Geostatistics And Financial Economics Applied To Mineral Exploration Decision Making

Mineral exploration decision problems involve the economic evaluation of upgraded geological information and the costs of obtaining it. This paper presents a valuation theory of risky projects applicable to the analysis of exploration investments. The valuation model is predicated on the Capital Asset Pricing Model (CAPM) from financial economics; its parameters can be objectively measured from publicly available information. Geostatistics is used to derive simplified random cash flow models which incorporate the impact of improved deposit knowledge in terms of reduced estimation variance. The application of the theory is illustrated by means of hypothetical exploration optimization examples.