Mine valuations in the presence of a Stochastic ore-grade

Abstract|Mining companies world-wide are faced with the problem of how to accurately value and plan extraction projects subject to uncertainty in both fu-ture price and ore grade. Whilst the methodology of modelling price uncertainty is reasonably well un-derstood, modelling ore-grade uncertainty is a much harder problem to formulate, and when attempts have been made the solutions take unfeasibly long times to compute. By treating the grade uncertainty as a stochastic variable in the amount extracted from the resource, this paper provides a new approach to the problem. We show that this method is well-posed, since it can realistically re ect the geology of the sit-uation, and in addition it enables solutions to be de-rived in the order of a few seconds. A comparison is made between a real mine valuation where the prior estimate of ore grade variation is taken as fact, and our approach, where we treat it as an uncertain esti-mate