Advanced Open Pit Planning and Design 2014 For NICICo FinalDraft PDF

5/11/2014
ADVANCED OPEN PIT MINE

PLANNING AND DESIGN
Presenter
Prof Emmanuel Chanda
The University of Adelaide, Australia
ADVANCED OPEN PIT MINE

PLANNING AND DESIGN
M1-Strategic mine planning
M2-Open pit optimisation
M3-Mine Production scheduling
M4-Optimum Cut-off Grades
M5-Mine Planning Software
M6-Mine-to-Mill Optimisation
M7-Equipment Selection
M8-Financial Technical Modelling
M9-Dewatering and Pumping
Open Pit Mine Planning and Design 2
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Objectives
Fundamentals of open pit mine design and

current developments in planning and design
methodology,
Current industry practices to maximise economic
return.
Open pit mine planning and design process in
theory and practice,
Unit Operations Drill-Blast-Load-Haul
Apply this knowledge to plan/evaluate new
open pit projects and/or existing mines.
What do you expect to learn from this

Course?
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Module 1
Strategic Mine Planning
1. What is strategic planning?
2. Mine planning process
3. Mining strategy
4. Feasibility Studies
5. Exercises
Overview/scope
Big picture mine planning and design process
Big picture decision-making process
Applies to Greenfields as well operating mines
SP takes place at all levels of the company

Corporate level: vision, mission, feasibility, etc
Business unit level: expansion of production
Mine level: medium/long term production strategy
Analogy: military strategy

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What is Strategic Mine

Planning?
Strategic mine planning is concerned with those
decisions that largely determine the value of the
mining business whereas tactical mine planning
deals with the tasks required to actually achieve
that value.
Both types of planning are necessary; they can be
looked at separately, even discussed separately,
but they cannot be separated in practice!
Types of planning and mine life cycle

Mine Planning
Tactical Mine
Planning
Strategic Mine
Planning
Prospecting Exploration Development Production Closure
Life cycle of an orebody
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Strategic mine planning focuses on those technical

variables that affect the life of a mine and the value of
the underneath mineral resource
It starts with the discovery of the mineral resource and
finishes when it is exhausted or abandoned.
Go! List variables (factors) considered in SMP
Business Strategy
Strategic Decision- Economic

Planning Making Evaluation
Behaviour
Mine Planning
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Decision-Making Behaviour:
Risk Averse seeks other business goals
Risk Neutral seeks maximise NPV
Mine Planning Process Flowchart
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Mine Planning Process

Four main stages of mine planning process:
Geology of resource
Value of resource
Long-Term planning (Strategic) feasibility
studies
Medium-term/Short-term planning - production
Mine Planning Process*:

Geology + Data Analysis Resource Model Mining Method Selection
Optimisation Mine Design Optimal Schedulling Financial Technical Model
* A dynamic and iterative process *

Activity 1:
Work in Groups of 2-4
To plan a new open pit mine in Kerman Province. List all the
data required to perform a feasibility study and where
these data would come from.
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Technical Aspects:
Once the geological features are understood and the
physical characteristics of the ore body are determined,
the main technical decisions that follow are:
Mining method selection
Processing route
Scale of operation (size)
Mining sequence
Selective cut-offs (e.g. cut-off grade at the mine)
All these variables are inextricably interrelated in the

sense that they cannot be determined in isolation from
each other
Moreover, they cannot be determined without taking
into account the market variables and related data from
the geologic, metallurgical, geotechnical, and
environmental models.
.as shown on next slide
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MARKET
Geological Metallurgical
Model Model
Mining Processing
Method Route
Geotechnical Environmental
Model Model
Scale of Mining
Operation Sequence
Selective
Cut-offs
MINE PLAN
Mining Method Selection
The choice of the mining method depends on the

shape, emplacement and properties of the
orebody and host rock; again, beyond technical
considerations, this is an economic decision
In general, there are two main mining methods:

Surface mining (open pit, quarries)
Underground mining (block caving, cut & fill)
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However, depending on the emplacement of the

orebody and its grade distribution, there are cases
where both methods are feasible e.g. open-pit
followed by underground mining or the other way
around
This is the classic case of sub-vertical deposits such as
kimberlitic pipes containing diamonds and some
porphyry copper deposits
Economic considerations
Many decisions concerning the choice of the mining

method are related to the "opportunity cost concept
For example:
In massive, disseminated deposits that are close to
surface, open pit mining is more productive than an
underground
Underground mining usually requires more

development and preparation works
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Considerations in Mining Method Selection

