Vose SoftwareModelChoice decision tree · Mining
Mining Exploration Decision
Explore the site in full, explore it in phases, or sell the exploration rights?
From the model’s decision tree
Best first decision: Phased Exploration
The expected value of each first option when every later decision is also made well (the tree rolled back).
| First decision | Expected value | |
|---|---|---|
| Full Exploration Program | $13,587,500 | |
| Phased Exploration | $15,635,000 | ✔ best |
| Sell Exploration Rights | $2,000,000 |
| Measure | Value |
|---|---|
| Expected value of the best strategy | $15,635,000 |
| Chance of a loss on the best strategy | 42.0% |
| Best outcome on the best strategy | $74,500,000 |
| Worst outcome on the best strategy | −$3,500,000 |
S-curve (cumulative probability) of Phased Exploration from the saved simulation.
The decision
A junior mining company holds exploration rights to a promising copper-gold prospect in a remote region. The company must decide how to explore the site: commit to a full exploration program, take a phased approach, or sell the exploration rights to a major mining company.
Objective
Maximize expected value. This model illustrates the classic exploration vs. exploitation tradeoff, with commodity price risk adding another dimension.
The options
- Option 1: Full Exploration Program ($5M)
Comprehensive geological survey, geophysics, and drilling in one campaign. Faster but higher upfront risk. Results range from major deposit to nothing. For small deposits, decide: develop (expensive), sell rights, or abandon.
- Option 2: Phased Exploration ($1.5M Phase 1)
Start with surface sampling and geophysics. If promising, invest $4M in Phase 2 drilling. If inconclusive, choose: additional sampling ($800K) or sell data. Classic real options approach: pay for information before committing.
- Option 3: Sell Exploration Rights ($2M)
Guaranteed $2M from a major mining company. No risk, no upside.
The decision tree
The tree has 4 decisions, 7 chance events and 22 outcomes. The best path is open: at every decision the best choice is marked, and the expected value beside each branch counts every cash flow from the start. Open any other branch to see what follows it.
DecisionChance event+$ cash flow on the branch
Full Exploration Program −$5,000,000expected $13,587,500
Chance: Geological Survey Results15% Major Deposit Foundexpected $63,750,000
Chance: Commodity Price (Major)- 25% Price Boom +$120,000,000payoff $115,000,000
- 50% Normal Price +$65,000,000payoff $60,000,000
- 25% Price Slump +$25,000,000payoff $20,000,000
30% Moderate Depositexpected $19,250,000
Chance: Commodity Price (Moderate)- 25% Price Boom +$45,000,000payoff $40,000,000
- 50% Normal Price +$22,000,000payoff $17,000,000
- 25% Price Slump +$8,000,000payoff $3,000,000
25% Small Depositexpected −$1,000,000
Decision: Small Deposit OptionsDevelop (High Cost) −$12,000,000expected −$4,000,000
Chance: Commodity Price (Small Mine)- 25% Price Boom +$25,000,000payoff $8,000,000
- 50% Normal Price +$12,000,000payoff −$5,000,000
- 25% Price Slump +$3,000,000payoff −$14,000,000
- Sell Mining Rights +$4,000,000payoff −$1,000,000 ✔ best
- Abandon Claim +$500,000payoff −$4,500,000
- 30% No Viable Depositpayoff −$5,000,000
Phased Exploration −$1,500,000expected $15,635,000 ✔ best
Chance: Phase 1 Survey Results40% Promising Indicatorsexpected $35,000,000
Decision: Continue Exploration?Full Phase 2 Drilling −$4,000,000expected $35,000,000 ✔ best
Chance: Drilling Results- 35% Confirmed Large Deposit +$80,000,000payoff $74,500,000
- 40% Moderate Deposit +$30,000,000payoff $24,500,000
- 25% Sub-Economic +$2,000,000payoff −$3,500,000
- Sell Data & Rights +$5,000,000payoff $3,500,000
35% Inconclusiveexpected $5,600,000
Decision: Inconclusive ResultsAdditional Sampling −$800,000expected $5,600,000 ✔ best
Chance: Additional Sampling- 45% Now Promising +$15,000,000payoff $12,700,000
- 35% Still Inconclusive +$3,000,000payoff $700,000
- 20% Negative +$500,000payoff −$1,800,000
- Sell Data As-Is +$1,500,000payoff $0
- 25% Negative Results +$200,000payoff −$1,300,000
- Sell Exploration Rights +$2,000,000payoff $2,000,000
Change the numbers. Open the workbook with ModelChoice, change a probability or a cost in the tree, and the best decision updates at once.
Key assumptions
| Assumption | Value | Notes |
|---|---|---|
| Full Exploration Cost | $5,000,000 | Complete survey + drilling campaign |
| Phase 1 Cost | $1,500,000 | Surface sampling, geophysics |
| Phase 2 Drilling Cost | $4,000,000 | Diamond core drilling program |
| Small Mine Development | $12,000,000 | Processing plant, infrastructure |
| Major Deposit Probability | 15% | Full program; higher with phased info |
| Major Deposit Value (Boom) | $120,000,000 | NPV at peak commodity prices |
| Exploration Rights Value | $2,000,000 | Guaranteed sale to major company |
| Commodity Price Cycle | 25/50/25% | Boom/Normal/Slump probabilities |
The figures are illustrative: the companies and numbers are invented for teaching.
Try it in ModelChoice
- Strategy Table. Compare full vs phased exploration with risk-return frontier
- Sensitivity Analysis. How does commodity price affect phased vs full exploration?
- Risk Profile. Is the guaranteed $2M sale better than the exploration gamble?
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Further reading
Download the workbook and open it with ModelChoice. The free trial opens every example.
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An illustrative example: the figures are invented for teaching. Last updated 9 October 2026.