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    Valuing the unknown: could the real options have redeemed the ailing Western Australian junior iron ore operations in 2013–2016 iron price crash

    Access Status
    Fulltext not available
    Authors
    Ajak, A.
    Lilford, Eric
    Topal, Erkan
    Date
    2018
    Type
    Journal Article
    
    Metadata
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    Citation
    Ajak, A. and Lilford, E. and Topal, E. 2018. Valuing the unknown: could the real options have redeemed the ailing Western Australian junior iron ore operations in 2013–2016 iron price crash. International Journal of Mining, Reclamation and Environment.
    Source Title
    International Journal of Mining, Reclamation and Environment
    DOI
    10.1080/17480930.2018.1479140
    ISSN
    1748-0930
    School
    WASM: Minerals, Energy and Chemical Engineering (WASM-MECE)
    URI
    http://hdl.handle.net/20.500.11937/71461
    Collection
    • Curtin Research Publications
    Abstract

    © 2018, © 2018 Informa UK Limited, trading as Taylor & Francis Group. The inability of existing analytical models to accurately predict future events has, at times, led to the economic failure of mining operations whose financial viabilities were determined based on static assumptions, leaving operational managers with little room to make future decisions. Therefore, the application of a robust decision-making tool, such as Real Options (RO) can minimise losses and more accurately express uncertainty. This paper has considered a stochastic simulation to analyse ROs for a real case iron ore mine, which closed in April 2016. In comparing the net present value from the traditional discounted cash flow (DCF) method to delay, to abandon the operations and to stage the investment options, the ROs method increased the project value by between 56% and 195% depending on the volatility. As a new contribution, a managerial flexibility domain map is proposed in this paper. Thus, flexibility in mining operations creates agility, increases value and mitigates financial losses.

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