Flexibility valuation in operating mine decisions using real options pricing

The introduction of flexibility into the mine engineering process is required to counter the downturns and provide the ability to exploit the upturns that can develop. Flexibility can be assessed through real options techniques. However, the determination of volatility, a key variable in real options valuation, needs to be quantified. New information technologies are greatly expanding the capabilities of quantification of volatility. This paper presents the methods that can be used for the calculation of process and project volatility in operations and provides practical applications from mining operations in the USA and Canada.