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Stochastic optimization for a mineral value chain with nonlinear recovery and forward contracts

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  • Jian Zhang
  • Roussos G. Dimitrakopoulos

Abstract

When a new forward contract is signed between a mining company and a customer to hedge the risk incurred by the uncertainty in commodity market, the mining company needs to re-optimize the plans of the entire value chain to account for the change of risk level. A two-stage stochastic mixed integer nonlinear program is formulated to optimize a mineral value chain in consideration of both geological uncertainty and market uncertainty. A heuristic is developed to deal with the complexity incurred by the throughput- and head-grade-dependent recovery rate in the processing plant. Through a series of numerical tests, we show that the proposed heuristic is effective and efficient. The test results also show that ignoring the dynamic recovery rate will result in loss and severe misestimation in the mineral value chains profitability. Based on the proposed model and heuristic, an application in evaluating and designing a forward contract is demonstrated through a hypothetical case study.

Suggested Citation

  • Jian Zhang & Roussos G. Dimitrakopoulos, 2018. "Stochastic optimization for a mineral value chain with nonlinear recovery and forward contracts," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 69(6), pages 864-875, June.
    • Handle: RePEc:taf:tjorxx:v:69:y:2018:i:6:p:864-875
    DOI: 10.1057/s41274-017-0269-5
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    Cited by:

    1. Chipangamate, Nelson S. & Nwaila, Glen T. & Bourdeau, Julie E. & Zhang, Steven E., 2023. "Integration of stakeholder engagement practices in pursuit of social licence to operate in a modernising mining industry," Resources Policy, Elsevier, vol. 85(PB).
    2. Nwaila, Glen T. & Frimmel, Hartwig E. & Zhang, Steven E. & Bourdeau, Julie E. & Tolmay, Leon C.K. & Durrheim, Raymond J. & Ghorbani, Yousef, 2022. "The minerals industry in the era of digital transition: An energy-efficient and environmentally conscious approach," Resources Policy, Elsevier, vol. 78(C).
    3. Linder, Eric & Marbuah, George, 2019. "The cost of transparency: Stock market reactions to introduction of the Extractive Sector Transparency Measures Act in Canada," Resources Policy, Elsevier, vol. 63(C), pages 1-1.

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