Real option method on investment decision of mineral resources exploration project

Mineral resources exploration projects have many option characteristics. Traditional investment decision method for mineral resources exploration-NPV method-does not concern these option characteristics.. It does not concern the managerial flexibility of the mineral resources exploration projects, which can increase the value of the project. The Real Option theory provides new way and quantitative tools for investors to consider the options and to gain management flexibility in their investment decision making. This paper applies the real option theory to analyze a simplified mineral resources exploration project case and discusses its application in domestic conditions.