Finances:
Finance influences method selection:
Length of pre-production development and phases
Thoroughness of the ore body delineation program
Scale of operations bulk mining methods, eg., block

caving
Technology applications - automation
Markets
The mining method should be flexible enough to

respond to market changes.
When and how to high grade during peak commodity

prices
Changes to mine development schedule
Focus on production of by-products (eg. cobalt in copper

ore)
Mining companies are price takers. What can be done

about this?
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Technology and Human Resources

Choice of particular mining method commits operation
to certain type of technology, equipment, human
resources and processes.
Later change in method will be at a cost
Must allow for possibility of introducing new

technology
Necessary skills must be available to operate selected

mining system
Lack of expertise may eliminate a particular mining
method, though technically suitable.
Consider specific training and supervision

Processing route
The selection of the processing route depends

essentially on the characteristics of the ore; however,
beyond technical considerations, this is a business
decision
Essentially, there are basically two main routes:

Physical methods (concentration)
Chemical methods (hydrometallurgy)
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Mineral
Liberation Comminution
Unacceptable
Classification
Acceptable
Separation Concentration
Physical Chemical
Factors to consider
Products recovered
Recoveries and achievable grades
Environmental aspects
Market considerations
Capital and operating costs
Cycle times
Mine plan
Cash flow and profitability
In short, technical and financial considerations

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Metallurgical tests
Lab testing for initial investigation

Core samples and samples from outcrops
(chip samples)
Pilot tests to confirm lab tests and design
Core samples and some bulk samples from
underground workings
Industrial tests to feasibility
Bulk samples from underground workings
and additional core samples
Scale of the operation

The scale of the operation refers to production
capacity, which in turn is related to the physical size of
the installations at the mine and plants
This is directly related to the capital investment
required to produce the final output deemed to put in
the market
The larger the scale, the higher the investment and
production
Case Study: Olympic Dam Expansion Project

in South Australia
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From the point of view of a mining project, the

scale of the operation is the dominant factor
for establishing the mine life and business
value
There is a compromise between the NPV of a
project and its size the optimum size exits,
because a very large operation may shorten
the mine life too much, making the marginal
investment unworthy
Size-profitability-risk relationship
Scenario 500 kt/d
NPV Scenario 300 kt/d
(MUS$) Scenario 150 kt/d
Scenario 72 kt/d
3000
Risk
2700

2000
1000
Scale of operation
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Mining Sequence and Final Limits

It refers to the path or trajectory employed to exploit
a mine from an initial situation until reaching the
final limits or exhausting the ore reserves
Usually, these two variables are treated separately

but because of their co-dependency they should be
handled together
The mining sequence is usually defined in

terms of sequential cuts or "sectors in
which a final mining envelope is split to guide
the mining extraction
These sectors can be phases, cut-backs or

push-backs as they are usually called in open-
pit mining; or blocks, panels, rooms or stopes
as these are commonly referred to in
underground mining
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It is worth noting that the partition of a final

mining envelope into cuts or sectors is done
because the time value of money
In effect, the purpose is to postpone

expenditures and bring forward revenue as
much as possible from production sales
The scheduling saw graph
To illustrate how the time value of money

affects the economics of mining it is useful to
introduce the saw graph tool
It assumes that mining activities always
require some preparation works
(development) prior to ore extraction:
Stripping in open pit mining (t, m3)
Developments in underground (m3,
m2, m, t)
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The scheduling Saw Graph
Minimum Ore
Exposure
yr-1 yr-2 yr-3 yr-4 yr-5 yr-6
Time
Integral optimisation of the final pit

Exploitation phases
500 t (ore)
100 t (waste) 3
6 Revenue 2.2 $/t

Cost -1.0 $/t
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Partial and cumulative tonnage
Partial tonnage Cumulative tonnage

Phase
Ore Waste O/W Ratio Ore Waste O/W Ratio
1 500 100 0.2 500 100 0.2
2 500 300 0.6 1,000 400 0.4
3 500 500 1.0 1,500 900 0.6
4 500 700 1.4 2,000 1,600 0.8
5 500 900 1.8 2,500 2,500 1.0
6 500 1,100 2.2 3,000 3,600 1.2
7 500 1,300 2.6 3,500 4,900 1.4
Breakeven point Phase 6
When neither the time value of money nor other

operational factors such as mine and plant
capacities are taken into account, the optimal final
limit is reached at Phase 6
The implicit assumption is that ore is exposed

simultaneously with waste and that ore revenue
occurs at the same time as waste cost
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When accepting that ore and waste extraction have to

consider certain physical restrictions in their
programming (phase size and available equipment), then
the time value of money becomes a relevant issue
The programming can be done using the saw graph
early described
Case 1: Open pit plan with 6 phases

