Strategic Mine Planning for Open Pit Mines – The Integrated Way!!! (Part 3)

In order to determine the value of a mining project, mine planning engineers must first produce a Life of Mine production schedule which will be used as an input to accumulate income and costs in order to determine the optimised cashflow. Open pit production scheduling is a strategic planning problem that seeks to define the optimal material extraction sequence i.e., determine when, if ever, to extract a block of ore and/or waste in a deposit and once mined, where to send the material e.g., send the material to a processing plant, stockpile or waste dump. In this last section of the I will be expanding a little bit more on the importance of ensuring that the material flow in your mine plan is optimised as well as the basic economic evaluation and analysis of mines.

6.0 Material Allocation

In the strategic planning process, Material Allocation is all about determining how best to transport, stockpile and treat material in order to generate all the required products. The basic open pit material allocation flow diagram is shown in Figure 1. The Material Allocation Optimiser functionality (on Datamine's Studio NPVS) can be used to change the processing destination of where material is sent and determines a stockpiling strategy to meet different product delivery requirements.

Figure 1: Basic material flow diagram in the open pit mining environment.

Stockpiles

It is important to highlight that where grades and contaminants are crucial for the strategic objectives, the optimal pit schedule may not always the optimal plant feed schedule. In such cases, stockpiles become a very important aspect of the mine plan and should be considered in the strategic planning process. Stockpiles are intermediate destinations for material that has been mined, and it is planned to be processed at a later date (Elkington, 2009). There are different types of stockpiles with different intentions and roles in mining operations. It is possible to combine more than one approach into a single stockpile. These are as follows:

1. Long-term stockpiles – Stockpiles that are designed to store ore material that does not meet current blend characteristics. The material on these stockpiles can potentially become economic in the future;
2. Buffer stockpiles – These stockpiles are used as a buffer for solving short-term fluctuations in production or plant processes; and
3. Blending stockpiles – these stockpiles are designed to blend material based on single or multiple block characteristics (grades, contaminants etc.) in order to enhance the homogenization of the ore material that is fed into the plant.

Part 2 of the strategic planning series briefly discussed the ex-pit strategic scheduling process, which was based on the underlying, optimied pushbacks. The ex-pit production profile produced in Part 2 of the series is shown in Figure 2. One thing to note from Figure 2 is the inconsistent ore production out of the pit.

Figure 2: Ex-pit optimised production schedule.

The inconsistent ore supply may result in periods where the plant is not operating optimally due to lack of optimal material to process. This is where stockpiles become vital in order to ensure that there is consistent material feed into the crusher. Once stockpiles are introduced into the schedule and the material flow is optimised, the plant feed schedule can be optimised as shown on Figure 3.

Figure 3: Optimised plant feed schedule with the inclusion of stockpiles.

The optimised ex-pit schedule without the consideration of stockpiles and the optimised schedule with stockpile considerations are compared on Figure 4. It is clear to see that the introduction of stockpiles via the Material Allocation Optimiser (MAO) has resulted in consistent plant feed as well as a slight reduction in total waste material dumped. Due to the introduction of the stockpiles, the NPV has increased from around $608.2 million to around $662.6 million.

Figure 4: Material movement (regular ex-pit schedule vs. schedule with material allocation optimisation.

In this case, the introduction of stockpiles also allowed for earlier processing of higher-grade material and delayed the processing of low-grade material for later in the Life of Mine as shown on Figure 5. Improved cashflows in the earlier years of the operation results in an increase in the NPV of the project. The NPV is still relatively high even though the low-grade blocks that were deferred to the future would have greater discounting to them.

Figure 5: Grade comparison between the regular ex-pit schedule vs schedule with material allocation optimisation.

Waste Dumps

Traditionally, mine planning has been and still is primarily focussed on ore production more than anything. More often than not, the scheduling of waste dump material is over-simplified. Dumps are often treated as a single dumping point with a known volumetric capacity. The lack of detailed information regarding spatial waste material dumping makes it difficult to predict the waste dump progression pattern over the Life of Mine (Li,2016). Without such long-term spatial guidance, the operation would fail to achieve the long-term objectives such as waste dump height, capacity, footprint, and slope angles. Other negative downstream impacts include inaccurate estimation of the required truck hours, poor capital planning etc.?

