Strategic Mine Planning and Business Risk

Assessment
Paul Currie & Manny Anchetta
 Open Cut Mine Planning and Operational
Excellence
Pre-conference Worksop
PROGRAM
9am to 10:30am What is Mine Planning
1. Presentation – What it is, it comprises, why, difficulties
2. Workshop (split into small groups) – What are the key project drivers? Ranking of these
drivers? What are the major challenges?
3. Summary – Groups present findings. Discussion. Summaries and takeaways.

11am to 12:30 Levels of Studies

1. Presentation – What are they? Are they Clear? Costs to do? What needs to be done?
2. Workshop (split into small groups) – New mine. Owner wants to go straight to a
feasibility study. What needs to be done and what are the major challenges and risks?
3. Summary – Groups present findings. Discussion. Summaries and takeaways.

1:30pm to 3pm Project Uncertainties and Risks

1. Presentation – What is uncertainty, Flaw of averages, Mining uncertainties
2. Workshop (split into small groups) – Purchase of new mine where studies not complete
and exploration still underway. What are the uncertainties and then major project risks.
3. Summary – Groups present findings. Discussion. Summaries and takeaways.

3:30pm to 5pm The Estimation Process and Managing Risks

1. Presentation – What are the major risks?, How do we manage them? A better way?
2. Workshop (split into small groups) – Is there a better process / framework?
3. Summary – Groups present findings. Discussion. Summaries and takeaways.
The aim is to investigate what makes mining projects
successful or unsuccessful.

We will explore these concepts and as a group we will

try to find better ways to ensure success.

This is not a lecture but a participant workshop so it is

imperative everyone contributes.

There is not one single correct answer but a robust and

diverse discussion will help us find a better way
forward.
 Mine Planning
What is this beast?
• Mining – what is different about us as an industry and how we plan?

• What is a Mine Planning Process?

• What is a process versus a sequence of steps repeated?

• Who is involved ?

• Why others do not understand what I do?

Mining Life Cycle
Types of Plans & Models
 Risk focus in Mine Planning
Planning Process

Resource Dev. Lo M 5yr Bus. Plan 1yr Budget Plan S/Term Plan Prod Plan
Strategic Tactical Production

Generic Risk Considerations (Where Mine Planning has influence)

Due Diligence (Investor/Stakeholder issues)

Project / Business Performance

Sustainability (Social, Environmental, Economic)

Safety in Design

HSE (Systems, Processes)

Compliance

(Time)
 Disciplines – Mining?
:: Nature of the Parts
Package Comment – Consultant based
Environment Local knowledge ~ legislation important.
Corporate style.
High profile / sensitive for investors….Definition??

Geology Commodity based; transferable. Local skills available /

required. Source of Fatal Flaw / QAQC problems. Audit??
Mining Method / Process base; transferable. Senior skills in demand

Processing Commodity based. Needs to be understood.

Revenue risk very relevant for Au, Cu, Ni
Site Infrastructure Capacity and maintenance characteristics ?

Transport / Logistics :: as above, but more legislation ??

Off-Site infrastructure
Project Management / Panorama / Co-ordination
Delivery
Corporate Some top-down (eg. Risk, Finace), a lot local (eg. Community).
Corporate culture…
 Resourcing Requirements
DFS to Operational Mine…….
% of Hours to deliver DFS
Project Management and Core Services

Geology

Mining

Processing

Environmental and Associated Works

Infrastructure

Cost Estimate

Project Delivery

Corporate
Who is involved in mine planning?....who isn’t??
Survey
Geology (geophysics, geotech, hydrogeology)
Front Line Supervision & Operations
Mine Engineering
Fixed / Site Engineering
Maintenance
Plant / Process
Management
Logistics
Procurement
Enviro
Community
Corporate
…… ……
 Mine Planning Attributes
Why? Purpose
What For? Synopsis
Why do a new plan? Triggers
How Often Done? Frequency
Time Critical Performance of the
system Strategic
Data Critical Need to watch for LOM
Success Measure How to Pick-a-winner? 5 Yr Plan
Client User Type
Annual
Character Output Quality
Short Term
Rules Restrictions
Production
Objectives or guides….
Skills For completion
Sign-off Who accepts this
Acceptance Are we there yet?
Aim of the Planner
 Mine Planning Process
… … Value creation
Understand business… Why is this different to the last mine?

What plan are we trying to do?