Plant 500 t/y
Mine 1,300 t/y
500 1 2 3 4 5 6
1 yr-1 yr-2 yr-3 yr-4 yr-5 yr-6 Time

2
500 3
4 Waste removal
1,000 5
6
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Economic evaluation: Phase 6
+1,250
1,000
0
- 300 Time
- 1,000 - 800
-225 -546 +706
Present value(t=0, r=10%) = - 65
+1,250
1,000
0
Time
- 400
- 500
- 1,000
-331 -376 +776
Present value(t=0, r=10%) = + 70
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Case 2: Open pit plan with 5 Phases

Plant 500 t/y
Mine 1,300 t/y
500 1 2 3 4 5
1 yr-1 yr-2 yr-3 yr-4 yr-5 Time

2
500 3
4
1,000 5
+1,250
1,000
0
- 100
Time
- 1,000 - 800
-83 -601 +776
Present value (t=0, r=10%) = + 92
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Economic evaluation
Net Present Value @ r = 10 % ($)

Phase Case 1 (6 Phases) Case 2 (5 Phases)
Partial Cum Partial Cum
1 1,036 1,036 1,036 1,036
2 733 1,769 733 1,769
3 485 2,254 485 2,254
4 250 2,504 275 2,529
5 70 2,574 92 2,621
6 -65 2,509 - -
Summary of results
6
Discounted final
limit (Phase 5)
Breakeven final
limit (Phase 6)
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Considering an underground
alternative
2 open pit phases, 4 underground lifts
2
NPV(1)
3
$ 800
4
5
6
(1) Net present value at the beginning of year 1

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3 open pit phases, 3 underground lifts.
3
NPV(1)
4 $ 450
5
$ 200
6
$ 50
(1) Net present value at the beginning of year 1

NPV of underground lifts

+800
500 +450
+200
+50
0
3 6 4 6 5 6 6 Lifts
NPV Lift 3 (t=0, r=10%) = + 350

NPV Lift 4 (t=0, r=10%) = + 250
NPV Lift 5 (t=0, r=10%) = + 150
NPV Lift 6 (t=0, r=10%) = + 50
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Economic evaluation
(Open Pit vs Underground)
Net Presente Value @ r = 10 % ($)

Phase Case 3 (OP/UG) Case 4 (Optimum)
Partial Cum Partial Cum
1 1,036 1,036 1,036 1,036
2 733 1,769 733 1,769
3 485 2,254 485 2,254
4 275 2,529 275 2,529
5 92 2,621 150 2,679
6 50 2,671 50 2,729
Optimum configuration
5
6
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Summary of evaluations
Net Present Value @ r = 10 % ($)

Phase
Case 1 Case 2 Case 3 Case 4
1 1,036 1,036 1,036 1,036

2 1,769 1,769 1,769 1,769
3 2,254 2,254 2,254 2,254
4 2,504 2,529 2,529 2,529
5 2,574 2,621 2,621 2,679
6 2,509 - 2,671 2,729
NPV and Shareholder Value
Firm's Information Case 1 Case 2 Case 3 Case 4
Net present value ($) 2,509 2,621 2,671 2,729

Firm 's net debt ($) 1,000 1,000 1,000 1,000
Firm 's m arket value ($) 1,509 1,621 1,671 1,729
N Shares 1,500 1,500 1,500 1,500
Share value ($/Sh) 1.01 1.08 1.11 1.15
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Role Of Feasibility Studies

Why Feasibility Study
Scoping Study
Preliminary Study
Bankable Feasibility Study
Risks
Origin of the FS
The Feasibility Study is a development of mine
valuation reports. These had remained almost
invariable from 1900 to 1960s.
More complex and larger mining operations in
1960s and 1970s required sophisticated studies
and reporting. The FS was developed which:
Brings together all aspects of an operation into
one study
Looks at the inter-relationships and tries to solve
any problems
Aims to determine technical and economic
viability of a project
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Feasibility Studies
Demonstrate that the project is economically
viable to the satisfaction of the Board, the
shareholders and all other stakeholders.
The FS enable the financing of:
Preliminary earthworks
Engineering construction
Infrastructure
Feasibility Studies
Provide a detailed analysis of all the
factors affecting a projects viability.
Enable determination of a go or no
go decision
Have become an aid in obtaining
financial backing
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Phases
Scoping Study
Pre-Feasibility Study
Final Feasibility Study
Scoping Study
The Scoping Study is a preliminary investigation into a
project between a back of envelope and a pre-feasibility
study, or an assessment of necessary size, grade of a
target to explore.
It may also be called a Concept(ual) Study.
The study is normally undertaken with limited technical

and other data being available.
There is high reliance on experience and knowledge of

similar projects and it normally involves a basic level of
literature search.
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Aim of A Scoping Study

