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A mathematical optimisation approach to modelling the economics of a coal mine

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  • Rademeyer, Maryke C.
  • Minnitt, Richard C.A.
  • Falcon, Rosemary M.S.

Abstract

A mathematical model of a multi-product coal mining project is proposed to characterise the economics governing coal production. The model accounts for mining cost variation due to varying production levels, changes in reserves available for extraction by means of a cut-off parameter, as well as lead-time delays between investment and when operations begin. The resulting constrained optimisation problem is solved computationally by maximising the net present value of future cash flows from the mining operation subject to physical limitations. We find that the capital investment problem has greater bearing on the overall project configuration decision and that changes in production capital are made throughout the life of the project while production volumes are largely unchanged.

Suggested Citation

  • Rademeyer, Maryke C. & Minnitt, Richard C.A. & Falcon, Rosemary M.S., 2019. "A mathematical optimisation approach to modelling the economics of a coal mine," Resources Policy, Elsevier, vol. 62(C), pages 561-570.
    • Handle: RePEc:eee:jrpoli:v:62:y:2019:i:c:p:561-570
    DOI: 10.1016/j.resourpol.2018.11.003
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    References listed on IDEAS

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    1. Richard J. Brazee & L. Martin Cloutier, 2006. "Reconciling Gray and Hotelling," American Journal of Economics and Sociology, Wiley Blackwell, vol. 65(3), pages 827-856, July.
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    4. Lewis Cecil Gray, 1914. "Rent under the Assumption of Exhaustibility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 28(3), pages 466-489.
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    6. Harry F. Campbell, 1980. "The Effect of Capital Intensity on the Optimal Rate of Extraction of a Mineral Deposit," Canadian Journal of Economics, Canadian Economics Association, vol. 13(2), pages 349-356, May.
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    Cited by:

    1. Yıldız, Taşkın Deniz, 2022. "Considering the recent increase in license fees in Turkey, how can the negative effect of the fees on the mining operating costs be reduced?," Resources Policy, Elsevier, vol. 77(C).
    2. Kopacz, Michał & Kulpa, Jarosław & Galica, Dominik & Olczak, Piotr, 2020. "The influence of variability models for selected geological parameters on the resource base and economic efficiency measures - Example of coking coal deposit," Resources Policy, Elsevier, vol. 68(C).
    3. 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.
    4. Yıldız, Taşkın Deniz, 2022. "Supervisor fund expectation for the guarantee of salaries in the presence of the effect of permanent supervisor salaries on mining operating costs in Turkey," Resources Policy, Elsevier, vol. 77(C).

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