Applying Four Different Risk Models in Local Ore Selection

Given the uncertainty in grade at a mine location, a financially risk-averse decision-maker may prefer to incorporate this uncertainty into the ore selection process. A FORTRAN program risksel is presented to calculate local risk-adjusted optimal ore selections using a negative exponential utility function and three dominance models: mean-variance, mean-downside risk, and stochastic dominance. All four methods are demonstrated in a grade control environment. In the case study, optimal selections range with the magnitude of financial risk that a decision-maker is prepared to accept. Except for the stochastic dominance method, the risk models reassign material from higher cost to lower cost processing options as the aversion to financial risk increases. The stochastic dominance model usually was unable to determine the optimal local selection.