ISBIS4 Abstract

Contact Author's Name: Luis Martinez
Title of Abstract: Building Enhanced Risk Robust Projects Based on Quantified Uncertainty: the Case of a Mining Venture
Author(s): Luis Martinez and Rodney Wolff
Affiliation: Queensland University of Technology

When constructing or developing news or existing business projects, the management of cash flow and risk, during production, is a critical part of the process, as well as an integral part of a strategy in resource allocation. Traditionally, risk assessment is used as a technique to efficiently and effectively manage projects in the face of uncertainty. However, it is not common to use both the quantified uncertainty and risk analysis to design and build the entire project, one that is risk robust. This is because every project stage carries its own source of uncertainty and consequently there is risk in achieving planned targets; then, a decision remains to be made as to which project stage(s) should be targeted for analysis. The well known Pareto\'s law of \"insignificant many, significant few\" recognizes, on the other hand, that not all project stages carry equal amounts of uncertainty or equal amounts of unfavorable consequences. This means that the solution is, therefore, the identification of \"significant few,\" or the key source(s) of uncertainty and quantified them, so as to fulfill the objective of minimizing those risks that have the potential for most loss and maximize the opportuniti! es for future profits. In the case of a mining venture, the two principal sources of uncertainty are the geology of the ore-body and the metal price behavior in the future; the entire mining project will be constructed based on the estimation of these two random variables over time.
This paper focuses on a new technique that uses the quantification of the uncertainty and risk assessment (for the sake of simplicity, the ore-body uncertainty will be the only source of uncertainty considered in this research) as tools to efficiently build risk-robust projects, which consider the maximization of the upside potential and the minimization of the financial risk of the project. Further, it will be shown how real constraints in project indicators, such as minimum annual production, and minimum acceptable project net present value (NPV) can be used to help the mine planner in making final decisions in the face of uncertainty. The case of an epithermal gold mining venture is presented as an example of the application of this novel technique to build the entire project in a long term plan basis.