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"Option pricing is used in finance for valuing options to buy (or sell) shares at some future date because it provides a convenient framework for quantifying values subject to uncertainty. As one of the main sources of uncertainty in mining is the price (sales) of the metal, this approach can also be used for valuing mining projects.The first part of this paper reviews options and option pricing; the second part presents the approach developed by Brennan and Schwartz (1985) for using option pricing to value natural resources. Several applications of this methodology have been published; these are described. From a mining point of view, the assumptions made by Brennan and Schwartz are too simplistic. The weaknesses are discussed with a view to improving an apparently promising new way of assessing the value of projects. IntroductionThe collapse of the British merchant banking group, Barings, has highlighted the risks that can be incurred by speculators and arbitragers in the futures and options markets. But this negative attention on futures and options should not make us forget their positive aspects. They can provide producers and consumers of metals with more predictable sales prices. The introduction of the new traded average price options, TAPOS, by the London Metal Exchange in January 1997 is a response to this need. Equally important, the theory that the finance industry has developed for valuing options provides an interesting framework for valuing mineral projects as well. While this paper was being revised, the South African gold mining house, JCI, announced that it was using a methodology based on option pricing for valuing the mineral rights to deeplevel gold resources (see Box 1)."

Jan 1, 1997

By M. K. Pelser

The purpose of this paper is not so much to provide a scientific study of the selection process for the perusal of other psychometrists or industrial psychologists?the purpose is to provide line management with a practical, relatively user-friendly guide to fair and scientific selection. The main areas that are to be covered are: ? Why fair and scientific selection? ? Job analysis ? The job requirement?selection technique circle ? Assessment centres in the mining industry?the Tavistock Collieries Ltd experience. Why fair and scientific selection? Seen from a line manager?s perspective, fair and scientific selection should be pursued for two main reasons: ? to remain within the ambits of the law ? to maximize the probability of selecting the potentially most productive and efficient candidate for the job.

Jan 1, 1997

By Michel Lefebvre, André Piché

Every organization performing R&D is faced with the challenge of introducing new technologies to its operations. Difficulties must be overcome if companies are to realize the benefits anticipated from such developments. This paper outlines the difficulties encountered in transferring to operations various technologies developed at the Mining and Exploration Division of the Noranda Technology Centre. The approach used in the selection of a privileged partner for the technology transfer, the criteria motivating the choice and the process followed to establish the partnership are presented.

Jan 1, 1997

By Wayne W. Murdy

Since 1993, Newmont has been actively growing through the development of three major foreign mining operations with a fourth under construction. The first project, Yanacocha in Peru began operating in October 1993 at a time when political and business risk in that country was considered high. In 1995, Newmont began operating the Muruntau Joint Venture in Uzbekistan, the first of its kind in the CIS. In early 1996, Newmont started operating the Minahasa mine in Indonesia. Now, in early 1997, Newmont is undertaking the construction of a $1.9 billion project in Indonesia and is completing a feasibility study with our partner for the development of a gold operation in Mexico. All of these projects have been considered "risky" by most standards, and Newmont has been very successful in all of them through risk mitigation programs including utilizing strong and successful in-country partners, concentrating on developing a strong national workforce with minimal expatriate employees, utilizing World Bank, EBRD and IFC financing and building and maintaining strong ties with host governments. This paper describes in more detail, some of the risk mitigation programs that Newmont has used to successfully grow the company through development of major foreign mining operations.

Jan 1, 1997

By Lawrence Devon Smith

"What is Due Diligence?Within the mining industry the term “due diligence” is used to describe a detailed data review, generally in connection with the purchase or sale of a mineral property, the approval of a large capital expenditure, or the borrowing of a large sum of money.The term originates in the requirement of the board of directors of a corporation to “act honestly and in good faith ... and exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances” (OBCA, 1994). Furthermore, the law assumes that a corporation (or its board) will have exercised due diligence in the acquisition of an asset and, therefore, knowingly (in the absence of fraud or deceit) will have taken on the liabilities and obligations associated with the asset (Nelson, 1994). This is the familiar “Buyer Beware”.Directors are liable for their decisions except “if the director relies in good faith upon financial statements of the corporation represented … by an officer of the corporation or in a written report of the auditor, or a report of a lawyer, accountant, engineer, appraiser, or other person whose profession lends credibility to a statement made by any such person.” (OBCA, 1994).Hence the importance of reports prepared by professionals. They provide confirmation that the directors have exercised due diligence in the performance of their duties. For this reason these reports are referred to as due diligence studies"

