Four analysis tools to find more mining project value in less time

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Many people say that in order to “optimise a project” you need more time; like it is a trade-off. However, we think that this trade-off stems from a lack of focus and understanding of material project drivers. People may understand what is important in their discipline but do not understand the overall impact. Focusing 80% of your time on the top 20% of items should lead to more value for your project in less time, maximising the chances of project success.

Cost driver analysis

If you are looking to reduce costs to add value it is worth understanding what costs are material. One of the best ways to do this is to identify what the the biggest costs are and focusing on these items. Do this by breaking costs down into activities (drilling, blasting, crushing, flotation etc.), categories (such as fuel, labour, consumables, power etc.), rock types and deposits.

A useful way of considering the order of importance is to discount costs in categories over the life of the mine. The larger, earlier costs are the ones that will have the largest impact on the value of the project.

Breakdown of Mining Costs by pit and ore/waste

The first example is a breakdown of mining cost by pit and ore/waste. The base case analysis spent 90% of the time and effort on the ore haulage for Pit 3, even though this was less than 20% of the total discounted mining cost and was not mined until the second half of the project. Meanwhile little effort was placed on optimising haulage for waste, which was 80% of the total tonnage. Why was this disproportionate effort applied? Because the Pit 3 had the longest haul, and so it was assumed that this needed the most engineering. A change in design priorities to focus additional attention on the waste haul led to a material reduction in mining operating and capital costs of approximately $100M.

Operating cost breakdown for a typical mine

The second example shows an operating cost breakdown for a typical mine. Here the operating consumables (mainly reagents) and the transportation of those consumables contributed almost two thirds of the total operating costs. The project team identified many ways to reduce the reagent consumption. Reducing the mining cost in this instance would not materially affect project value.

As an aside it is possible to take your analysis a step further by determining the appropriate level of detail for the estimated cost in each of these areas. In order to achieve specified cost accuracy, your time and effort should be focused on the material items, making sure that your estimates are accurate and detailed. Spending time on developing the finer details for immaterial items is unlikely to add to the overall accuracy of the project’s cost estimate and represents wasted effort.

Revenue loss analysis

It pays to know which metals, which rock-types and which deposits are generating the most revenue. Again, we use discounted value to put timing into context. This helps to guide where to place emphasis in test work. The areas that make the most revenue also represent the biggest risk of underachievement, so they should be focused on improving the confidence of this material.

Breakdown of revenue by deposit and rock-type

If you look at our first example, there is a breakdown of revenue by deposit and rock-type. This project was at scoping level. It is clear that the Fresh material in M4 is the largest contributor of discounted revenue. However, this material showed the most variability in initial test work which highlighted a major risk. The most important future test work from a risk perspective would be to better understand the variability of the M4 rock-type.

Discounted LOM Revenue

It is also important to understand the steps along the process where revenue is lost, because this is where major value adding opportunities can be found. Revenue can be lost due to metal loss during mining, processing and sales. Discounted value can also be lost due to timing effects.

Also, it may well be that the area that generates the most revenue does not have the greatest loss. Looking at our second example we consider the revenue contribution of four elements of a base metals project. We plot the discounted revenue gained and lost. This indicates that copper is the highest revenue contributor and hence test work should look at improving the confidence of this element. However, copper is not the biggest loss as it already has high recoveries. It is gold, which contributes about 5% of revenue that has the greatest loss and represents the biggest potential opportunity for improvement.

Most of the gold loss was at the smelter due to its low grade in the concentrate. The company addressed this by placing a greater emphasis on its gold resource estimate, they identified some contiguous areas of very high grades that weren’t being accurately reflected in the model and were able to model higher gold grades in the concentrate. This would enable more of the gold value in concentrate to be paid.

Throughput analysis

The bottleneck of a project is the thing that controls the flow of cash over time. Typically this will be the most expensive capital item of the project. It could be power, reagent generation, milling time, mining materials handling systems or pit advance. Either way, if you are paying for it make sure you use it.

Project constrained by Milling Time

In this example the constraint was milling time. The engineer had designed the plant to service a given tonnage throughput. However, the plant was capable of producing more, particularly if the material was soft. The engineer provided an equation to measure potential throughput on a block by block basis. When feeding this through the existing project it was found that there was actually about 10% spare capacity available that could be used. Using this, the NPV was increased by approximately $40M.

Variability anaysis

It helps to understand your orebody and its response to your process. Through understanding you can make better decisions.

Strong relationship of beneficiation performance with silica grade

In this case there was a strong relationship of beneficiation performance with silica grade. Thus we could use this information to prioritise high grade, high performance material for processing, adding significant value. Without this understanding the gains would not be possible. This was used to drive a 77% improvement in present value for the project.

Concluding thoughts

Once you understand your project, and the material items, the appropriate strategies to apply should be fairly obvious. Some additional thoughts which may assist those professionals wanting to maximise the value of their mining projects:

  • Firstly you need to think globally, not just in your own area of expertise. Often, by optimising your own area (by whatever measures you use), you may reduce the value of the overall project.
  • Secondly, challenge any assumptions. Find any items that were selected “just because”. Every decision should relate to either real economics or real constraints.
  • Thirdly, know what is important and orientate the focus of the project around them.
  • Fourthly, try to get the most out of the current system before you consider spending more money. This requires a different level of thinking and can lead to creative and value adding solutions.
  • And finally, use “uncommon sense”. Often the best solutions are very simple and once suggested are blindingly obvious to all. Sub-optimality is simply an opportunity for you to add some value and improve your worth to your organisation.

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