Valuing mine 2 at raglan using real options

For complex projects, such as the case of Raglan, when the mine consists of numerous mineralized zones and produces many payable metals, the valuation process becomes very complicated. Real Options Analysis (ROA) is efficient for dealing with management responses to uncertain future outcomes and can consequently determine a precise and accurate value of a project through its production stages even with numerous state variables. The least-squares Monte Carlo (LSM) approach is used for valuing real options. This paper presents the LSM approach and its application for valuing the mineralized zones of Mine 2 at Raglan taking into account the uncertainty associated with the prices of all payable metals simultaneously as well as the management flexibility to switch among the different operating alternatives. The paper also demonstrates the flexibility options available to managers using ROA by analysing multiple production scenarios.