Finding a 77% mining project value improvement using Theory of Constraints

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In a previous post we described the Theory of Constraints (TOC) and its potential to benefit mining projects as an “out of the box” way of thinking. This article provides a case study of how TOC can be used to drive mining project value improvements for a nickel laterite project.

In this case mining is carried out with conventional truck and shovel methods and the ore is processed using a hydrometallurgical process to produce a nickel hydroxide product.

Step 1 – Identify the constraint

As in most hydrometallurgical processes, acid is an expensive component of both capital and operating costs. Therefore, it was decided to make this the constraint.

Step 2 – Exploit the constraint

In strategic planning, a common way to exploit a processing constraint is to feed higher margin material to the plant early in the project life. In this case this is achieved by selecting the blocks with the highest grade of nickel per unit of acid requirement in leaching. By doing this higher cash flow is generated early in the project, minimising the effect of discounting on these higher cash flows.

To facilitate the selection of high margin material, the marginal cash flow was modelled on a block by block basis. To do this, stoichiometric relationships were developed for the acid requirement for each block based on the elemental composition of each block. These relationships were supported by test work.

A number of scenarios were completed on the basis of exploiting the selected constraint. A series of charts demonstrating the difference in ore, leach feed grade, metal production and cash flows are shown in Figure 1 to Figure 5.


Leach feed comparison
Figure 1   Leach feed comparison


Leach nickel head grade comparison
Figure 2   Leach nickel head grade comparison


Recovered nickel comparison
Figure 3   Recovered nickel comparison


Operating cash flow comparison
Figure 4   Operating cash flow comparison


Cumulative discounted cash flow (operating) comparison
Figure 5   Cumulative discounted cash flow (operating) comparison



Case 0 shows the base case, wherein grades and acid consumptions are blended over the life of the operation.

The first iteration (Case 1) was to adjust the mining schedule to feed the highest margin material to the plant first. This required the mining rate to increase in early periods and some stockpiling of low margin ore. This was able to increase the present value of the project by 55%.

The second iteration (Case 2) was to utilise beneficiation of ore to upgrade the nickel content into the leach and reduce the overall acid consumption, as it was found that beneficiated rejects were consuming significant amounts of acid. Additionally, it was identified that the beneficiation step would be a minimal cost with respect to the hydrometallurgical circuit. It was also found that there was a strong predictor of beneficiation performance being linked to the Silica content (Figure 6) so scheduling was able to prioritise those areas with best beneficiation performance (combined with grade). Whilst this reduced the overall recovery of nickel, it generated significantly higher cash flow per year in the early years, as it allowed more tonnes of ore to be processed for the same acid requirement. This further increased the present value of the project by 13%.


Beneficiation performance prediction trends
Figure 5   Beneficiation performance prediction trends



The third iteration (Case 3) was to simply half the acid added to the ore. This did reduce the nickel recovery but not by the same percentage. Thus, again, the tonnes of ore processed were able to increase (with very small incremental cost) and the rate of nickel (and cash flow) generation was increased in early periods. This further increased the present value of the project by 2%.

In total, the exploitation of the constraint added 77% to the present value of the project.

Step 3 – Subordinate to the constraint

In this case it was necessary to subordinate mining activities to the processing activities. Given that the deposit is close to surface, it is possible to be somewhat selective in which areas to mine to provide in order to deliver higher margin material earlier. This was justified even though the mining rate needed to increase to supply enough high margin material to fill the plant (Figure 7) and there are additional operating costs associated with more selective mining and stockpiling (Figure 8). The mining rate increase was well within the physical constraints of the mine, given large relative lateral extent.


Mining rate comparison
Figure 7   Mining rate comparison


Stockpile balance comparison
Figure 8   Stockpile balance comparison

Step 4 – Elevate the constraint

It was decided not to increase the acid generation capacity in order to minimise capital expenditure.

Step 5 – Repeat

As acid generation was a planned constraint there was no need to consider moving the constraint to other processes.

Outcomes

Ultimately, the focus on acid consumption led to a range of strategies geared around this constraint. A focus on maximising the nickel revenue per unit of acid consumption led to increases in mining rate to find preferential material, stockpiling of low value material, beneficiation, and reducing the addition of acid to the feed. Whilst some of these options seem counterintuitive as they reduce overall nickel recovery, they act to increase the rate at which nickel (and hence revenue) are generated. This resulted in an increase in present value of 77% from the base case schedule, based on traditional approaches.


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