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<p>Geological uncertainty is critical in mining project evaluation, yet conventional financial models often overlook or simplify this source of uncertainty. This paper explores how spatial correlations of geological-technical variables induce inter-temporal correlations in cash flows—modulated by the mining sequence. According to both our analyses and real case study results, the industry may be systematically underestimating financial risk by as much as 50% when geological-technical uncertainty is mischaracterized in financial models. To address this gap, we introduce the Financial Value of Geo-information (FVG) framework, primarily positioned for the project evaluation stage, where geological data acquisition materially influences project design, resource confidence, and financial appraisal. It consists of three main components: (1) integrating geostatistical simulation of the mineral deposit to explicitly incorporate geological uncertainty into financial models; (2) optimizing investment in geological data acquisition through the Information Budget Optimization Problem, inspired by portfolio and regionalized variables theories; and (3) quantitatively assessing the financial value of reducing geological risk. A real case study illustrates the application of the FVG framework, showing how accounting explicitly for geological uncertainty in cash flows helps mitigate financial risk and increase project value. By quantifying the financial impact of future additional geological information, the study underscores how targeted infill and delineation drilling can enhance the reliability of financial valuations. Ultimately, the proposed framework provides mining companies, financial institutions, and project stakeholders with a more robust basis for refining project appraisals under geological uncertainty. This supports better-informed investment decisions and may reduce mining project failure rates. The main methodological contribution of this work is the endogenous derivation of the inter-period covariance structure of project cash flows from geological spatial continuity and mine sequencing, together with the formulation of an optimization framework that links geological data acquisition directly to reductions in project NPV variance.</p>

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The financial value of geological data acquisition: Optimizing mining investments by mitigating geological uncertainty

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年5月5日

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  • Alejandro Cáceres,
  • Xavier Emery

摘要

Geological uncertainty is critical in mining project evaluation, yet conventional financial models often overlook or simplify this source of uncertainty. This paper explores how spatial correlations of geological-technical variables induce inter-temporal correlations in cash flows—modulated by the mining sequence. According to both our analyses and real case study results, the industry may be systematically underestimating financial risk by as much as 50% when geological-technical uncertainty is mischaracterized in financial models. To address this gap, we introduce the Financial Value of Geo-information (FVG) framework, primarily positioned for the project evaluation stage, where geological data acquisition materially influences project design, resource confidence, and financial appraisal. It consists of three main components: (1) integrating geostatistical simulation of the mineral deposit to explicitly incorporate geological uncertainty into financial models; (2) optimizing investment in geological data acquisition through the Information Budget Optimization Problem, inspired by portfolio and regionalized variables theories; and (3) quantitatively assessing the financial value of reducing geological risk. A real case study illustrates the application of the FVG framework, showing how accounting explicitly for geological uncertainty in cash flows helps mitigate financial risk and increase project value. By quantifying the financial impact of future additional geological information, the study underscores how targeted infill and delineation drilling can enhance the reliability of financial valuations. Ultimately, the proposed framework provides mining companies, financial institutions, and project stakeholders with a more robust basis for refining project appraisals under geological uncertainty. This supports better-informed investment decisions and may reduce mining project failure rates. The main methodological contribution of this work is the endogenous derivation of the inter-period covariance structure of project cash flows from geological spatial continuity and mine sequencing, together with the formulation of an optimization framework that links geological data acquisition directly to reductions in project NPV variance.