Application of the real options theory in discreet time to evaluate investments in exploration of mineral resources

• Grant number: 17/20323-0
• Support Opportunities: Scholarships in Brazil - Scientific Initiation
• Effective date (Start): January 01, 2018
• Effective date (End): December 31, 2018
• Field of knowledge: Engineering - Production Engineering - Economic Engineering
• Principal Investigator: Danilo Simões
• Grantee: Izabelle Martinez Martinez
• Host Institution: Universidade Estadual Paulista (UNESP). Campus Experimental de Itapeva. Itapeva , SP, Brazil

Abstract

The investment projects evaluated by means of traditional methods do not contemplate managerial actions that can be demanded without solution of economic life, for example, projects of exploration of mineral resources, that implicitly their uncertainties. Thus, from the consideration of managerial flexibility in the decision-making process, the discounted cash flow is complemented, contributing to maximize gains or minimize monetary losses. Therefore, due to the traditional net present value doesn't consider the managerial flexibilities and generate the wrong results, it is aimed to apply the of real options theory in discrete time to evaluate a mining project in an environment of uncertainties, with managerial flexibilities of postponing investments and changing the pace of exploitation, to fill the deficiencies of traditional methods. As a premise, a static cash flow designed for a horizon up to the end of the total project life of the mining project will be constructed to obtain the present value without flexibility. Subsequently, the present value of the project will be modeled to limit the sources of uncertainties. The next step, require a creation of the binomial tree of the project, in which the asset, at any moment, can move to one of the prices and, finally, the decision tree will be elaborated, which will allow the decision making in a planned way from the calculation of the value of the real option. (AU)

Scientific publications

(References retrieved automatically from Web of Science and SciELO through information on FAPESP grants and their corresponding numbers as mentioned in the publications by the authors)

MARTINEZ, IZABELLE MARTINEZ; BATISTELA, GISLAINE CRISTINA; SIMOES, DANILO. STRATEGIC FLEXIBILITIES: VALUATION OF A COMPANY WITH THE APPLICATION OF THE REAL OPTIONS THEORY. BRAZILIAN JOURNAL OF OPERATIONS & PRODUCTION MANAGEMENT, v. 16, n. 4, p. 650-658, DEC 2019. (17/20323-0)

IZABELLE MARTINEZ MARTINEZ; GISLAINE CRISTINA BATISTELA; DANILO SIMÕES. Management of economic and financial risk of investments in assets for extraction of non-metallic mineral extracts. Ingeniare. Rev. chil. ing., v. 29, n. 4, p. 691-699, 2021-12-00. (17/20323-0)