarithmic kriging. It is shown that the results obtained, using real world data, are in complete agreement with the results expected according to the geostatistical theory.

A statistical study in mining exploration as related to the Kolar gold fields (India)

Kolar, Hutti and Ramagiri are the best known gold deposits in India. The geological structure prevailing at the Kolar gold fields is similar to that in the gold fields of South Africa, Australia and other parts of the world. The present study is a case study and deals with the application of certain statistical tools for the solution of mine valuation problems relating to the Oriental lode (Nundydroog mines) of the Kolar gold fields. Estimates for means of blocks of auriferous ore, based on the nature of gold value properties found to be lognormal, are obtained by using the techniques developed by Sichel and Krige. These are given with the corresponding arithmetic means. Empirical relationships, between various estimates and corresponding arithmetic means, are worked out together with coefficients of correlation. A study of the joint distribution of variables is made for effective pay limits on the basis of peripheral values, which can be taken into consideration for stoping through a block of ore. The concept of under- or over-valuation in low- or high-grade blocks of ore respectively is also examined. The lode is quite erratic and no useful empirical relationship between depth and grade of ore is apparent.

A preliminary statistical study on the basic mine valuation problems at Kolar goldfields, Mysore state (India)

This study, based on the statistical analysis of data of the Oriental lode, West Reef of Kolar goldfields (southern India) is a case study based on the techniques developed mostly by Finney, Sichel, Krige and others. It is found that the gold value properties here follow a two parameter lognormal distribution pattern. A comparison between the arithmetic mean of the sample values and the estimation of the mean of grade of ore based on the distribution pattern is made. Variances obtained on the basis of peripheral values and internal block values are subjected to the F-test for homoscadesticity. The null hypothesis that both sets of values have come from the same population does not stand the test.

Problems of Mine Valuation

THE State of Wisconsin has published a very interesting Bulletin under the title of “A Study of Methods of Mine Valuation and Assessment, with special reference to the Zinc Mines of South-western Wisconsin,” by W. L. Uglow, which is well worthy of the attention of anyone concerned in the knotty problems of mine valuation. The Wisconsin Legislature has decided to impose a tax upon mineral property, which is to be valued on the same principle as is applied to all real estate in that State, namely, the “full value which could ordinarily be obtained therefor at private sale”; this phrase is not quite clear, but apparently means the value that could be realised under a sale from a willing seller to a willing purchaser. The difficulties that beset such a valuation in all circumstances are increased by the fact that in the majority of cases these mines are leased by the mining companies from the royalty owners, whilst the necessary capital is often borrowed from banks, so that three separate parties are interested in the mining property. It is interesting to note that the royalty payable to the owner varies from 5 to 15 per cent., averaging 10 per cent, on the gross receipts, the owner paying as a rule the real property tax upon the increased value of his land due to the fact that it is mineral-bearing, as well as an income tax upon the royalty that he receives.

Modern Mine Valuation

IN this book the author discusses the fundamentals of mine valuation—a subject too seldom ventilated and too little introduced into the training of mining engineers.