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The optimisation rule for investment in mining projects


  • Foo, Nam
  • Bloch, Harry
  • Salim, Ruhul


Investment in mining projects involves significant uncertainty. Project investment is usually high risk, irreversible and challenged by major economic factors. Mining commodity prices in particular always show greater volatility than any other primary products. The variation of these prices is critical in the investment decision of whether the project should go ahead, be abandoned or be delayed. This paper examines the impact of mineral price uncertainty on mining investment decisions using examples of projects in the Asia-Pacific region. Applying the mean reversion (MR) model, the commodity trigger value for investment decisions in each project is determined in the context of operational flexibilities. The findings indicate it is sometimes better to wait for a more suitable time to invest.

Suggested Citation

  • Foo, Nam & Bloch, Harry & Salim, Ruhul, 2018. "The optimisation rule for investment in mining projects," Resources Policy, Elsevier, vol. 55(C), pages 123-132.
  • Handle: RePEc:eee:jrpoli:v:55:y:2018:i:c:p:123-132
    DOI: 10.1016/j.resourpol.2017.11.005

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    5. Hammad Tariq Janjuhah & Muhammad Ishfaque & Muhammad Ifzal Mehmood & George Kontakiotis & Syed Muzyan Shahzad & Stergios D. Zarkogiannis, 2021. "Integrated Underground Mining Hazard Assessment, Management, Environmental Monitoring, and Policy Control in Pakistan," Sustainability, MDPI, vol. 13(24), pages 1-18, December.
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    7. Francisco J. Díaz-Borrego & María del Mar Miras-Rodríguez & Bernabé Escobar-Pérez, 2019. "Looking for Accurate Forecasting of Copper TC/RC Benchmark Levels," Complexity, Hindawi, vol. 2019, pages 1-16, April.
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    9. Maryke C. Rademeyer & Richard C. A. Minnitt & Rosemary M. S. Falcon, 2020. "A characterisation of the mechanisms transforming capital investment into productive capacity in mining projects with long lead-times," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 33(3), pages 349-357, October.

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    More about this item


    Real options; Asia-Pacific; Investment decisions; Uncertainty; Critical value;
    All these keywords.

    JEL classification:

    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)


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