Hybrid model of evaluation of underground lead-zinc mine capacity expansion project using Monte Carlo simulation and fuzzy numbers

摘要

Large capital intensive projects, such as those in the mineral resource industry, are often associated with diverse sources of both endogenous and exogenous risks and uncertainties. These risks can greatly influence the project profitability. Having the ability to plan for these uncertainties is increasingly recognized as critical to long-term mining project success. In the mining industry in particular, the relationships between input variables that are controllable, and those that are not, and the physical and economic outcomes are complex and often nonlinear. The value of managerial flexibility is assessed using data on prices, costs, discount rates, grades, ore extraction, and metal output. Monte Carlo simulation of the mean reversion process is used to forecast revenue data based on an initial metal price, by using annualized volatility. Monte Carlo simulation of the Geometric Brownian Motion is used to forecast operating costs. To quantify the uncertainty in the parameters within a project such as capital investment, ore grade, and mill recovery, we used triangular, uniform, and normal statistical distribution, respectively. To decrease uncertainty related to selection of the appropriate discount rate, we have applied the concept of fuzzy sets theory. The result is a Net Present Value (NPV) based on the cash flows generated by the simulation over the timeframe of the project. When using fuzzy numbers, the fuzzy NPV itself is the payoff distribution from the project. The model explains investment behavior satisfactorily, both from a statistical and from an economic point of view.