Who are the clients?

What Inputs?

Acceptance
Success measure
Battery limits
Business Case
3600 reviews of Process
What have we learnt?
What's missing?
What needs to change?
Communication plan
Risk and Role assignment

Reporting
What, to who?
How?
Format…..
Activity

Workshop (split into small groups)

1. (A Total Mine Project Plan)
2. - What are the key project drivers?
3. - Ranking of these drivers?
4. - What are the major challenges?

At 10am we will all come back for Summary.

Groups present findings.
Discussion.
Summaries and takeaways.
Levels of mining Studies
COMPARISON OF ESTIMATE TYPES - Mine Studies Paul Currie June 2007

ITEM TYPE 1 TYPE 2 TYPE 3 CONTROL DEFINITIVE

Purpose Concept Study Pre-Feasibility Feasibility Project Control Project Control
Purpose Preliminary Investigation Economic Feasibility Project Appproval Project Control Project Control

Economic Analysis Not meaningful Reliable Results Final Decisions Tool

Contingency for Undefined Items - Usual Range Up to 30% 15% to 25% 10% to 15% About 10% 5% to 10%

Accuracy - Usual Range About +30% / -10% +20% to 30% / - 7% +10% to 15% / - 5% +10% / -5% ±5%

% of Engineering Design Completed 5% 20% 60% 80% 100%

% of Quotation for Equipment and Materials 0% 20% 40% 75% 80%

JORC category resource & mining Mining Contract or Owner Operating

Main Focus Options JORC Resource
reserve Budget
Basic geotech, hydrology, mining Process Plant detailed engineering
Project Scale EIS
model, metallurgical testwork 75% complete
Infrastructure and services contracts
Technology Mining method Detailed Mine Design
negotiated or placed
SWOT Flowsheet Process plant preliminary design
Infrastructure & services defined Infrastructure and services defined
MTOs

Basis of Capital Cost Estimates

Site
Location Assumed Preliminary Optimised Final Final
Maps and Surveys None Preliminary Some Details Detailed Detailed
Soil Tests None Preliminary Final Final Final
Site Visits Not Essential Desirable Essential Frequent Staff on Site
ITEM TYPE 1 TYPE 2 TYPE 3 CONTROL DEFINITIVE
Purpose Concept Study Pre-Feasibility Feasibility Project Control Project Control
Purpose Preliminary Investigation Economic Feasibility Project Appproval Project Control Project Control
Process
Plant Capacity Assumed Preliminary Final Final Final
Metallurgical Testwork If Available Advanced Complete Complete Complete
Energy and Material Balances Estimated Advanced Optimised Final Frozen
Process Flow Sheet Assumed Decided Optimised Final Frozen

Design
Scope of Estimate Conceptual Probable Actual Actual Actual
Equipment Selection Assumed Preliminary Optimised Final Final
General Arrangements:
Mechanical None Minimum Fair Detail Complete Complete
Structural None Outline Fair Detail Complete Complete
Piping Drawings None Single-line Some Detail Fair Detail Advanced
Electrical Drawings None Single-line Some Detail Fair Detail Advanced
Detailed Design Drawings None None Some Some Detail Advanced
Specifications None Preliminary Advanced Detailed Contracts Let

Capital Cost Estimate

General Cost Appproach Factored block costs where possible Preliminary Quantities Detailed Quantities Detailed Quantities Detailed Quantities
Major Equipment Costs Data Bank Single Source Multiple Source Contract Negotiation Contracts Let
Mechanical Work % of Machinery Man hours / tonne Man hours / tonne Man hours / tonne Contract
Civil Work Rough Quantities Prelim Take-off Take-off Take-off Contract
Structural Work $ per unit volume Prelim Take-off Take-off Take-off Contract
Piping and Instrumentation % of Machinery Prelim Take-off Take-off Take-off Contract
Electrical $ per kW Prelim Take-off Take-off Take-off Some Contract
Indirect Costs % of Total Prelim Calc Detailed Calc Detailed Calc Detailed Calc

Operating Cost Estimate

Labour Rates Assumed Average Separate Categories Detailed Review Agreement Agreement
Labour Burden Assumed Average Calculated Calculated Calculated Calculated
Power and Water Costs Data Bank Prelim Calc Detailed Calc Detailed Calc Detailed Calc
Fuel Costs Data Bank Verbal Quotes Written Quotes Contract Negotiations Contract

