Development of an Evaluation Module for Determining Mine Closure
on Domestic Limestone Mine

doi:10.12972/ksmer.2015.52.2.193

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2015 Vol.52, Issue 2 Preview Page Next Page

Research Paper

Development of an Evaluation Module for Determining Mine Closure on Domestic Limestone Mine 국내 석회석 광산의 한계성평가 모듈 개발: 이광표 · 김재동
Kwangpyo Lee and Jaedong Kim

30 April 2015. pp. 193-207

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Abstract

During mine operation, determining the optimal time for mine closure would be one of the mostimportant things. As the critical price means the market price of mineral when the profitability of mine reacheszero, the Option Pricing Model(OPM) was adopted to analyze the critical price. The value of mine was assessedunder the two options in the OPM, which are operating and abandoning. The major input factors for the OPManalysis were remaining mine life, fluctuation trend of market price of mineral, operating cost of mine and discountrate. An evaluation module containing the overall sequences was programmed and was applied to the threedomestic open-pit limestone mines to verify its applicability. The critical market price of mineral for mine closurewas analyzed. And the economic evaluation was executed in accordance with the fluctuation of market pricesof mineral using DCF method for the three test mines.

Keywords

Mine closure

Critical price of mineral

Remaining mine life

Evaluation module

Economic evaluation

광산이 가행되는 과정에서 적절한 폐광시기에 대한 결정은 매우 중요한 문제로 대두된다. 광물의 가격이 하락하여 광산의 수익성이 제로가 되는 경우의 시장 가격을 의미하는 한계광물가격을 도출하기 위해 OPM모형을 적용하여 해석하고자 하였다. 광산의 가치는 OPM 모형에서 계속적인 가행과 폐광의 두 가지 운영조건하에서 분석되었다. 분석에 사용된 주요 요소는 광산의 잔여수명, 광물의 시장가격과 생산 비용의 변화추이및 할인율이다. 이러한 평가모듈은 Excel 2010 버전을 이용하여 프로그래밍 되었으며, 3개의 국내 노천 석회석광산을 대상으로 하여 프로그램의 적합성을 검증하였다. 분석 결과, 각 광산에 대하여 폐광을 고려해야 할 한계광물가격의 수준을 도출하였으며, 현금흐름할인법에 의해 시간의 흐름과 시장가격의 변동에 의한 광산의 경제성을 평가하였다.

키워드

한계광산

한계광물가격

광산잔여수명

평가모듈

경제성평가

References

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Black, F. and Scholes, M., 1974, “The effects of dividend yield and dividend policy on common stock prices and returns,” Journal of Financial Economics, Vol. 1, No. 1, pp. 1-22.
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Brealey, R., Myers, S. and Allen, F., 2008, Principles of corporate finance, Irwin McGraw-Hill, Boston, MA, USA.
Brennan, M.J. and Schwartz, E.S., 1985, “Evaluating natural resource investment,” Journal of Business, Vol. 58, pp. 135-157.
Dixit, A.K. and Pindyck, R.S., 1994, Investment under uncertainty, Princeton University Press, p. 458.
Heo, E.N., 2000, “Recent Developments on Economic Valuation Method,” Journal of Korea Technology Innovation Society, Vol. 3, No. 1, pp. 37-54.
Jang, B.G., Lim, S.G. and Lee, H.S., 2009, “Stochastic Behavior of Commodity Prices: The Valuation of Derivative- Linked Securities,” Korean Journal of Futures and Options, Vol. 17, No. 1, pp. 51-75.
Lee, I.S. and Heo, E.N., 2004, “An Option Pricing Model for the Natural Resource Development Projects,” Environmental and Resource Economics Review, Vol. 13, No. 4, pp. 735-761.
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Liang, Y., 2003, “Demand Modeling with the geometric brownian motion process,” Technical report NTU-IE- Chou-2003-T001, USA.
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McDonald, R.L. and Siegel, D.R., 1985, “Investment and the valuation of firms when there is an option to shut down,” International Economic Review, pp. 331-349.
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Park, C.H., Kang, J.M. and Lee, H.Y., 2009, “Determination of Optimum Working Interest Based on Mean-Reverting Oil-price Forecast and Monte Carlo Approach,” Journal of the Korean Society for Geosystem Engineering, Vol. 46, No. 1, pp. 61-71.
Park, H.J., 2004, “A Real Option Approach to Optimal Use of Natural Resource : Revisiting the Least Cost Principle,” Korean Energy Economic Review, Vol. 3, No. 1, pp. 47-69.
Park, S.J., 2008, “Investigation of factors influencing the determination of discount rate in the economic evaluation of mineral development projects,” Journal of the Korean Society for Geosystem Engineering, Vol. 45, No. 4, pp. 394-404.
Sabour, A.S.A., 1999, “Decision making with option pricing and dynamic programming : development and application,” Resources Policy, Vol. 25, pp. 257-264.
Smith, J. and McCardle, K., 1998, “Valuing oil properties: integrating option pricing and decision analysis approaches,” Operations Research, Vol. 46, No. 2, pp. 198-217.
Taylor, H.K., 1986, “Rates of working of mines - a simple rule of thumb,” Transactions technical notes - Institution Mining and Metallurgy, pp. 203-204.
Trigeorgis, L., 1999, Real options: a primer, The New Investment Theory of Real Options and Its Implication for Telecommunications Economics and Policy, Vol. 34, pp. 3-33.
Yoo, C.S., Kim, J.N. and Heo, E.N., 2011, “A Real Option Valuation Model for Resources Exploration Projects,” Journal of the Korean Society for Geosystem Engineering, Vol. 48, No. 3, pp. 255-267.

