Application of Option Pricing Theory to Decision-making on Mining Projects

Investment in mining projects is influenced with many uncertainties such as coast, revenue etc. Traditional mining projects evaluation method, NPV, cannot be involved these uncertainties. Based on Option Pricing Theory(OPT), prices of mining outputs are modeled and incorporated into the analysis. Under consideration of uncertainties of mining costs and revenue, an option pricing model, a helpful approach and quantitative tools to the mining project evaluation, is developed.