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Mineral reserves under price uncertainty

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  • Evatt, Geoffrey William
  • Soltan, Mousa Omid
  • Johnson, Paul V.
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    Abstract

    National reporting organizations and regulatory bodies for the minerals and mining sector are requiring publicly reported Ore-Reserve estimates to take account of uncertainties. Whilst methodologies that account for physical uncertainty appear relatively well developed, methodologies which can take account of economic uncertainty appear much less so. To counter this shortfall, we present an efficient and general methodology which can quantify the effect of price uncertainty within reserve estimates, providing both the expected reserve size and the associated distribution (box whisker plot). This statistical information can be used by interested parties to understand precisely where the reserve risks lie, which we highlight in a worked example.

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    Bibliographic Info

    Article provided by Elsevier in its journal Resources Policy.

    Volume (Year): 37 (2012)
    Issue (Month): 3 ()
    Pages: 340-345

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    Handle: RePEc:eee:jrpoli:v:37:y:2012:i:3:p:340-345

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    Web page: http://www.elsevier.com/locate/inca/30467

    Related research

    Keywords: Reserves; Uncertainty; Price; Natural resource; Real options; Mining;

    References

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    1. Dehghani, Hesam & Ataee-pour, Majid, 2012. "Determination of the effect of operating cost uncertainty on mining project evaluation," Resources Policy, Elsevier, vol. 37(1), pages 109-117.
    2. Alberto Moel, 2002. "When Are Real Options Exercised? An Empirical Study of Mine Closings," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 35-64, March.
    3. Dimitrakopoulos, Roussos G. & Abdel Sabour, Sabry A., 2007. "Evaluating mine plans under uncertainty: Can the real options make a difference?," Resources Policy, Elsevier, vol. 32(3), pages 116-125, September.
    4. Mudd, Gavin M., 2007. "Global trends in gold mining: Towards quantifying environmental and resource sustainability," Resources Policy, Elsevier, vol. 32(1-2), pages 42-56.
    5. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-57, April.
    6. Ray, George F., 1984. "Mineral reserves : Projected lifetimes and security of supply," Resources Policy, Elsevier, vol. 10(2), pages 75-80, June.
    7. Slade, Margaret E., 2001. "Valuing Managerial Flexibility: An Application of Real-Option Theory to Mining Investments," Journal of Environmental Economics and Management, Elsevier, vol. 41(2), pages 193-233, March.
    8. Sarkar, Sudipto, 2000. "On the investment-uncertainty relationship in a real options model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 219-225, February.
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