Jan 1, 1997

By B. Konda, R. Lauer, D. Camilucci, D. Gladwin

"Income based taxes are significant cost elements to be considered in evaluating investment in new mine development. This paper presents the results of comparative analysis of effective income-based tax rates for mining in the Northwest Territories (NWT), selected Canadian provinces and international jurisdictions. The study was done as background to a review of royalty regulations for the NWT. ObjectiveThis paper presents results of comparative analysis of effective mining royalty1 rates, and combined effective mining royalty and income tax rates on selected mine models for the Northwest Territories (NWT), with those for several other jurisdictions in Canada and abroad which compete with the NWT for mining investment.BackgroundThe February 27, 1995 federal budget directed the Department of Indian Affairs and Northern Development (DIAND) to proceed with a comprehensive review and amendments to northern natural resource management legislation in order “to increase revenues and ensure a fair return to the Crown.” DIAND is responsible for the administration of the Territorial Lands Act, and its regulations.The Territorial Lands Act gives the Governor-in-Council the authority to “… make regulations for the leasing of mining rights in, under or on territorial lands and the payment of royalties therefor,…”. In the NWT, the Canada Mining Regulations (CMR) provide for the disposition of mineral rights for most minerals, other than coal, petroleum and related hydrocarbons, in return for the payment of a royalty to the Crown.As part of this review of the NWT mining royalty regime, several computer mine models were developed and tax regimes in a number of jurisdictions were analyzed. Effective mining royalty rates, and the combined effective mining royalty and income tax rates were compared across the jurisdictions. The results presented in this paper are a part of the background work done in preparing a discussion paper on proposed changes to the NWT mining royalty that is expected to be released for public consultation in the very near future."

Jan 1, 1997

By Bernard H. Hertlein

All methods of deep foundation construction present challenges to the contractor and engineer that vary according to the method employed, and the geotechnical conditions in which it is being used. Augered-Cast-In-Place (ACIP) piles are generally regarded as one of the most challenging, because the construction method precludes the use of traditional shaft inspection and quality control techniques. Application of Nondestructive Test (NDT) methods can provide quality control for ACIP shafts that traditional methods cannot, but each NDT method has limitations. These make some NDT methods unsuitable for use on ACIP shafts, and may limit the effectiveness of others, depending on geotechnical conditions. To help contractors and engineers working with ACIP piles select the test method most appropriate to specific site conditions, this paper presents a summary of the major NDT methods currently available, and reviews their capabilities with respect to the unique conditions presented by ACIP pile construction. Case histories illustrate how a combination of careful method selection, skilled data interpretation, and experienced engineering judgment have resolved problems and ensured quality in foundation construction by discriminating between potentially serious defects, and those that are unlikely to be significant.

Jan 1, 1997

This paper addresses the valuation and development timing of an undeveloped mineral project. Traditional analysis has us developing the project immediately if its net present value (NPV) is positive. Option pricing theory finds that it is better to wait until the NPV of the property is significantly greater than zero before developing. Alternatively, when evaluating the development timing decision, we must calculate NPV using a higher "timing-adjusted" discount rate, and develop the property only if its NPV using this timing-adjusted discount rate is greater than zero. This paper uses option pricing ideas to convert this development timing advice into a more concrete and user-friendly decision rule: develop the project when its "development-timing NPV" is positive, this development-timing NPV being calculated using the normal discount rate.

Jan 1, 1997

By Madan B. Karkee

The understanding and the development of sound theoretical basis concerning the pile foundations has been phenomenal during the past few decades, considering the thousands of years the piles have evidently been in use. The importance of the quality assurance and the need for verification of load bearing capacity is being further reinforced rather than undermined by these developments. This is evidenced by significant developments made in the pile load test technology in recent decades, making it possible to make judicious selection of a test method, or a package of test methods, suitable for a given situation. The selection depends on the objective of carrying out the test and the reliability desired. Presently, the possible selection ranges from dynamic to static methods. The extent of dynamic effect in a test can be reckoned based on a dimensionless parameter defined as the 'relative duration'. Examples of different load tests are given for illustration of the different methods currently in use.

