| Title | The effect of Social licence on Dynamic Decisions making: A case study of a gold mine |
| Creator | |
| Date Issued | 2017 |
| Source Publication | Proceedings - 22nd International Congress on Modelling and Simulation, MODSIM 2017
 |
| Pages | 1364-1370 |
| Abstract | Dynamic decision making can significantly add value to mining projects and deliver more consistent outcomes under conditions of uncertainty. To achieve consistent and better outcomes, decision-makers in industry can benefit from an analytical optimal decision support tool that will help them to formulate and reach the optimal outcomes. The dynamic decision support tool developed at CSIRO is based on novel stochastic optimal control methodologies that can optimise decisions in situations with multiple uncertain variables and decisions. The types of market uncertainties that can be considered include commodity prices, interest rates and exchange rate, while uncertainties considered for mineral ore bodies include reserve levels, boundaries between ore types and even geo-metallurgical parameters. Social license to operate (SLO), the acceptance and approval level, is crutial for mining companies during the mining development. This paper focuses on the impact of social licence in making optimal dynamic decisions, as illustrated by a case study of a gold mine. The study examines the optimal extraction of gold using the mining characteristics, operating costs and salaries from a stylised gold mine in West Africa. We assume that the company has the operational flexibility to temporarily stop, restart or completely abandon extraction in response to gold price movement. Empirical evidence suggests that closing the mine may meet a very negative response from the local community. This in turn may lead to considerable future difficulties with hiring workers when reopening the mine, which can be viewed as the loss of the social licence to operate. To avoid such difficulties, management may consider paying salaries (full or partial) to local workers during a mine closure. While such a strategy may be expensive, it could help to maintain the community’s trust and thus retain the social licence to operate. Consequently, such an expensive strategy will significantly reduce the switching costs when re-opening the mine and the total value of the mine can actually be increased through such an strategy. This paper is the first attempt (to our best knowledge) to introduce social licence into the optimal flexible management of a mine extraction project. It introduces a simple conceptual model of the social response to managerial actions in the form of switching costs. In addition to maintenance costs, the company is assumed to pay local workers a proportion of their salary in order to prevent negative social response and to maintain its SLO. In the worst case, if no salary is paid to the local workers, the social licence would be lost, preventing the mine from being reopened. If the mine is closed permanently, the company has to pay decommissioning costs. It is also assumed that the company makes a one-off payment to national and international workers when they are laid off. The paper also illustrates how the dynamic decision support tool can assist industry to determine the optimal strategy and determine the optimal proportion of the salary to pay local workers during a mine closure. |
| Keyword | Real options Social licence to operate Stochastic optimal control Switching boundaries |
| URL | View source |
| Language | 英语English |
| Scopus ID | 2-s2.0-85080910194 |
| Citation statistics | |
| Document Type | Conference paper |
| Identifier | http://repository.uic.edu.cn/handle/39GCC9TT/9654 |
| Collection | Research outside affiliated institution |
| Corresponding Author | Chen，W. |
| Affiliation | CSIRO DATA61,Docklands,3008,Australia |
| Recommended Citation GB/T 7714 | Chen，W.,Langrené，N.,Zhu，Z. The effect of Social licence on Dynamic Decisions making: A case study of a gold mine[C], 2017: 1364-1370. |
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