Provide a document for decision-making.
Identify key factors that will influence the
overall outcome of the project.
Identify and briefly assess possible options,
identify risks
Give an indication of the potential financial
worth of the project

MCA Project Management in Mine Planning and Design
Outcomes of Scoping Study

The outcomes will depend on the situation of the
particular project and reasons for the study. The
outcomes of a scoping study mayl include:
Information for decisions regarding the future of
the project.
Identification of key factors and probably risk
areas, requiring further early investigation.
Highlighting project activities or aspects which
have the greatest influence (sensitivity) on the
project value or return.
Highlighting project parameters that require
more accurate measurement or definition.
A proposed plan to advance, or close, the project
with schedules and estimated costs.
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Scoping Study- Case Study

A scoping study for the Flying Fox T1 deposit as a stand-alone
underground mine with offsite ore treatment was prepared by
mining consultants Golder Associates Pty Ltd.
Main outcomes of the T1 scoping study were as follows:

Mineable Resources at 196,000t @ 5.4% Ni*
Contained nickel in concentrate 10,587 Ni tonnes
Gross Revenue (after royalties) A$101 million
Operating costs (mining, site, transport, treatment) A$201/tonne
ore (A$1.70/lb Ni produced)
Capital costs - Establishment A$6.0 million
- Mine development A$12.8 million
Undiscounted Net cash flow (before tax and D&A) A$37.2
million
* Note : Mineable Resources do not constitute a JORC compliant

resource or reserve category.
Open Pit Mine Planning and
Design
64
Preliminary Feasibility Study

Decisions: Abandon project, change or continue?
Planning: Focus continued investigations on project-
critical areas.
Justify detailed site investigation and resource
definition.
Determine the optimum project scope.
Identify risks opportunities and potential show
stoppers/fatal flaws.
Economic justification: Justify a full feasibility study.
Help sell the project.
Obtain private finance.
Development: Support permitting and stakeholder
liaison

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Pre Feasibility looking at

alternate scenarios
Andean Golds Cerro Negro project in Argentina
Open pit optimization for the Vein Zone was completed using Whittle 4x software
and recovered gold block grades. A US$800/oz gold price was used as the base
case and the remaining inputs are as shown below:
Waste Ore Recovered

Pit Optimization Parameters Pit
Revenue
Factor
Tonnes Tonnes
Recovered
Au (g/t)
Ounces
Strip Ratio
(W:O)
('000) ('000) ('000)
Bench Angle 85o 1 0.30 9,763.1 2,083.3 5.30 355.0 4.69
5 0.38 11,922.4 2,580.3 4.84 401.3 4.62
Berm Width 9 metres every 20 metres 10
15
0.48
0.58
14,631.9
15,704.0
3,111.4
3,580.2
4.43
4.06
443.6
467.2
4.70
4.39
20 0.68 16,357.2 3,941.0 3.81 482.6 4.15
Pit Slope 52o overall slope with ramps 25 0.78 16,697.4 4,143.1 3.68 489.8 4.03
28 0.84 16,765.5 4,247.6 3.61 493.0 3.95
Mining Cost $1.50 per tonne mined 29

30
0.86
0.88
25,403.2
25,370.3
4,547.3
4,581.3
3.56
3.54
520.4
521.2
5.59
5.54
36 1.00 25,725.8 4,750.5 3.45 526.2 5.42
Processing Cost $14.00 per tonne ore 40 1.14 26,977.6 5,016.1 3.31 534.3 5.38
45 1.28 27,120.3 5,110.1 3.26 536.3 5.31
General & Administrative Cost $3.00 50

