The optimisation rule for investment in mining projects

Nam Foo, Harry Bloch and Ruhul Salim

Resources Policy, 2018, vol. 55, issue C, 123-132

Abstract: Investment in mining projects involves significant uncertainty. Project investment is usually high risk, irreversible and challenged by major economic factors. Mining commodity prices in particular always show greater volatility than any other primary products. The variation of these prices is critical in the investment decision of whether the project should go ahead, be abandoned or be delayed. This paper examines the impact of mineral price uncertainty on mining investment decisions using examples of projects in the Asia-Pacific region. Applying the mean reversion (MR) model, the commodity trigger value for investment decisions in each project is determined in the context of operational flexibilities. The findings indicate it is sometimes better to wait for a more suitable time to invest.

Keywords: Real options; Asia-Pacific; Investment decisions; Uncertainty; Critical value (search for similar items in EconPapers)
JEL-codes: Q30 Q32 Q33 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:55:y:2018:i:c:p:123-132

DOI: 10.1016/j.resourpol.2017.11.005

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