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Mining rate optimization considering the stockpiling: A theoretical economics and real option model

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  • Zhang, Kuangyuan
  • Kleit, Andrew N.

Abstract

In the extraction of metal from a mine, the intermediate ore between the economic and the breakeven cutoff grade is usually stockpiled for future processing once the mine is depleted. This research establishes a theoretical two-stage economic model to derive the value of this stockpile and how it affects optimal mining rate. By deriving the optimal condition for objective profit function and parameterized analysis, this research finds the stockpiling option can significantly boost a mine's profit. Processing the stockpiled material affects the optimal mining rate and cutoff grade strategy significantly compared to the case that it is not processed. The research also investigates the optimal mining rate's sensitivity to input variables such as commodity price, discounting rate, capital cost, and processing capacity, etc. In addition, the intrinsic advantages of this approach compared to the broadly used Lane's model (1988) are discussed.

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  • Zhang, Kuangyuan & Kleit, Andrew N., 2016. "Mining rate optimization considering the stockpiling: A theoretical economics and real option model," Resources Policy, Elsevier, vol. 47(C), pages 87-94.
    • Handle: RePEc:eee:jrpoli:v:47:y:2016:i:c:p:87-94
    DOI: 10.1016/j.resourpol.2016.01.005
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