Valuation of potash reserves at the waste installation pilot plant

Monte Carlo simulation was used in conjunction with several random walk price and cost models to value potash reserves at the Waste Installation Pilot Plant (WIPP) site new Carlsbad, New Mexico. Selection of market price and product processing cost models is the critical issue discussed in this paper. Key issues and inputs to the thirty five year simulation are briefly discussed. Results for one type of potash found in the WIPP region are presented. Present value distributions for revenues from potash operations and estimated cash flows to a single firm conducting potash extraction were generated using several price/cost model combinations. A simple Wiener process was selected for annual potash market prices, and processing costs were generated using random draws from a uniform distribution. The rationale for selection of this model combination is discussed.