Study On Investment Evaluation Model For Mineral Resources Development Project Based On Real Options

As one of the pillar industry of economy, mineral resource development project provides important material basis for socialist modernization. Scientfic and rational investment decision plays a crucial role in development of enterprises and resource security of country. However, the traditional discounted cash flow approach ignores the uncertainty of resouse value and management flexibility in operation, which leds to short-sighted decision making, lack of investment and even the loss of competitiveness. Recently, the development of real options theory provides a new way for investment evaluation of mineral resources development project.In this paper, we study in the investment evaluation of mineral resource development project with real options theory. Firstly, we analyse the business process of development project. Then based on the characteristics of high value uncertainty, large investment and long payback period, we research in following issues one by one: the volatility of resource value, the investment value and opportunity under multiple uncertainties, investment value unde multiple phases of investment and outsourcing decision.We build a real option valuation model for mineral resource investment based on the analysis of how commodity price, cost, exchange rate and other uncertainties affect the mineral resource value and its volatility. Then, the solution of value volatiolity in the model is derived. Finally, the main parameters are statically analyzed based on a real example of crude-oil development project in China.On basis of the uncontrollable characteristic in investment, with the management flexibilities of both postponing the investment decision and stopping the production in production process considered, a real option valuation model on natural resource development projects with multiply uncertainties was established. An analytic solution of the model are also provided through applying the price principles such as exchange option and martingale process, of which the main parameters are statically analyzed based on a real example of crude-oil development project in China.On basis of the multi-stage decision in investment, we present a multiple compound real option pricing model for mineral resource investment. Using a generalization of Geske's compound option model, we derive a solution for an n-fold compound option model, and apply it to calculate the value of an oversea petroleum project. The result of experiment and the sensitivity analysis shows the model has strong practicability and stability.Based on the above research, we study in the issue of outsourcing. We building a decision model based on real option theory to answer following question: whether and when outsourcing shoule be established? This model considers the uncertainties of future profits both in outsourcing and in-house operation, and derives a solution of option price and outsourcing time using optimal stopping-time theory and option pricing theory. Our research shows that the stopping-time depends on the ratio of outsourcing profits and in-house operation profits, and a firm needs wait longer before outsourcing when it can outsourcing less proportion and when market becomes more uncertain.