Expendable Supplies, Reagents Data Bank Verbal Quotes Written Quotes Contract Negotiations Contract
Mining Study Process

APPROVAL

CONCEPT PRE-FEASIBILITY FEASIBILITY BANKABLE EXECUTION OPERATION

CONCEPT GATEWAY PREFEASIBILITY FEASIBILITY BANKABLE

GATEWAY GATEWAY PROJECT GATEWAY
Mining Study Process
GATEWAY INPUTS
• Market conditions
• Technology assessment
• Environmental issues
• Mine and Product Issues
• Land and Infrastructure issues
• Financial Model
• Risks
Business Case
Review and Agreement
Mining Study Process
PROCESS CHALLENGES:
Government Requirements
Client required outcomes
Technology risk
Market Issues
Tender Process
Predicting Future
Options
 Typical Coal Mining Project Approval Process
Pre- Government
Concept Feasibility Processes Project Construction
Feasibility
Studies & Finance Approvals
Studies

Initial Geology, Geology Project Final Design Pre-strip

groundwater Hydrogeo Bankable overburden
etc. Geotech Studies &

Review Exploration & Infill drilling Specification Coal mining

Investigations Testing
Mine Concept Storage
Explorat’n Mine Planning EES Contracts Transport
Licence Baseline Coal handling, Panel Roads
studies storage Hearings infrastructure
Waste dump Mine Plan
Coal use - Environmental Project Environmental Commission
IDGCC Studies Management
system Plan &

Coal spec Water Finance Training

treatment
Market
Project size Cost & Risk Mining
Mining
or stages Finance Assessment
 Activity

Workshop (split into small groups)

1. New mine.
2. Owner wants to go straight to a feasibility study.
What needs to be done and what are the major
challenges and risks?

At 12am we will all come back for Summary.

Groups present findings.
Discussion.
Summaries and takeaways.
 Project Uncertainties and Risks

1. The whole process through a mining project is aimed at in increasing the

certainty in mining knowledge through to business profit.

2. What is uncertainty?
3. Mine projects are complex opportunities that demand a constant
assessment of uncertainty, i.e., risk and upside potential. This is because
the value of a mine project is typically influenced by many underlying
economic and physical uncertainties, such as metal/mineral prices,
metal/mineral grades, costs, schedules, quantities, and environmental
issues, amongst others, which are not known with much certainty at the
beginning of the project.

4. Uncertainty is a fundamental – unavoidable – feature of mining projects

5. “When one admits that nothing is certain one must, I think, also add that
some things are more nearly certain than others” – Bertrand Russel, British
author, mathematician, & philosopher (1872 - 1970).
Flaw of averages
Despite uncertainty being all about us, uncertainty is often denied
when evaluating mining projects.
People do not like to be unsure and instead prefer to have
everything sharply defined.
Probabilities are notoriously difficult to communicate effectively.
Indeed, when faced with uncertainty people largely do the following:
• If historical data is not people rely on their gut feelings to make
decisions influenced by past experiences, affect and emotion,
the view of acquaintances (rules of thumbs) and cultural
beliefs; and
• If historical data is available, people prefer to use the average
value as a number to use, instead of the available distribution,
as input to their processes
This is what is called “the Flaw of averages” (Savage, 2009), which
indicates that when plugging averages (or best estimate values) of
uncertain numbers in plans, or schedulings, that are non-linear
processes, they sometimes overestimate the average outcome and
sometimes underestimate the average outcome.
An apocryphal example concerns the statistician who drowned
while crossing a river that was, on average, only three feet deep,
(Savage, 2009).

In layman terms, “the Flaw of averages” states that plans or schedules

based on average assumptions are wrong on average.
 Mining uncertainties
Mine projects are complex processes because it is typically influenced
by many underlying natural, economic and operational/technical
uncertainties over time, which may not know with much certainty at the
evaluation stage
In a mining project, uncertainty can be classified as directly related to
commodity (metal/mineral) production, costs and revenues.
The importance of geological uncertainty to mine design and mine
planning is well acknowledged and well covered by “codes” such as
JORC.
Costs are another source of uncertainty when evaluating an open pit
mine project. Since estimation of capital expenditure (“CAPEX”) and
operating costs (“OPEX”) is an important requirement for open pit mine
evaluation, uncertainty in costs arises due to the lack of the engineering
or economic information at the beginning of the mine project. Simply
put, mining companies do not know with absolute certainty today how
much they will be able to spend tomorrow, let alone next month or even
next year (Camus, 2002).
Future metal/mineral prices are, without doubt, a main source of
uncertainty, which has a critical impact on mine project evaluation.
Sources of uncertainty in mining projects.
 Activity

Workshop (split into small groups)

1. Purchase of new mine where studies not complete
and exploration still underway. What are the
uncertainties and major project risks?

