Delivering a realistic Strategic Mine Plan that talks to your company’s financial situation

Strategic mine planning is all about defining a strategy to exploit the mineral resource in a way that maximises value throughout the life of mine. This stage of planning is very important, and it is more focussed on defining a plan that best delivers the corporate goals in the long term. At this stage of planning, one is usually trying to answer that the following three critical questions:

• Considering both the economic and engineering constraints, what portion of the orebody is feasible to mine
• When to extract that part of the orebody; and
• Where to send the extracted material (dump, plant, stockpile etc.).

As I have discussed before, attempting to align your strategic mine plan with the corporate objectives is extremely challenging if each planning activity is developed in a silo instead of being developed holistically. The easiest and practical way of generating a realistic strategic plan that is aligned with the corporate goals is through integrated planning. In this article, I will briefly demonstrate the importance of integrating some of the corporate financial constraints to deliver a more realistic strategic plan that talks your company’s financial situation.

Datamine’s’ Minemax scheduler can be used to quickly generate multiple strategic plans that takes into consideration multiple financial constraints. Some of the financial constraints that I will be discussing in this article include:

1. Managing cash reserves for cash constrained operations
2. Maintaining a positive cashflow throughout the Life of Mine
3. ?Debt-repayment schedule constraints; and
4. Capital expenditure evaluations and constraints.

1. Maintaining cash reserves for cash constrained operations

In this scheduling scenario, think of a mining company that has a limited amount of cash reserves to support a specific operation and cannot or has decided not to go into any further debt. Cash reserves refer to the money that a company keeps on hand to meet short-term and emergency funding needs. This means that the strategic mine plan should ensure that the cumulative cashflow never exhausts the available cash reserves. In this example, the cash reserve constrain is $250,000,000. Datamine’s Minemax Scheduler’s cumulative minimum total profit constraint is used to constrain the cumulative cashflow.

When running the strategic plan without the cash reserve constraint, you can see on Figure 1 below that in year 2020 the cumulative cashflow produced by this strategic plan more that the company’s available cash reserve.

Figure 1: Strategic plan without any financial constraints vs. the strategic plan with the $250,000,000 cash reserve constraint

At first glance, the scenario with no financial constraints produces a relatively higher Net Present Value (NPV). However, without the constraint, the strategic plan without the financial constraint is not talking to the company’s corporate goal.

2. Maintaining a positive cashflow

For some companies, the corporate financial goal is to develop strategic mine plans that maintain a positive cashflow after a specified period. In this particular example, the company is looking to maintain a positive cashflow after period 1. On Figure 2 below, one can easily see that without any financial constraints, there are periods (beyond period 1) which have a negative cashflow. Datamine’s Minemax Scheduler’s minimum total profit per period constraint is used to ensure that all periods (beyond period 1) have a positive cashflow as defined in the corporate goals.

Figure 2: Strategic plan without any financial constraints vs. the strategic plan with a positive cashflow constraint

In this scheduling scenario, constraining the schedule to maintain a positive cashflow beyond period 1 increases the NPV of the operation. This means that by considering the financial constraints, you would have killed 2 birds with one stone: produce a strategic schedule that aligns with the corporate goal and consequently increase the NPV as well. This is something that you will not be able to achieve when you run the schedule and financial analysis in separate silos.

3. Debt repayment schedule constraints

At this point, I would like you to think of a mining project that has a known CAPEX of $150,000,000 that is funded through a debt facility. The mining company wishes to pay off the loan by year 4 – trying to simultaneously respect this constraint and optimise the schedule sounds like a big mountain to climb right? I am happy to let you know that this constraint can be modelled into Datamine’s Minemax Scheduler without lifting a finger. Datamine’s Minemax Scheduler’s cumulative minimum total profit constraint is used to ensure that the mine is able to pay back the loan in 4 years (and maybe increase your salary after haha..). Figure 3 below shows the impact of constraining the debt-repayment.

Figure 3: Strategic plan without any financial constraints vs. the strategic plan with a 4-year payback period constraint

Again, at first glance, the scenario with no financial constraints produces a relatively higher Net Present Value (NPV). However, without the constraint, this strategic plan is not talking to the company’s corporate goal.

4. Capital expenditure evaluations, budgets, and constraints

I hope when you are done reading this section, you can tell that I was saving the best for last.

4.1 Capital expenditure evaluation

The extremely powerful Capital Expenditure utility on Datamine’s Minemax Scheduler is used to determine if it is worthwhile for your mine to incur Capital expenditure in order to maximize the Net Present Value (NPV) of the operation. In simple terms, should you spend X amount of money to gain Y units of capacity and if yes, when should you spend that money in order to maximise NPV. This question is relevant to both Greenfields and Brownfields projects.

In a greenfield prefeasibility study, one doesn’t really know the milling capacity (or whether it is best to use the Mill process, Leach process or a combination of both) that is required in order to maximise the value of the deposit. Using Datamine’s Minemax Scheduler, you can easily evaluate multiple, different milling options (capital expenditure vs milling capacity) and make an informed decision that will maximise value. It is also common that in greenfield projects you may want to know what the appropriate truck fleet is for the deposit in order to maximise the NPV.

On the other hand, in a brownfield project you can also run multiple scenarios to determine if you should spend money to increase capacity or not. A typical scenario would be to investigate whether the existing processing plant should be expanded in order to increase processing capacity at a certain cost, and if so by how much and when the expansion should happen. Also, in a brownfield project, you may want to investigate the possibility or buying/leasing a new truck (increasing the truck hours) at a given price. Figure 4 shows a scheduling scenario where up to 5 new trucks can be purchased in order to increase the truck hours. The expected lifespan of that trucks could be easily modelled to indicate the ramp up during commissioning of that new units, as well as the reduction in performance as the asset ages over time.?

Figure 4: Strategic plan without evaluating any capital expenditure vs. the strategic plan evaluating the purchase of new trucks to increase capacity.

In this case, the earliest time the new trucks can be purchased is 2021. Running this evaluation shows that it is worthwhile to buy the new trucks, increase the production capacity as early as year 3 (2021) and consequently increase the NPV.

Additionally, as a strategic mine planner that uses Datamine’s Minemax Scheduler, you can easily determine the optimal time to start mining a new area, considering the associated capital expenditure for infrastructure, road devilment, ground works etc.

4.2 Cap on capital expenditure

In this case, imagine that your mine gives you a CAPEX budget of $100,000,000 to expand the production capacity of the mine (purchasing more fleet and expanding the Leach facility) to increase the NPV. It would certainly be nice to have all the capital in the world to spend. However, strategic mine plan needs to be constrained to meet your company’s CAPEX budget of $100,000,000. In this case Datamine’s Minemax Scheduler is used to constrain the total cumulative CAPEX to remain below the budget. Without any financial constraints, the strategic mine plan incurs a CAPEX that exceed the company’s CAPEX budget as shown in Figure 5.

Figure 5: Strategic plan without constraining the CAPEX vs. the strategic plan with a $100M CAPEX constraint

Without the constraints, the maximum cumulative CAPEX was $140,000,000. This was way above the company’s budget. Constraining the total CAPEX has not only ensured that you are within the limits of the company, but it has also ensured that you improve the NPV of the operation.

There are numerous financial constraints that are not discussed in this article that you can easily model on Datamine’s Minemax Scheduler. Hope to hear from you what are some of your company’s financial goals for strategic planning