Determination Of The Optimum Lifetime Of A Mining Project Using Discounted Cash Flow And Option Pricing Techniques (PREPRINT NUMBER 92-28)

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