Real options method to evaluating investment project and one application in mining sector

Investment; is the process where companies use the resources they have in order to gain profit. Before using their resources, companies prepare investment projects to predict whether the investment is going to be profitable or not, then choose one of the projects and act according to it. In present time traditional investment project evaluation methods are used to determine to which project is going to be the most profitable. These evaluation methods can be divided into two groups: considering the time value of money (dynamic) and not considering the time value of money (static). Of these methods, the most preferred and giving results nearest to the real situations are the dynamic methods considering the time value of money. But these methods are also becoming impotent. It has a lot of reasons. Some of these are; the very fast changes in technology, the disappearance of international borders due to globalization, the intensive competition environment and the emerge of some other similar risks. Since the conventional investment project evaluation methods are having difficulties in orientating the present economic conditions, are not flexible and as a result are impotent, real options method has been exposed as an alternative to the classic evaluation methods. In this study, the concepts of investment, investment projects and option are described; real options management together with traditional methods used for evaluating the investment projects are analyzed, and the application of real options management in the mining sector is performed.