Risk Reduction of Minerals' Revenue in the Economy of Resource Rich Countries

Some countries have a variety of mineral products and commodities which is the source of government revenue and foreign exchange. These revenues are essential for development of mineral countries. Because of some local and international changes in mineral markets, the revenue gained from minerals may be very variable. In order to plan for mineral revenue by governments, the risk of mineral revenue should be decreased. In this paper, minerals are considered as risky assets to apply the Modern Portfolio Theory (MPT). This method is able to decrease the risk of minerals' revenue by optimum diversification. As a case study, minerals production of Iran mining sector is studied. The non-linear model is solved by quadratic programming. To achieve the country's expected revenue the model determines the type and quantity of minerals to be produced. The findings show that the MPT model has an adequate potential to reduce the risk of government's minerals revenue compared with the current situation.