Mine Operations Strategy In A Fluctuating Environment ? Introduction

Volatility is a fact of life in the mining industry. Prices of and demand for mineral products are among the most volatile of those for any product. The volatility of these markets wreaks havoc on both corporate management and the personal lives of mining people. Yet, until recently, it has been difficult to assess the impact of volatility on business strategy. This paper discusses how mining firms can profit from market volatility through an operations strategy that stresses operating flexibility. The foundation for our strategy analysis is the observation that a mine is analogous to a stock option. Techniques based on those developed to value stock options have recently been extended to the field of mine valuation. The insights provided by option pricing are very valuable in the development of mine operating strategy.