Reserve estimation of an open pit mine under price uncertainty by real option approach

Reserve estimation is a key to find the correct NPV in a mining project. The most important factor in reserve estimation is the metal price. Metal price fluctuations in recent years were exaggerated, and imposed a high degree of uncertainty to the reserve estimation, and in consequence to the whole mine planning procedure. Real option approach is an efficient method of decision making in the uncertain conditions. This approach has been used for evaluation of defined natural resources projects until now. This study considering the metal price uncertainty used real option approach to prepare a methodology for reserve estimation in open pit mines. This study was done on a copper cylindrical deposit, but the achieved methodology can be adjusted for all kinds of deposits. This methodology was comprehensively described through the examples in such a manner that can be used by the mine planners.