IDEAS home Printed from https://ideas.repec.org/a/eee/jrpoli/v37y2012i3p340-345.html
   My bibliography  Save this article

Mineral reserves under price uncertainty

Author

Listed:
  • Evatt, Geoffrey William
  • Soltan, Mousa Omid
  • Johnson, Paul V.

Abstract

National reporting organizations and regulatory bodies for the minerals and mining sector are requiring publicly reported Ore-Reserve estimates to take account of uncertainties. Whilst methodologies that account for physical uncertainty appear relatively well developed, methodologies which can take account of economic uncertainty appear much less so. To counter this shortfall, we present an efficient and general methodology which can quantify the effect of price uncertainty within reserve estimates, providing both the expected reserve size and the associated distribution (box whisker plot). This statistical information can be used by interested parties to understand precisely where the reserve risks lie, which we highlight in a worked example.

Suggested Citation

  • Evatt, Geoffrey William & Soltan, Mousa Omid & Johnson, Paul V., 2012. "Mineral reserves under price uncertainty," Resources Policy, Elsevier, vol. 37(3), pages 340-345.
    • Handle: RePEc:eee:jrpoli:v:37:y:2012:i:3:p:340-345
    DOI: 10.1016/j.resourpol.2012.03.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301420712000219
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.resourpol.2012.03.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-157, April.
    3. Sarkar, Sudipto, 2000. "On the investment-uncertainty relationship in a real options model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 219-225, February.
    4. Mudd, Gavin M., 2007. "Global trends in gold mining: Towards quantifying environmental and resource sustainability," Resources Policy, Elsevier, vol. 32(1-2), pages 42-56.
    5. Alberto Moel, 2002. "When Are Real Options Exercised? An Empirical Study of Mine Closings," The Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 35-64, March.
    6. Dimitrakopoulos, Roussos G. & Abdel Sabour, Sabry A., 2007. "Evaluating mine plans under uncertainty: Can the real options make a difference?," Resources Policy, Elsevier, vol. 32(3), pages 116-125, September.
    7. Matt Thompson & Matt Davison & Henning Rasmussen, 2004. "Valuation and Optimal Operation of Electric Power Plants in Competitive Markets," Operations Research, INFORMS, vol. 52(4), pages 546-562, August.
    8. Slade, Margaret E., 2001. "Valuing Managerial Flexibility: An Application of Real-Option Theory to Mining Investments," Journal of Environmental Economics and Management, Elsevier, vol. 41(2), pages 193-233, March.
    9. Dehghani, Hesam & Ataee-pour, Majid, 2012. "Determination of the effect of operating cost uncertainty on mining project evaluation," Resources Policy, Elsevier, vol. 37(1), pages 109-117.
    10. Ray, George F., 1984. "Mineral reserves : Projected lifetimes and security of supply," Resources Policy, Elsevier, vol. 10(2), pages 75-80, June.
    11. James M. Otto, 2010. "Community Development Agreement," World Bank Publications - Reports 27729, The World Bank Group.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Madziwa, Lawrence & Pillalamarry, Mallikarjun & Chatterjee, Snehamoy, 2023. "Integrating stochastic mine planning model with ARDL commodity price forecasting," Resources Policy, Elsevier, vol. 85(PB).
    2. Fijorek, Kamil & Jurkowska, Aleksandra & Jonek-Kowalska, Izabela, 2021. "Financial contagion between the financial and the mining industries – Empirical evidence based on the symmetric and asymmetric CoVaR approach," Resources Policy, Elsevier, vol. 70(C).
    3. Kizilkale, Arman C. & Dimitrakopoulos, Roussos, 2014. "Optimizing mining rates under financial uncertainty in global mining complexes," International Journal of Production Economics, Elsevier, vol. 158(C), pages 359-365.
    4. Nadarajah, Saralees, 2015. "On closed form expressions for probability of operational success and expected lifetime," Applied Mathematics and Computation, Elsevier, vol. 262(C), pages 308-311.
