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Real Options Valuation in Gold Mining Projects under Multinomial Tree Approach

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  • Carlos Andres Zapata Quimbayo
  • Carlos Armando Mej¨ªa Vega

Abstract

Metal price, exchange rate, and operating costs are three of the most important sources of uncertainty in mining projects. In that sense, numerous research studies have been carried out to account for price uncertainty, while few others have incorporated the simultaneous effects of operating costs and price uncertainties. The purpose of this paper is to introduce the octanomial tree method to value an Australian gold mine project by adding three market uncertainties such as the gold spot price, USD/AUD exchange rate and the operative costs, under a multinomial tree approach. The proposed model combines the simplicity of the binomial tree model with the ability to deal efficiently with multiple uncertainties.

Suggested Citation

  • Carlos Andres Zapata Quimbayo & Carlos Armando Mej¨ªa Vega, 2019. "Real Options Valuation in Gold Mining Projects under Multinomial Tree Approach," Business and Economic Research, Macrothink Institute, vol. 9(3), pages 204-218, September.
  • Handle: RePEc:mth:ber888:v:9:y:2019:i:3:p:204-218
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    References listed on IDEAS

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    More about this item

    Keywords

    Real options; octanomial tree; mining projects;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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