55
1.42
1.60
27,163.4
29,865.5
5,199.4
5,363.9
3.22
3.15
537.9
543.6
5.22
5.57
60 1.72 29,983.6 5,422.6 3.12 544.6 5.53
per tonne ore 67 2.00 30,555.8 5,536.6 3.07 546.5 5.52
66
Design
Pre Feasibility scheduling

production
Open pit schedule
Oxide
Mix "Ore" Totals Waste
"Ore" Oxide "Ore" Mix "Ore" Totals Strip
Period (000's (000's (000's
(000's (g/t Au) (g/t Au) (g/t Au) Ratio
Tonnes) Tonnes) Tonnes)
Tonnes)
Pre-production 2.4 2.58 2,290.7
Year 1 644.1 3.05 28.2 4.00 672.3 3.09 3,615.3 5.38
Year 2 670.6 3.71 4.7 2.18 675.3 3.7 5,063.0 7.50
Year 3 643.1 4.62 31.7 3.65 674.9 4.58 2,022.2 3.00
Year 4 758.0 4.39 89.3 3.45 847.3 4.29 7,476.7 8.82
Year 5 1,186.7 2.55 163.3 2.76 1,350.0 2.58 7,619.7 5.64
Year 6 279.6 4.39 130.4 2.52 410.0 3.8 2,287.7 5.58
Totals 4182.1 3.59 447.7 2.96 4,629.8 3.53 30,375.3 6.56
Open pit and underground schedule

Vein Zone Eureka Cerro Negro Total
Period
Portable Ore Portable Ore Portable Ore
g/t Au g/t Au g/t Ag g/t Au g/t Ag
000's Tonnes 000's Tonnes 000's Tonnes
Year 1 672.3 3.09 677.7 11.54 242.81 1,350.0 7.33 121.89
Year 2 675.3 3.70 674.7 14.07 258.86 1,350.0 8.88 129.37
Year 3 674.9 4.58 675.1 12.97 203.05 1,350.0 8.77 101.55
Year 4 847.3 4.29 502.7 6.69 120.41 1,350.0 5.18 44.84
Year 5 1,350.0 2.58 1,350.0 2.58 0.00
Year 6 410.0 3.80 410.0 3.80 0.00
Totals 4,629.8 3.53 2,530.2 11.63 212.16 7,160.0 6.39 74.97
67
Design
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Pre Feasibility things will change

over time
Brisas Gold Mine Venezuela
Key Economic Parameters and Results 2008 2006
Mill Through-Put Range (tonnes per day) 75,000 - 68,000 70,000
Metallugy Recovery
Plant Recovery - Gold 83% 83%
Plant Recovery - Copper 87% 87%
Net Payable Metal - Gold 82% 81%
Net Payable Metal - Copper 83% 83%
Life of Mine Production (payable metals)
Gold (million ounces) 8.35 8.41
Copper (million ounces) 1,156 1,113
Average Annual Production
Gold (ounces) 457,000 456,000
Copper (ounces) 63 60
Mine Life (years) 18.25 18.5
Initial Capital Cost ($million) 2008 2006

$ $
Mine 59.0 76.6
Mill 314.7 241.5
Infrastructure 67.8 65.8
Tailings management facility 38.3 23.8
Owner's Costs 63.4 55.6
Pre-Stripping 16.7 18.3
Indirect Costs (includes EPCM and Camp) 127.6 97.0
Contingency 43.8 59.4
Total Initial Capital $731.3 $638.0
69
Design
Pre Feasibility things

will change over time
Base Case Economics 2008 2006
$ $
Metal Prices
Gold per ounce $600 $470
Copper per pound $2.25 $1.80
Cash Operating Cost Per Ore Tonne
Mining and Dewatering $2.68 $2.08
Processing 3.00 2.59
General and Administrative 0.43 0.42
Transport and Freight 0.43 0.34
Smelting and Refining 1.08 1.02
Total cash operating cost per tonne $7.62 $6.45
Cash per Ounce of Gold
Cash Operating Costs $120 $126
Exploitation Tax 22 16
Capital Cost (initial, sustaining and sunk) 135 111
Total Costs (including sunk costs) $277 $253
Total Cost (excluding sunk costs) $268 $245
Pre-Tax
Internal Rate of Return 20.5% 15.4%
Net Present Value (NPV)
@ 0% discount (billions) $2.77 $1.91
@ 5% discount (billions) $1.29 $0.78
70
Design
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(Final) Feasibility Study (FFS)

The Feasibility Study Report is a decision-making
document based on verified facts and minimum
assumptions (criteria). The report may be used for
several purposes:
Assemble a comprehensive framework of facts.
Present a detailed project description.
Forecast profitability.
Facilitate partners and/or sources of finance.
Basis for detailed engineering.