At 2:30pm we will all come back for Summary.

Groups present findings.
Discussion.
Summaries and takeaways.
 The Estimation Process and Managing Risks

1. Throughout the mine planning process we undertake

much estimation (Due to the many uncertainties) and in
managing risk we have to manage varying accuracy
levels of all inputs to the process.

1. What is risk?
2. What are the major mining risks?
3. Forecasting Errors.
4. How do we manage them?
5. Is there a better way?
RISK
 Forecasting Errors

Not all mining projects are successful and return a profit to

investors.
Cost and time estimates are rarely met in new mining projects.
Is this due to bad deposits, bad designs, or bad project
estimates?
Mining companies have tight guidelines on the resource but
clearly, this is not the only potential area of error? Neither The
Valmin Code nor JORC Code are protecting investors
adequately. They have simply shifted the source of error.
This industry in Australia uses the Valmin Code (2005) and the
JORC Code (2004). The ASX also has their own rules for listing.
Each includes great detail on resource definition. However, they
all pay scant regard (eg. The Valmin Code includes four lines in
a 20 page document) to equipment performance; which is one of
the primary drivers of the economics of a project, (including
converting a resource to a reserve).
The most significant risk in developing a mine is that the
planner’s forecasts are not met. Cost and time allowances are
rarely met and returns on investment are lower than predicted in
80-90% of developments. A primary input of this is equipment
production and often the rates forecast are not achieved.
Three causes are proposed for this:
• technical deficiencies in the planning process;
• planner’s optimism; and
• strategic misrepresentation (deliberate deception).
Because a mining company’s balance sheet erodes every day
they operate there is pressure on the highest levels of the
companies to convert discoveries / deposits to mines. Planners /
consultants also have an interest in projects proceeding through
the stages of feasibility studies.
It is hardly surprising that in-house planners and consultants
make forecasts which produce a result sufficient to justify the
board approving the next stage of the development.
 Mining Cost Issues

• Plant selection and numbers

• Diesel
• Tyres
• Labour
• Technical Skills
• Environment
• Strip Ratio
Impact of Diesel Price Increase on Mine Costs
Open Cut Mine moving 40,000,000 Overburden bcm/yr
Fleet 12 Cat 797 Haultrucks
Base Diesel Price $1.02 / Litre (after a Govt Rebate)

Impact of Fuel Price Increase on Mine Costs

Mine Fuel Cost increase

$16.0
$14.0
$12.0
$10.0
M$

$8.0 Fuel Increase M$

$6.0
$4.0
$2.0
$0.0
10% 20% 30% 40% 50%
Fuel Price Increase
Benchmark data for a mining truck, in Queensland coal mines,
with 242 tonne nominal payload with a flat, 13km cycle distance

From G Lumley FusIMM(CP)

Chief Executive Officer, GBI Mining Intelligence
 Mining Truck 242 tonne Nominal Payload,
13km Cycle Distance
2,000,000
1,800,000
Annual Tonnes Carried

1,600,000
1,400,000

Best Practice
1,200,000
1,000,000
800,000
600,000
400,000
4th Quartile 3rd Quartile 2nd Quartile 1st Quartile
200,000
0
0 10 20 30 40 50 60 70 80 90 100

Percentile

How many companies will really become best practice?

Will any get there in the first years of operation?
We have seen the possible errors if simple averages
are used.

We can see that being overly optimistic may be very

unrealistic.

What about using relevant benchmarking techniques?

What about running sensitivity analysis?

With the many uncertainties we have to work with how

do we produce plans that are a stretch target but very
achievable and ensure all risk are known to decision
makers then managed?
Activity
Workshop (split into small groups)
1. Is there a better process / framework to ensure
mining projects are planned to manage uncertainties
and risks to provide the best outcomes for their
investment?
2. Discuss and come up with your best?

At 4:30pm we will all come back for Summary.

Groups present findings.
Discussion.
Summaries and takeaways.