Real options in mine project budgeting - Polish mining industry example

Traditional methods of capital budgeting often fail to assign the proper value or timing to management decisions. The theory of option pricing can produce a valuation that resolves these issues. This paper compares the results of two capital budgeting approaches on the example of Polish zinc-and-lead mining. Option pricing approach is used to value the project and find the best operating strategy. The sensitivity analysis due to volatility of zinc prices and defer mine opening time is considered.