Requirements of a FS to be
bankable
A FS must be;
Credible
Definitive
Relevant
Independent
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Final Feasibility high level issues

Geology and ore reserves - size, shape and depth of the ore, the grade of the
ore and distribution, how homogeneous, any major faults or intrusions and
hydrological reports.
Mining method and schedule surface, open cut, underground, annual
production rate vs life of mine, phasing of development, envisaged ROM
grade, capital equipment and manning levels required. (High production rate,
high capital expenditure, shorter mine life what is the optimum?)
Infrastructure requirements - including ancillary buildings, roads, drainage,
tailings disposal, general arrangement drawings of infrastructure layout.
Metallurgy/concentrator/washery design recovery factor, concentrate grade,
product quality.
Recommendations for the process plant including:
Flow diagram
Material and water balances
Equipment list (major items) together with budget quotations
General arrangement plan and elections of process plant to scale
1:100
Electrical system (line diagram)
73
Design
- high level issues continued

Infrastructure, water, power, accommodation and environmental issues
source, capital and operating cost, disposal of tailings.
Permits right to mine and discharge waste and make good.
Construction schedule timing, how long to first production the quicker the
better.
Logistics - of supply materials, equipment and manpower to site including an
investigation of transport modes.
Identification of strategic decisions required - early ordering of long delivery
items, early starts to opening of negotiations for right-of-way dispensation etc.
Preliminary programme -for carrying-out the Project.
Construction cost minimum expenditure to get the project operating, which
varies depending on type and size of mine. All costs to include transport and
commissioning costs, fees and all management costs except for Client's own
costs.
Markets and marketing transport to market (FOB or CIF), price for product
quality sold, secondary processing costs, adequate demand for product.
Financial analysis put all of the above together to determine if the project is
financially viable.
74
Design
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Things can go wrong

Mt Todd gold mine
Combination of many errors in forecasting can
be fatal for any project.
Project owner is Pegasus Gold Inc and wrote off
US$353.5 million in November 1997 after
closing down the project.
This write down of shareholders funds was of
balance sheet items amounting to US$122.6
million of acquisition costs, US$49.4 million of
deferred preproduction and development
expenses and US$181.3 million for property and
equipment.
Rudenno, 2008
Open Pit Mine Planning and Design
75
Case Study Mt Told Gold

Project
Commodity price overoptimism resulted in a
forecast gold price of US$385 per ounce,
including a hedging premium above
expected spot prices.
Spot prices while the project was operating
were about US$315 per ounce and the
hedging premium was small.
MCA - Risk Assessment in Mine Planning and Design

76
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Case Study Mt Told Gold

Project
Forecast Actual Change
Reserves grade 1.07g/tAu 0.96g/tAu -10%

Metallurgical recovery of gold 84% 74% -12%
Throughput per year 8 Mt 6.7 Mt - 16%
Crushing costs $1.36/t $2.49/t +83%
Contract mining $1.00/t $1.15/t +15%
Power costs $0.058/kwh $0.075/kwh +29%
Cyanide usage 0.68kg/t 0.86kg/t +26%
Total cash costs $11.86/t $13.58/t +15%
Cash costs per ounce gold US$287/oz US$415/oz +45%
produced
Gold price US$385 US$315 -18%
Exchange rate, A$1.00=US$ 0.7 0.74 +6%
Open
MCA Pit MineinPlanning
- Risk Assessment and
Mine Planning Design
and Design
77
NATURE & PURPOSE OF

FEASIBILITY STUDIES IN MINING
Your Audience
Type Scoping Preliminary Feasibility
Audience Internal Technical Mixed Professional External
Exploration Business Executives Boards

Development
Joint venture Financiers
Executive
Extracts to stake Investors
holders
Consultants
Their Interests Critical factors Optimum project scope Profitability
Potential Profitability Costs
Cost of next stage Schedule
Risks, etc
Open Pit Mine Planning and Design 78 of 10
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Cost Accuracy
Scoping Preliminary Feasibility Project Control
Study Feasibility Study Estimate
Class 1 Class 2 Class 3 Class IV

(+/- 30% - 50%) (+/- 25%) (+/- 10% - 15%) (+/- 5% - 10%)
Order of
magnitude Equipment factor Definitive;
Forced detail estimate
Capacity factor estimate Fall out detail estimate
estimate
Mining is a Business, but risky
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MINING PROJECT RISKS

ECONOMIC / FINANCIAL
RISKS
TECHNICAL RISKS
OH&S RISKS
POLITICAL
RISKS
Participants discuss these elements of

