Mining operations are highly affected by risk, commodity price and geology being acknowledged as the most relevant risk factors. Considering these uncertainties at an early stage is a key element of project success, and doing so by including annual re-evaluations of a project allows for a more realistic approach. A real-options based evaluation is presented herein to assess the effects of uncertainty over the life of an open pit mining operation and the consequent ultimate pit limit modifications. A case study at a gold mine shows the value of having flexibility to expand or stop mining early when dealing with stochastic scenarios of both the deposit being assessed and the related commodity prices. Stochastic scenarios provide useful probabilistic data that traditional methods ignore, in spite of the fact that they have a major effect on optimal pit limits and mine design. A geometric Brownian motion with Poisson jumps model is used to forecast price, and direct block simulation (DBSim) is used to model geological uncertainty. The proposed model is optimized using the commercial software ILOG-Cplex; results show that including the option to stop mining or expand increases the operation's value, allowing management to assess mine designs and prepare for changes that may have substantial ramifications.
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