A Real Options model to assess an exploration mining project:

In this paper we develop a dynamic model to assess the financial viability of a mining project in exploration stage using the real options approach. The model simulates the decision making process and determines the value of the real options associated with the mining project. The firm has the option to defer investment, and once invested, to abandon or expand the project. On the other hand, considering that the firm is listed in the stock market, the model assesses the likely impact of these options on the firm´s market value. The results show that the combined real options associated with the project have a significant impact on its value, which indicates the firm´s stock is undervalued by approximately 40%. 2