A characterisation of the mechanisms transforming capital investment into productive capacity in mining projects with lo
- PDF / 1,107,915 Bytes
- 9 Pages / 595.224 x 790.955 pts Page_size
- 33 Downloads / 174 Views
ORIGINAL PAPER
A characterisation of the mechanisms transforming capital investment into productive capacity in mining projects with long lead-times Maryke C. Rademeyer1
· Richard C. A. Minnitt1 · Rosemary M. S. Falcon2
Received: 19 May 2018 / Accepted: 1 December 2019 © Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract In the development of mining projects, there is a period in between commitment of finance and production commencement. Risks are present in various aspects of development such that production start-up could be delayed, thereby affecting the value of the project. This paper demonstrates the application of convolution in the capital investment problem for projects with long lead-times as a means of characterising the relationship between capital invested and the materialisation of capacity for production to begin. The system is functionally similar to that of a causal linear time-invariant system in signal processing. We find that the filter for capital projects, affecting the rate at which capacity becomes available for use, can be approximated by a straight-line function with positive gradient on bounded support contained in the positive time domain. The deterministic version is derived and evaluated, and uncertainty is simulated in the stochastic version, where variance results from the presence of a random process in the form of a standard Brownian motion. Keywords Mineral economics · Project investment · Convolution
Introduction Resource extraction operations are typically capital intensive and subject to relatively long lead-times from the time a decision is first made to invest in the development of a deposit and the commencement of mineral production. This could result in capital being committed well ahead of cost realisation. Larsson and Ericsson (2014) point out in their survey of mining project investments that project
Maryke C. Rademeyer
[email protected] Richard C. A. Minnitt [email protected] Rosemary M. S. Falcon [email protected] 1
School of Mining Engineering, The University of the Witwatersrand, Private Bag 3, WITS, 2050, Johannesburg, South Africa
2
Clean Coal Research Group, Faculty of Engineering, Genmin Laboratory The University of the Witwatersrand, Private Bag 3, WITS, 2050, Johannesburg, South Africa
costs tend to increase when a project moves from feasibility to construction. This would suggest that there are factors affecting project completion which are unknown to investors before project development actually begins. Furthermore, project value volatility was found to exceed mineral price volatility in work by Costa Lima and Suslick (2006) where a hypothetical gold mine was evaluated using the real options pricing model, indicating that it may be necessary to include other factors beyond external marketor policy-driven influences in the mining investment decision. As such, it stands to reason that a better understanding of the relationship between capital investment and physical capacity in-place would contr
Data Loading...
