Real Options in Mining

Real Options in Mining

Areas of Study: Management

Qualifies for CMS

Qualifies for Certification

This course shows how the uncertainty (possible variability), which can be both negative (known as risk) and positive (known as opportunity), may be used to generate additional value by incorporating flexibility to accommodate changing conditions into a mining project.

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  • Audience Level:
  • Professional
  • Enrollment:
  • Required
  • Duration:
  • 17 hours

Course Summary

Introduction

Traditional mining project appraisal—discounted cash flow (DCF)—typically involves the use of static variables that remain unchanged across project life and the use of a constant discount rate to account for risk, which ultimately provides a singular view of project value across time. Such a passive management approach is fast becoming outdated. Modern project appraisal should be dynamic and flexible to accommodate changing market conditions by constantly evaluating options to abandon, defer, open or expand a project while managing risk. This course introduces and explores modern project appraisal techniques with a view to increasing expected value.

Scope

This course focuses on the use of modern project appraisal techniques culminating in the introduction of real option valuation (ROV) applied to mining projects. While traditional project appraisal concepts form the basis for the modern approach discussed, the in-depth use of these remain beyond the scope of this course. It is recommended that participants complete the Introductory Mining Project Evaluation course (see Related Courses tab) for a full account and discussion of traditional project appraisal concepts.

Course Content

Real Options in Mining consists of 8 viewing sessions with supporting figures, tables and examples, plus interactive course reviews. The concepts that are addressed in this course may not be easy to grasp at first and may require multiple revisions before a clear understanding is gained. Course participants are expected to thoroughly work through each example by hand (the aid of Microsoft Excel is encouraged) provided within the course. This may be time-consuming; however, it is integral and will ultimately allow a successful completion of the course reviews. Total course duration is equivalent to approximately 17 hours of viewing and exercise content.

Learning Outcomes

  • Recognize modern project appraisal techniques including the incorporation of risk and probability to generate an expected net present value (ENPV).
  • Identify the sensitivity of key project variables.
  • Use option theory and option pricing to apply real option valuation (ROV) to mining projects.

Recommended Background

  • A degree or diploma in geology, mining or related discipline.

Dr. Micah Nehring Ph.D.

Micah Nehring is currently a lecturer in the Mine Planning stream of courses at The University of Queensland. His research focus is on the optimisation of mine production schedules using mathematical programming techniques. Future research will be directed toward integrating a carbon price into the optimised production scheduling process.

Prior to 2011, he worked as a lecturer and researcher at the Universidad Adolfo Ibáñez, Chile; a mine planning stream tutor at the University of Queensland; and a graduate mining engineer at Xstrata Copper Mount Isa.

Dr. Sean Shafiee Ph.D.

Sean completed his PhD in Mining Engineering with a focus on Mineral Economics and applied Real Option Valuation in mining projects through CRCMining at The University of Queensland. He has worked as an industrial consultant for Peabody Energy, Rio Tinto and Xstrata in Project Valuation and Mineral Price Modelling. He has also been actively involved in running short courses for ‘Mining Project Evaluation'. Sean completed an internship with InfoMine USA generating Australian coal cost models and comparing data from Australian coal mines to those in the USA. He has experience with the CostMine models and methodology. Sean has also published more than 15 Journal and Conference papers.

In June 2010, Sean joined JKTech as General Manager of R2Mining where he was strongly involved in the development of the CostMine Australasian business. This was a joint venture between JKTech and InfoMine.