Jan 1, 1997

By John Watson

The earliest known records related to mining document in dramatic terms the fact that mining methods have undergone significant change over the centuries. Wooden wedges, hammers and chisels, “fne setting”, to name a few, were the frst tools used to extract ore .or quarry rock for civilization. These inefficient tools and unsafe practices have been replaced today with some of the highest technology known to man. At the heart of most mining operations is the blasting program which utilizes one of the most efficient tools ever invented.. . explosives. Ever since they were invented, miners have been searching for more efficient products and methods with which to harness this “tool” and make it safer, reliable, and more eficient to use.

Jan 1, 1997

By K L. Temel, W P. Player

The underlying message of this paper is that investment in prospecting, exploration and mining in New Zealand is welcomed. The Government's policy with respect to Crown owned minerals is for continuing investment in prospecting, exploration and mining which is in accordance with good exploration or mining practice. To encourage continued investment requires a business-friendly environment. Government policies and initiatives to enhance the business environment for the minerals and coal exploration and mining industries are discussed in this paper. As well, new initiatives under consideration, which have the purpose of enhancing the investment environment, are discussed.

Jan 1, 1997

By G. P. Hand

The graphite industry as a whole has gone through many changes over the years. Most of the graphite used in major applications since the turn of the century were basic natural or electrode by-product synthetic materials, processed using simple crushing, screening, or grinding techniques. In the mid 1970's new thermal technology was developed which changed the face of the .graphite industry, and opened up a panacea of new products and capabilities. Materials produced through this new technology have helped revolutionize new products and processes in industries including automotive, batteries, fuel cells, electronics, iron, lubricants and steel. This paper outlines the continued improvements in those industries as well as the as well as the outlook for new technology in this rapidly changing area.

Jan 1, 1997

The Australian states of New South Wales (NSW) and Queensland, because of their endowment of black coal resources, dominate the production and export statistics for Australian coal. NSW produced 86 million tonnes of saleable coal in 1994, representing a doubling of output since 1980, or a growth of 5% per annum. Asian demand for thermal and coking coal has, of course, driven this growth in NSW. This high Asian demand is forecast to continue and NSW will seek to secure its share. This paper focuses on some of the issues facing NSW in the future, and in particular, examines some of the major new and proposed mining projects.

Jan 1, 1997

By J. Wiebmer

The two most important influencers of cost-per-ton in an underground mining machine are its productivity (tons/hour) and its availability-utilization (hours/year). Operating cost and initial price have far less impact. This paper reviews a cost-per-ton sensitivity analysis for underground mining equipment and discusses benchmarks for measuring its performance. The conclusion is that miner-supplier partnerships and the Information Age are the two most significant trends in cost-per-ton reduction.

Jan 1, 1997

By D. Pacey

"This paper reviews the installation, start-up, and operation of a comprehensive monitoring and targeting management technique in which all plant utilities (i.e., electricity, natural gas, compressed air, and water) are managed as controllable resources in the same way that raw materials, mined ore, personnel and capital are managed.The essential elements of monitoring and targeting (M&T) include:•gathering in a systematic, disciplined way the utility information by energy account centres;•closely monitoring the utilities used in each centre and comparing them with production on a common time base (e.g., kWh/ton per day);•bench marking and target setting to pro-vide attainable energy reduction goals which can be further refined as they are achieved; and•establishing an implementation plant that may provide efficiency enhancing benefits to various operating areas within the plant.The M&T system will reduce utility consumption per unit of production on a continuing basis.This would translate into sustained operating cost and waste. M&T will also provide better information for assessing the plant operation and progressively implementing further enhancements."

Jan 1, 1997

By M. Downing

This paper gives a brief overview of impacts of coal blending on coal-fired power plants performance and discuses the preliminary results of an on-going study aimed at evaluating the effect of coal properties on the effectiveness, compatibility and thermal reactivity of coal blends. Plant survey studies reported no significant impacts on an existing plant designed for a high rank coal when switched to a blend of low-and high-rank coal. However, slight modification of some aspects (handling, fuel storage/stockpile, transportation, preparation, and general housekeeping) of plant design and operation may be necessary. The preliminary results of an on-going study at the Mineral Industry Research Laboratory shows that more compatible and better blends could be made from coals where ranks are closer than from those where ranks are far apart.