Information

Publisher :The Korean Society of Mineral and Energy Resources Engineers
Publisher(Ko) :한국자원공학회
Journal Title :Journal of the Korean Society of Mineral and Energy Resources Engineers
Journal Title(Ko) :한국자원공학회지
Volume : 52
No :2
Pages :193-207
DOI :https://doi.org/10.12972/ksmer.2015.52.2.193

[1] Amram, M. and Kulatilaka, N., 2000, “Strategy and shareholder value: the real options frontier,” Journal of Applied Corporate Finance, Vol. 13, No. 2, pp. 15-28.

[2] Black, F. and Scholes, M., 1974, “The effects of dividend yield and dividend policy on common stock prices and returns,” Journal of Financial Economics, Vol. 1, No. 1, pp. 1-22.

[3] Blanco, C. and Soronow, D., 2011, “Jump diffusion process: energy price processes used for derivatives pricing & risk management,” Commodities Now, pp. 83-87.

[4] Brealey, R., Myers, S. and Allen, F., 2008, Principles of corporate finance, Irwin McGraw-Hill, Boston, MA, USA.

[5] Brennan, M.J. and Schwartz, E.S., 1985, “Evaluating natural resource investment,” Journal of Business, Vol. 58, pp. 135-157.

[6] Dixit, A.K. and Pindyck, R.S., 1994, Investment under uncertainty, Princeton University Press, p. 458.

[7] Heo, E.N., 2000, “Recent Developments on Economic Valuation Method,” Journal of Korea Technology Innovation Society, Vol. 3, No. 1, pp. 37-54.

[8] Jang, B.G., Lim, S.G. and Lee, H.S., 2009, “Stochastic Behavior of Commodity Prices: The Valuation of Derivative- Linked Securities,” Korean Journal of Futures and Options, Vol. 17, No. 1, pp. 51-75.

[9] Lee, I.S. and Heo, E.N., 2004, “An Option Pricing Model for the Natural Resource Development Projects,” Environmental and Resource Economics Review, Vol. 13, No. 4, pp. 735-761.

[10] Lee, I.S., 2000, An Option Pricing Model for Natural Resource Development Projects, Master thesis in Engineering, Seoul National University Graduate, p. 114.

[11] Liang, Y., 2003, “Demand Modeling with the geometric brownian motion process,” Technical report NTU-IE- Chou-2003-T001, USA.

[12] Long, K.R., 2009, “A test and re-estimation of Taylor’s empirical capacity-reserve realationship,” Natural Resources Research, Vol, 18. No. 1, pp. 57-63.

[13] McDonald, R.L. and Siegel, D.R., 1985, “Investment and the valuation of firms when there is an option to shut down,” International Economic Review, pp. 331-349.

[14] Olsen, G.T., Fariyibi, F.L., Lee, W.J. and McVay, D.A., 2005, “Price uncertainty quantification models advance project economic evaluations,” SPE 94610 presented at the SPE Hydrocarbon Economics and Evaluation Symposium, Dallas, TX.

[15] Park, C.H., Kang, J.M. and Lee, H.Y., 2009, “Determination of Optimum Working Interest Based on Mean-Reverting Oil-price Forecast and Monte Carlo Approach,” Journal of the Korean Society for Geosystem Engineering, Vol. 46, No. 1, pp. 61-71.

[16] Park, H.J., 2004, “A Real Option Approach to Optimal Use of Natural Resource : Revisiting the Least Cost Principle,” Korean Energy Economic Review, Vol. 3, No. 1, pp. 47-69.

[17] Park, S.J., 2008, “Investigation of factors influencing the determination of discount rate in the economic evaluation of mineral development projects,” Journal of the Korean Society for Geosystem Engineering, Vol. 45, No. 4, pp. 394-404.

[18] Sabour, A.S.A., 1999, “Decision making with option pricing and dynamic programming : development and application,” Resources Policy, Vol. 25, pp. 257-264.

[19] Smith, J. and McCardle, K., 1998, “Valuing oil properties: integrating option pricing and decision analysis approaches,” Operations Research, Vol. 46, No. 2, pp. 198-217.

[20] Taylor, H.K., 1986, “Rates of working of mines - a simple rule of thumb,” Transactions technical notes - Institution Mining and Metallurgy, pp. 203-204.

[21] Trigeorgis, L., 1999, Real options: a primer, The New Investment Theory of Real Options and Its Implication for Telecommunications Economics and Policy, Vol. 34, pp. 3-33.

[22] Yoo, C.S., Kim, J.N. and Heo, E.N., 2011, “A Real Option Valuation Model for Resources Exploration Projects,” Journal of the Korean Society for Geosystem Engineering, Vol. 48, No. 3, pp. 255-267.

Journal of the Korean Society of Mineral and Energy Resources Engineers ISSN:2288-0291(Print) 2288-2790(Online) 한국자원공학회지

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