Study On Construction Of Mining Rights Evaluation Model Based On Arbitrage Pricing Theory

The final objective of mining rights evaluation study is to enable mining enterprises gain profit in production and operating activities.The value of mining right, i.e. the value of mineral reserves specified in mining rights contract, is transferred by sales of mineral products and expressed by price. Therefore, mining rights evaluation shall not only reflect the changing law of the value of mineral reserves, but also conform to the trends of market price. Monopoly is one of the basic features of mineral resources market due to the nature of mineral resources. As the financial capital and risk capital infiltrate into the whole mineral industry from exploration to marketing and the combination of financial capital and industrial capital, the mineral products, especially bulk products have been indexed and financialized. The financial attributes of mining rights exert a strong impact on current mining rights evaluation model. Mining enterprises will face great risk of price fluctuation when market price is monopolized and manipulated by financial capital and industrial capital. In such market circumstances, mining enterprises need a tool which can help them avoid risk of price fluctuation and achieve profit target. Then, mining rights evaluation method based on arbitrage pricing theory may be a good choice for mining enterprises.This paper analyzes the basic attributes, value characteristics, market features and current evaluation method of mining rights; discusses the presence of arbitrage chances in mining rights market, the reasons of it and how to identify it. This paper shows that it is necessary and feasible to use arbitrage pricing theory to evaluate the mining rights, as this method conforms to the features and trends of mining rights market, as well as the national regulation on sustainable use of rare mineral resources.Based on requirement, the following items have been selected as main modeling parameters:arbitrage income, economic value interval of mining rights, mineral prices, price fluctuation ratio, mineral reserves, mining rate and recovery ratio. According to the features of extractive industry and each parameter’s change characteristics in mineral resources market, arbitrage income fluctuant model has been established and arbitrager’s behavioral pattern simulated. Thought cost-volume-profit (CVP) analysis, the distance involved in mining risk has been derived as well as the frequency of potential stopping mining event, which can be used as an analysis tool for mining enterprises to quantify the mining risk and identify the valid value interval of mining rights. This paper discusses the dynamic evolution of mineral prices from equilibrium to disequilibrium driven by market information, distinguishes which factors influencing mineral prices can drive the price recover average level and which cannot, in order to explain that under the circumstance of given mineral reserves, the mineral resources will decrease as the mining operation is proceeding, as a result, the price change caused by this decrease is rigid and non-recoverable. Further, this paper, under the circumstance of given mineral reserves, discusses the impact on mining activities and mineral prices caused by factors leading to decrease of mineral reserves such as mining rate, recovery ratio, mining cost and market structure. In this paper, the best mining condition and mining rate has been determined under monopoly environment, dynamic model of jump-diffusion process for mineral products established and its move trends stimulated. This paper divides the mining operation into four stages, and establishes models for each stage to compute the value of mining rights, so as to get the fluctuation rate of each stage, and solve the time variance of fluctuation rate to some extent. The annual mining rights values during the evaluation period and service period of mines have been calculated by using data of mining practice. And annual distribution map of price has been drawn to indicate that the distribution of mining rights value is in accordance with dynamic trends of mineral prices, which justify the relevant parameters applied in models of mineral products and prices of mining rights. Finally, the mining rights evaluation model based on arbitrage pricing theory has been established through studies of evaluation parameters.