Evaluation of Underground Zinc Mine Investment Based on Fuzzy-Interval Grey System Theory and Geometric Brownian Motion

Abstract

Underground mine projects are often associated with diverse sources of uncertainties. Having the ability to plan for these uncertainties plays a key role in the process of project evaluation and is increasingly recognized as critical to mining project success. To make the best decision, based on the information available, it is necessary to develop an adequate model incorporating the uncertainty of the input parameters. The model is developed on the basis of full discounted cash flow analysis of an underground zinc mine project. The relationships between input variables and economic outcomes are complex and often nonlinear. Fuzzy-interval grey system theory is used to forecast zinc metal prices while geometric Brownian motion is used to forecast operating costs over the time frame of the project. To quantify the uncertainty in the parameters within a project, such as capital investment, ore grade, mill recovery, metal content of concentrate, and discount rate, we have applied the concept of interval numbers. The final decision related to project acceptance is based on the net present value of the cash flows generated by the simulation over the time project horizon.