Real-Options Approach to Economic Valuation of Rare Earths Development Projects

Abstract 

The choice of a correct and appropriate method for the valuation of economic efficiency of investment projects for the development of rare earth deposits is an actual and non-trivial issue within the framework of project analysis. Based on the comprehensive analysis of uncertainty and risk factors, it is concluded that such projects can be greatly under estimated within the traditional approach (based on discounted cash flows), e.g. the area Buranniy in the complex rare 
metal Tomtor field in Sakha Republic (Yakutia). Therefore, other advanced modern approaches (e.g. the real options method) are required, i.e. those which will take full account of flexibility of the project management and view risks as opportunities to gain additional hidden benefits from the project rather than only as negative factors. Such a methodological expansion is especially important for assessment of economic efficiency of investment projects for the development of rare metal deposits since it is quite challenging and non-trivial to compare large capital and operating outflows as well as inflows from sales of final products spread over 10–15 years after the investment program started, given the considerable uncertainty and risks. 

Keywords 
rare earths, economic valuation, investment project, uncertainty, risk, discounted cash flow, net present value, real option method 

Funding 
The reported study was funded by RFBR according to the research project № 17-06-00231/18 “Research and determination of the role of the state in stimulating and shaping the demand for rare-earth elements for high-tech domestic industries in conditions of uncertainty” 



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