Risk in Mining Projects.
81
Conclusion
Strategic planning (SP) involves developing a range
of options, carrying out some form of evaluation,
assessing criteria and decision-making.
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Activity 2:
Individual learning
Refer to worksheet 1
Development of a mining strategy: open pit and/or
underground?
Complete the task and discuss the calculations with the

person(s) sitting next to you!
Module 2
OPEN PIT OPTIMIZATION
What you will learn:
Block Values and Cost calculation
Pit Optimisation techniques
Pit Optimisation Software
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Block Grade to Block Value
Dollar Value = Revenue - Costs
0.3%Cu -$1.13/t
Some factors to consider:

Location of the block relative to the surface effect on
cost
Processing costs my depend on rock type
Dollar Value = Revenues - Costs
Revenues can be calculated from:

Ore tonnages
Grades
Recoveries
Product price
Costs can be calculated from:
Mining cost
Milling cost
Overheads
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A Formula for a Block Value used in Whittle

VALUE
= (METAL*RECOVERY*PRICE - ORE*COSTP) - ROCK*COSTM
Calculate the value of ore block X:
200 grams of metal X

100 tonnes of rock/ore
Metallurgical recovery = 97%
Selling price of metal $10.00 per gram
Cost of processing $12.00
Cost of mining $5.00
BV = [200x0.97x10 100x12 100x5] = $240
Calculating Costs
Must calculate values for:
Mining Cost per Tonne Mined

Processing Cost per Tonne Processed
Rehabilitation Cost per Tonne of Waste
Selling Cost per Unit of Product
Some Time Costs must be included
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Include
Any cost which is directly proportional to the tonnes
or units of product:
Fuel oil
Wages
Spare parts
Explosives
etc
Include with the appropriate activity
Include
Time costs which would stop if mining
stopped:
Site administration
Site infrastructure maintenance
Interest on working capital loan
Fall in resale value of equipment
Capital replacement
Truck purchase (long project)
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What to do with Time Costs

When mill limited
Divide annual time cost by annual mill throughput
and add the result to the processing cost
When mining limited
Divide annual time cost by annual mining capacity
and add the result to the mining cost
N.B. Even add the mill time costs!
When selling limited ...
Dont Include
Time costs which continue whether
you continue mining or not
Up-front/sunk costs
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Activity 3:
Individual learning
Block Values and Cost Calculation

Open Pit Optimisation

Resource Model
Resource
Mine survey
Classification
Resource estimate Dilution &

Measured ore losses
Indicated
Inferred
Diluted Resource Process

Parameters
Beneficiation Economic Operating

factors Parameters Costs
position in mine
Ore Reserve Model
planning flow Open pit optimisation Revenue, cost and
sheet
and design slope parameters
Potential Ore Mining production Overburden

Reserve schedule & sub-grade
Reserve Ore Reserve estimate Beneficiation

Classification Proved and Probable product
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Activity 4 :
Individual learning
Pit Optimisation Task 1

Definition of the Optimal Outline

Any feasible outline has a Dollar Value. In this context
feasible means that it obeys safe slope requirements
The optimal outline is defined as the one with the highest

dollar value (Profit = Revenue Costs)
Nothing can be added to an optimal outline which will

increase the value without breaking the slope constraints.
Nothing can be removed from an optimal outline which

will increase the value without breaking the slope
constraints.
96 Open Pit Mine Planning and Design
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Pit Optimisation Techniques

Moving/Floating/Dynamic Cone Algorithm
Lerchs-Grossmann 2-D Dynamic Programming

Algorithm
LG 3-D Graph Theory Algorithm.
Network Analysis Algorithm
Linear Programming (integer programming)
etc
Floating Cone Method

Position an inverted cone, with the required slopes,
on each block with a positive value
If the total value of all blocks in the cone is positive,

mine those blocks
Repeat these steps until no cone has a positive

value
There are two problems
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Floating Cone Method
Courtesy: Kores Corpration

Floating Cone- Mining too little
-30
-80 -80
+100 +100
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Floating Cone- Mining too much
Lerchs-Grossman Algorithm
Works with block values
Works with block mining precedence
Guarantees to find the three-dimensional

outline with the highest possible value
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Works with block values
Works with block mining precedence
Guarantees to find the three-dimensional

outline with the highest possible value
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LG 3d block and graph representation