Jan 1, 1997

By Albert W. Spitz

Profitably recovering copper and precious metals from copper bearing scrap is a demanding and frustrating combination of art, science and economics. With fluctuating markets, varying raw materials and increasingly stringent environmental regulations requiring process revisions, practically everything is changing. The volatile copper market constantly shifts the percentage of copper in the scrap that can be economically processed. Scrap that has value one day may incur a disposal cost the following day. Also with less copper in the scrap, more residuals, slag, fume, etc. are generated which frequently present disposal problems and infrequently generate income. The ever increasing amounts of electronic scrap add value to the copper produced by virtue of the precious metals present. Printed circuit board materials create more slag and organic off gases which must be treated. Finally, the emphasis on reducing emissions of organics and other metals, especially lead, is a continuing challenge. Stack gases, fugitive emissions and ambient air quality all demand constant surveillance.

Jan 1, 1997

By Jack E. Thompson

I have spent my entire life in the mining industry pursuing what I believed was an honorable profession that provided products that were critical for our social and economic well being. Now I am told that all of my efforts been for nothing and that I have been doing something morally wrong - mining. This view of the future is not one that the mining industry has to allow to unfold. A determining factor in how things will turn out is continued improvement of the industry's environmental performance. To some extent, the current state of affairs in the United States is a result of the common perception that greedy corporations (usually foreign) are somehow ripping off US citizens of their native birthright or natural treasures in the name of corporate profits. Implicit in this view is the belief that corporations will take shortcuts or violate the environment in the name of profits. I have 26 years of experience in working in the copper, uranium and gold industries. Profits during those years were meager and difficult to find (Fig. 1). In fact, when I began working fresh out of college, I chose copper, which was then selling at around $1/lb. By the time I left copper mining, it was selling for 45 cents/lb. I then moved to uranium, which was selling for $52/lb. By the time I left it was $16/lb. I finally picked gold, which was then at ($650/oz). There is a whole generation of engineers, geologists and professionals who have spent two decades downsizing, closing mines, improving costs and getting smarter about how the mining industry does what it does. The environment, health and safety are areas where there have been great improvement. There are five characteristics of corporate governance that are critical for a company to develop and an industry to embrace if environmental, health and safety excellence is to reach new heights in the labor pool.

Jan 1, 1997

By T King

This paper reviews the changes in the coal industry over the past 30 years and attempts to predict the trends over the next ten years. The last 30 years have seen a steady concentration of production into fewer, larger mines, which operate on 3: more continuous basis, and a major increase in productivity per employee. Coal exports have increased from zero to almost half the country's total production. As well as major changes in exploration and mining equipment and the increasing use of computer tools, the industry now operates in a relatively new regulatory and commercial environment.   Safety legislation now requires the writing and enforcement of policies and procedures by the mining companies, rather than adherence to inflexible regulations enforced by an Inspector. Accident rates have decreased dramatically. The transition from coal mining licences to permits, requiring landowner consent and resource consents, is well under way. Environmental controls are now an essential aspect of the industry.   Equipment suppliers now offer maintenance services, production guarantees and flexible financing.  Contract miners offer mine design and restoration as part of the contract. In a similar approach, Solid Energy now offer an ash disposal service and assistance with resource consents to their customers as well as investment in technology to ensure a consistent product to demanding specifications. Solid Energy has proposals for energy centres which install and operate the coal burning appliances and simply sell energy to the customers. The next 10 years should see an intensification of these trends of bigger mines, more exports and greater technology and a 'package' approach to customer service.

Jan 1, 1997

By J. R. Evans

In order to patent an industrial mineral placer mining claim, it must incorporate an economic deposit. Each ten acre parcel is evaluated for its mineral -in -character nature. Nonmineral -in -character parcels cannot be patented. Economic concerns include: claim locations, dummy locators, common variety nature, "excess reserves," and environmental constraints. Also, geologic and mineralogic studies, sampling and testing procedures are vital. Mining, milling, processing cost, and taxes must be evaluated. Product marketability analysis is necessary before starting any cash flow or discounted cash flow study. Valid data is essential to evaluate an economic industrial mineral deposit.

Jan 1, 1997