A multi-disciplinary University team from the School of Mathematics (EPS) and Manchester Business School (Humanities) has developed a novel means of helping mining companies accurately calculate reserve valuations and specify optimal production decisions. The technology provides a solution to an inaccurate methodology used as common practice within the mining industry for the past 40 years and will have a positive impact on helping to increase mining companies’ profits and their longer-term stability. The cutting-edge techniques used to create the Reserve Valuation and Optimisation Model (RVOM) are a significant step forward from traditional methods, and the Team is now seeking a leading commercial partner to join the project to enable RVOM to become the mining industry standard for valuation.
Before developing RVOM, Professor Peter Duck (Mathematics), Professor Sydney Howell (MBS), Dr Geoffrey Evatt (MBS)and Dr Paul Johnson (Mathematics) had been working together investigating the valuation and optimal control of stored quantities in the presence of stochastic uncertainty, specialising in model formulation and partial differential equation (‘PDE’) based numerical schemes. The Team is applying these powerful techniques to a number of problems, including optimal temperature control, the optimal trading and storage of wind power and the valuation of mortgage-backed financial securities; prior to RVOM the Team had not studied finite natural resources.
Work on the RVOM began in earnest in 2008, when a generic model for valuing a finite resource was needed in relation to Uranium stocks, for a UK government sponsored investigation into the sustainability of nuclear power. Since much of the Team’s research over the past few years had been in logically similar problems, the Team already had the necessary set of skills with which to tackle the resource valuation problem.
Commenting on the project, Peter Duck said: “Being able to make fast and accurate valuations of reserves in the presence of economic and geological uncertainty is of critical importance to mining companies. RVOM draws upon recent advances in financial mathematics, to make faster and more accurate reserve valuations than before. It can achieve this in the presence of numerous uncertainties, such as price fluctuations and ore grade uncertainty, and can even set the optimal processing rules a mining company should use.”
The RVOM team contacted the University of Manchester Intellectual Property Ltd (UMIP), which also saw strong industrial and commercial potential. UMIP made preliminary enquiries with leading mining software providers to test the commercial appetite for such a project and the response was extremely positive. With their specialties drawn from mathematics, finance, real-options and business/industry the broad scope of the team’s skills ensures that academic, financial and industrial aspects of the study are all addressed quickly and effectively.