Determination Of The Optimum Lifetime Of A Mining Project Using Discounted Cash Flow And Option Pricing Techniques

The operating lifetime, or production rate, selected for a mining project is among the most important factors influencing the project's design and ultimate economic success. Incorrectly-determined lifetimes can lead to the erroneous rejection of projects as uneconomic as well as the suboptimal exploitation of producing properties. This paper examines the optimal lifetime calculation using traditional discounted cash flow and recently-proposed option pricing techniques. Using each method, the production rate is determined as that rate at which the project's net present value is maximized.