The way we plan to mine waste (addressed by the pit production schedule) and the subsequent hauling and dumping of the waste materials are really not discreet activities. Therefore, the waste dump schedule (volumetrics and spatial representations) must be fully integrated with an optimised pit schedule. Datamine’s Minemax Scheduler can be used at the strategic planning level to simultaneously optimise the pit schedule, the plant schedule as well as the waste dump schedule while satisfying different constraints and strategic objectives. Minemax Scheduler can be set-up and used to rapidly determine the haulage distances (and consequently costs) from each waste block in the pit to all the possible dumping destinations assigned to the waste block as shown in Figure 6. This allows users to establish an optimal spatial dumping sequence as well as how far and high you should dump.

Figure 6: Haulage and waste dump scheduling optimisation on Minemax Scheduler.

If interested in optimisation of waste dumps, you can read one of my articles titled "Don't give up yet. There is a way to optimise your waste dumping schedule". Figure 7 shows an example of the integrated pit and waste dump progression schedule for the first 5 years of the strategic plan.?

Figure 7: An example of the integrated pit and waste dump progression schedule.

7.0 Economic Evaluation and Analysis (EEA)

I do not have much information about the Economic Evaluation and Analysis process. I developed more interest in this field after my colleague (Matthew Jarvis) did a great presentation of this topic. Basically, EEA involves looking at and understanding key economic metrics:

• Net Present Value or Discounted Cashflow:

As discussed before, once the production schedule is defined the next step is to use the schedule as an input to accumulate income and costs in order to determine mainly the NPV as shown on Figure 8. NPV is used to determine the present value of all future cash flows i.e. future cashflows throughout the life of mine discounted today. ?

Figure 8: An example of a basic cashflow based on the schedule as an input.

NPV is a great instrument for commercial valuation since it includes good valuation of both short-term value (which received little discounting) and long-term value (which received greater discounting) (IFRS, 2012). However, looking solely at an NPV can be deceptive. Risk (greenfield vs. brownfield, new country new orebody, new processing techniques etc.) is not incorporated into a single NPV other than the discount rate.

• Internal Rate of Return

Internal Rate Return measures the rate of return of projected cash flows generated by your capital investment (Lanctot, 2019). The IRR for each project under consideration by your business can be compared and used in decision-making. Internal rate of return is measured by calculating the interest rate at which the present value of future cash flows equals the required capital investment (Lanctot, 2019). This is an important economic instrument for comparison of two project. However, one of the biggest downfall is that is doesn't take into consideration the sizes of the projects in comparison.

• Marginal cost of production

The analysis of the marginal cost of production is based on the fact that fixed costs in mining do not vary with production output. It is important to distinguish between fixed costs (costs remain the same regardless of production output.) and variable costs (costs that change based on the amount of output produced). The main question here is whether the optimisation of equipment use today can deliver a significant future benefit –common principal of this is pre-stripping of overburden. Can we leverage off an existing fixed cost structure early on, allows for seamless access to higher-grade ore in the future? However, shareholders would not eagerly support lower cashflows for un-guaranteed future benefit…

There are many other important aspects to take into consideration when running the Economic Evaluation and Analysis. Snowden offers an Economic Evaluation of Mineral Resources Course that will equip you with the tools and understanding to effectively optimise your mine and plans. I should be enrolling for one too :)

Anyway, that brings me to the end of the Strategic Planning series. I had fun writing these, and I hope you had fun reading them too.

References:

Elkington, T. J., 2009. Optimising mining project value for a given configuration.

IRFS13, 2012. Fair value measurement.

Lanctot, P. 2019. The advantages and disadvantages of the internal rate of return method.

Li, Y., Topal, E., & Ramazan, S. 2016. Optimising the long-term waste management and truck schedule in large-scale open pit mine.