Risk & strategy in mineral asset optimisation & valuation
Establishing strategy for the development or operation of any large or complex mineral asset presents as a highly complicated challenge. Large amounts of capital will generally be involved in the implementation of strategic alternatives, and significant potential variability will almost always exist in the projected financial outcomes. Yet the valuation will often be presented as a single figure with no transparency relating to the constituents, particularly risk. The reason? Risk simply has not been discretely considered or calculated as part of the optimisation or valuation processes.
Given that risk is a fundamental component of value, with value being a central consideration in strategic decision making, this research is motivated to quantify risk more accurately under the premise that this will result in a superior basis for strategic decision making.
Alternative approaches by which to incorporate risk have been considered, including the methodology and location in an overarching planning and valuation framework for the incorporation of adjustments to the underlying calculations. In considering the design of a framework that models risk at-source, material shortcomings have been identified in the majority of the more widely used approaches to incorporating risk.
Focussing on these identified inaccuracies, this research has developed novel approaches to incorporate multiple sources of risk, focusing specifically on the strategic optimisation processes of pit optimisation and schedule optimisation. Given that pit optimisation and schedule optimisation vary in terms of both the risks that are pertinent for inclusion and the underlying method of optimisation, two very different methodologies to incorporate and quantify risk have been developed. For pit optimisation a value at risk approach has been developed that directionally quantifies the impact of selecting a pit that is either too large or too small; and for schedule optimisation response surface methodology has been adapted to facilitate the modelling of a wide range of potential risk parameters. The research then demonstrates by utilising these techniques the materiality of the accurate quantification of risk in terms of the calculation of value and the subsequent potential impact on strategy.
The hypothesis that improvements to the quantification of risk in mineral asset optimisation and valuation will result in material changes to strategic decision making is demonstrated.
Citation:
Holloway, E. C. (2021). Risk and strategy in mineral asset optimisation and valuation. The Sustainable Minerals Institute, The University of Queensland. Doctor of Philosophy.