Evaluation of the Mining Projects under Price Uncertainty in Two – Element Deposits Using Binomial Tree Method

Uncertainties of economic parameters have an indispensable role in mining evaluation projects. Therefore, evaluation of a mining project without considering the available uncertainties is incorrect and unreliable. Metal price uncertainty is the most important parameter in a mine economic uncertainty. Many researchers have studied the role of economic uncertainties in the production planning. But majority of these studies are conducted in one-element deposits and the two-element deposits are rarely investigated. In this research the binomial tree technique valuation is used to compute the production planning evaluation in two element deposits for price uncertainty. It is concluded that the mine evaluation suggests greater net present value when price uncertainty is considered for both element. 

The main sources of uncertainty arising at the beginning of a mine project can be categorized into three groups: geology uncertainties, engineering uncertainties and economic uncertainties. Many researchers studied these types of uncertainties. In majority of the aforementioned researches, price uncertainty effect was investigated only for one- element deposits, which can result in an inaccurate valuation. Therefore, in this paper, the binomial tree method was used for determining the effect of price uncertainty in valuation of two-element deposits. 

In this research the binomial tree technique valuation is used to compute the production planning evaluation in two element deposits for price uncertainty in four scenarios: Assuming price certainty for both elements; assuming price uncertainty for first element and price certainty for second element; assuming price certainty for first element and price uncertainty for second element; assuming price uncertainty for both elements. 

It is concluded that the mine evaluation suggests least NPV of 245.05 thousand dollars when price certainty is considered for both elements and greater NPV of 349.6 thousand dollars when price uncertainty is considered for both elements. The sensitivity analysis showed that even by changing input economic parameters, the NPV, which was computed in price uncertain for both elements, was the greatest.