    5. Madziwa, Lawrence & Pillalamarry, Mallikarjun & Chatterjee, Snehamoy, 2023. "Integrating flexibility in open pit mine planning to survive commodity price decline," Resources Policy, Elsevier, vol. 81(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kuangyuan Zhang & Richard Olawoyin & Antonio Nieto & Andrew N. Kleit, 2018. "Risk of commodity price, production cost and time to build in resource economics," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 20(6), pages 2521-2544, December.
    2. Miranda, Oscar & Brandão, Luiz E. & Lazo Lazo, Juan, 2017. "A dynamic model for valuing flexible mining exploration projects under uncertainty," Resources Policy, Elsevier, vol. 52(C), pages 393-404.
    3. Savolainen, Jyrki, 2016. "Real options in metal mining project valuation: Review of literature," Resources Policy, Elsevier, vol. 50(C), pages 49-65.
    4. Driver, Ciaran & Temple, Paul & Urga, Giovanni, 2008. "Real options -- delay vs. pre-emption: Do industrial characteristics matter?," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 532-545, March.
    5. Bogdan Rębiasz & Bartłomiej Gaweł & Iwona Skalna, 2017. "Valuing managerial flexibility. An application of real-option theory to steel industry investments," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 27(2), pages 91-111.
    6. Pennings, Enrico, 2008. "Privatization of real options," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 489-497, September.
    7. Dimitrakopoulos, Roussos G. & Abdel Sabour, Sabry A., 2007. "Evaluating mine plans under uncertainty: Can the real options make a difference?," Resources Policy, Elsevier, vol. 32(3), pages 116-125, September.
    8. Inthavongsa, Inthanongsone & Drebenstedt, Carsten & Bongaerts, Jan & Sontamino, Phongpat, 2016. "Real options decision framework: Strategic operating policies for open pit mine planning," Resources Policy, Elsevier, vol. 47(C), pages 142-153.
    9. Parviz Sohrabi & Hesam Dehghani & Behshad Jodeiri Shokri, 2022. "Determination of optimal production rate under price uncertainty—Sari Gunay gold mine, Iran," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 35(2), pages 187-201, June.
    10. Miao, Jianjun & Wang, Neng, 2007. "Investment, consumption, and hedging under incomplete markets," Journal of Financial Economics, Elsevier, vol. 86(3), pages 608-642, December.
    11. Ferguson, Andrew & Hu, Wei & Lam, Peter, 2022. "Political uncertainty and deal structure: Evidence from Australian mining project acquisitions," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    12. Tsekrekos, Andrianos E., 2010. "The effect of mean reversion on entry and exit decisions under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 725-742, April.
    13. Abdullah Almansour & Margaret Insley, 2016. "The Impact of Stochastic Extraction Cost on the Value of an Exhaustible Resource: An Application to the Alberta Oil Sands," The Energy Journal, , vol. 37(2), pages 61-88, April.
    14. Insley, Margaret, 2017. "Resource extraction with a carbon tax and regime switching prices: Exercising your options," Energy Economics, Elsevier, vol. 67(C), pages 1-16.
    15. Delaney, Laura, 2021. "A model of investment under uncertainty with time to build, market incompleteness and risk aversion," European Journal of Operational Research, Elsevier, vol. 293(3), pages 1155-1167.
    16. Insley, M.C. & Wirjanto, T.S., 2010. "Contrasting two approaches in real options valuation: Contingent claims versus dynamic programming," Journal of Forest Economics, Elsevier, vol. 16(2), pages 157-176, April.
    17. Gutiérrez, Óscar, 2020. "On the definition of the investment-uncertainty relationship," Journal of Economics and Business, Elsevier, vol. 112(C).
    18. Di Corato, Luca, 2013. "Profit sharing under the threat of nationalization," Resource and Energy Economics, Elsevier, vol. 35(3), pages 295-315.
    19. Davison, Matt & Merener, Nicolas, 2023. "Equilibrium and real options in the ethanol industry: Modeling and empirical evidence," Journal of Commodity Markets, Elsevier, vol. 31(C).
    20. Bulan, Laarni & Mayer, Christopher & Somerville, C. Tsuriel, 2009. "Irreversible investment, real options, and competition: Evidence from real estate development," Journal of Urban Economics, Elsevier, vol. 65(3), pages 237-251, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jrpoli:v:37:y:2012:i:3:p:340-345. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30467 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.