3 - Virginia Izabel Oliveira Fundacao Dom Cabral - Rio de Janeiro
4 - Haroldo Guimarães Brasil UNIVERSIDADE FEDERAL DO RIO DE JANEIRO (UFRJ) - Instituto de Economia
Reumo
For the mining industry, the last and the next ten years ahead should be noted not only as a period of escalating commodity price volatility, but also by the significant increase in related party restrictions on the socio-environmental impacts of operating activities. To better cope with volatility and the need to adapt to the regulatory environment, companies in the industry will need, in addition to working hard to manage their costs, to introduce more sophisticated techniques to support the decision-making process regarding new investments.
In this paper, the value of alternative tailings disposal technology is assessed when there are regulatory restrictions for the licensing of the traditional disposal technology, which relies on the use of dams.
The main goal of this paper is to evaluate the use of the real options theory in an alternative technology of tailings disposal with reduced social and environmental impacts, namely the storage of slime into exhausted mine pits associated to the stacking of sandy tailings. Furthermore, the results obtained with the real options theory are compared with those obtained with the discounted cash flow methodology, traditionally used by mining companies to evaluate capital projects.
To evaluate the use of the real options theory in an alternative technology of tailings disposal with reduced social and environmental impacts, namely the storage of slime into exhausted mine pits associated to the stacking of sandy tailings. Furthermore, the results obtained with the real options theory are compared with those obtained with the discounted cash flow methodology, traditionally used by mining companies to evaluate capital projects.
The results obtained show that, even though the traditional dam technology presents higher naïve NPV than the alternative one, the expanded NPV of the alternative technology indicates its adoption.
Recent papers on the field of real options call for the development of new studies that focus on case of individual projects and business units (Trigeorgis and Reuer, 2017). Additionally, Whitten, Hertzler and Strunz (2012) defend the adoption of such theoretical lens as an instrument for valuing forms of protection against the risk of business discontinuity due to environmental restrictions (stakeholders). At the best knowledge of the authors, previous research using real options analysis to evaluate mining projects has not taken into consideration the restrictions on use of dams.