Real Options Approach to optimizing long term mine planning

Abstract

This thesis uses a dynamic programming approach to sequence the extraction of different blocks of a mine when there is uncertainty on the spot price of the output of the mining activity. To select the parameters of such an evaluation correctly, the real options approach is used, so as to determined jointly the right discount factor, and probability measure (governing uncertainty on the spot price of the ore). While an exact solution is intractable, we propose a family of heuristic policies which we show perform efficiently compared to the optimal policy.