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G-2015-86

Optimizing a mineral supply chain under uncertainty with long-term sales contracts

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A two-stage stochastic mixed integer non-linear program is formulated for a mining complex to optimize strategic and tactical plans. The objective is to find the near optimal decisions for a mineral supply chain in the context with uncertainties in both ore supply and the commodity market (price and demand). The endogenous spot price in the commodity market and long-term sales contracts are considered in the formulation of the mining complex's optimization model and an ad hoc heuristic is developed to deal with the throughput- and head-grade-dependent recovery rate in processing plants. Numerical results indicate that the proposed heuristic is effective and efficient in numerical tests. Based on the proposed model and heuristic, a long-term contract design strategy is proposed for making decisions on the contract price and strategic investments. A shadow price based method is also proposed to evaluate the existing mining schedule.

, 14 pages

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