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Abstract
When a mining company begins extraction from a finite resource, it does so in the presence of numerous uncertainties. One key uncertainty is the future price of the commodity being extracted, since a large enough drop in price can make a resource no longer costeffective to extract, resulting in the mine being closed down. By specifying a stochastic price process, and implementing a financialtype model which leads to the use of partial differential equations, this paper creates the framework for efficiently capturing the probability of a mine remaining open throughout its planned extraction period, and derives the associated expected lifetime of extraction. An approximation to the abandonment price is described, which enables a closedform solution to be derived for the probability of operational success and expected lifetime. This approximation compares well with the full solution obtained using a semiLagrangian numerical technique. © 2011 The Royal Society.
Original language  English 

Pages (fromto)  244263 
Number of pages  19 
Journal  Proceedings of the Royal Society A: Mathematical, Physical and Engineering Sciences 
Volume  467 
Issue number  2125 
DOIs  
Publication status  Published  8 Jan 2011 
Keywords
 FeynmanKac
 Finite resource valuations
 Real options
 Stochastic partial differential equations
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Dive into the research topics of 'The expected lifetime of an extraction project'. Together they form a unique fingerprint.Projects
 1 Finished

SPRIng: Sustainability Assessment of Nuclear Power: An Integrated Approach
Azapagic, A., Anderson, K., Butler, G., French, G., Howell, S. & Stoker, G.
1/03/08 → 31/07/11
Project: Research