Operating Risk Valuation for Optimization of Underground Metal Mining Systems: Assessment and Applications

2013

S.A. Kenzap

This paper provides an overview and discussion of key aspects of operating risk valuation in underground metal mining systems, with impact on project economics, using stochastic computer modelling in Discounted Cash Flow (DCF) analysis. Mine operating risk classification and assessment for ground, equipment and scheduling aspects are presented with an overview of available risk valuation tools that have been developed in engineering disciplines. The classification is organized by keeping in perspective the mine design needs and constraints, as well as the potential economic impact that operating problems can have on an underground development and production system. These sources of cost, revenue and time delays are tabulated to enable the hierarchization of potentially hazardous unplanned events occurring during the mining project life cycle. In complex technological systems, like the underground mining systems, the decision-making process involve a wide range of uncertainties, and often this is based on subjective and qualitative expert evaluations. Whether a qualitative or quantitative analysis is conducted, it is often the case that the probability of a certain project parameter value needs to be estimated. This requires use of methods and techniques to handle subjective, qualitative measures and to combine them with quantitative stochastic modelling in order to evaluate mine operations-related issues on DCF economic performance measure parameters. Links are established between decision making and the risk-based mine planning process for evaluation of design alternatives, with emphasis on the need of introducing flexibility in mine design. Finally, challenges of risk-based mine planning and design implementations are discussed and the call for an integrated risk-based real options systems valuation (ROV) in projects analysis is made.

Keywords: underground mining systems, discounted cash flow, DCF, real options systems valuation, ROV