Orthogonal set of blocks 2 basic geometries to represent open
pit
Arrows point to the blocks that first need to be removed to
access the underlying block (at the base)
Final Pit Design composite plan
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Activity 5 :
Individual learning
Pit Optimisation Task 2
Follow the example calculation of the LG pit optimisation

algorithm
Precautions with the OP algorithms

1) Ascribing costs to blocks
The algorithms to determine the final pit
limit assume that an economic value can be
assigned to each block
However, many of the costs are time costs;

it means that assigning them to blocks
requires an assumption about what is the
unitary operation that restricts production
(to express these costs in terms of that
activity)
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2) Assumption of a breakeven grade

To calculate the net value of a block one has
to assume a breakeven cut-off grade
A common assumption is to classify as ore

those blocks with a positive value and waste
those blocks with a negative value. If the
mine is the limiting operation, this misses the
opportunity to create value.
3) Time value of money

There are costs that can not be estimated
without a mining plan. This is the case of waste
material, which has to be placed in a dump and
the cost will depend on the time that this
happens because of the haul distance
This can be solved by iterations!
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4) Blending requirements
There are cases where blocks should be
blended with others to be classified as
ore. But that again requires a mining plan in
advance.
This can also be solved by iterations!
Major General Mine Design Systems

Fully functional packages (with build-in CAD systems):
VULCAN
DATAMINE/CAE
SURPAC/GEMCOM
MineSight
Minex/Gemcom - WHITTLE
Micromine
CAD overlaying packages:

AutoCAD
SurvCADD/Carlson
LKAB System
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Data Import
Import
+
3D Borehole
Processing
Geological Interpretation
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Block Model + Grade Assessment
Block Model with Grade
Economical Model - Grade

>>> $Value
Au >>> Value
[g/t] $$$
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Optimisation/Design
Major optimisation programs based on Lerchs-
Grossman algorithm:
Whittle FX Optimiser (stand alone)
MineMax Planner (stand alone)
Pit Optimizer (Vulcan 3D)
NPV Scheduler (Datamine)
Pit Optimiser (Surpac)

Whittle FX
Strategic Mine Planning Software
Import Block Model Pit by Pit Graph
Constrains:
Economical
Geometrical No access constrains
Operational No haul road/ramp
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Optimal Pit
Mine Design
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Mine Design
Geomechanics/Geotechnical
Access constraints
Equipment selection
Ventilation network (underground)
Rehabilitation
Environmental constraints
Final Optimal Pit
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Final Optimal Pit & Pushbacks
Reporting & Evaluation
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Scheduling
The Pushbacks Generation
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Optimizing Production
Schedules
Optimizing Production Schedules
+ =
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Activity 6 :
Individual learning
Review the following technical paper:
Chanda, E.K., Spencer, E. (1999). Maximising Resource

Utilisation in Open Pit Design, in Proc. 28th International
Symposium on Computer Applications in the Minerals
Industry, 20-22 October, Colorado School of Mines, pp359-366,
(SME-AIME, Littleton).
1) What is unique about the the approach used by the

authors?
waste dump planning
Principles of dump design and

Dump optimisation
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Why waste dump planning?
A strip ratio of 10:1, say, implies that for every unit of

ore mined, 10 times of waste rock is mined.
The waste rock ends up being stored in a waste
dump
Traditionally little attention has been paid to dump
design and planning, the focus being on planning of
ore extraction
It has been recognised that dump design and
planning is an integral part of pit design.
Rock flow in an open pit mine
Yu (2014)
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Waste Dump Design

Two main approaches:
1) Top-down dumps waste rock is dumped

over an advancing face (angle of repose)
approx 38o from horizontal. After
dumping is complete . The dump is
reshaped to its intended configuration,
usually using bulldozers.
Waste Dump Design
2) Bottom-up storage waste rock

is dumped in series of piles ,
and then spread to form a
relatively thin layer. Also known
as paddock dumping.
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Waste Dump Design
Hybrid dumping whereby top

down used is used to produce
relatively thick layers (10 or 15 m,
say), which are then overlain by
subsequent equally thick layers.
This approach is safer and
requires leas reshaping.
Waste Dump Design
Dump progression with shortest haul first strategy
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Waste Dump Design
Dump design considering NAF PAF material (Yu 2013)
Waste Dump
Optimisation- how?
MINEMAX Software
Simultaneous pit and waste dump design
Dump modelled as blocks
WHITTLE Software
Dump optimisation as mirror image of open pit
optimisation
XPAC Advanced Destination Scheduler) Software

Module schedules rock placement
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Waste Dump Optimisation-

Recent Developments
Integrated modelling of dumping system (Yu 2013)
Module 3
PRODUCTION SCHEDULING
Principles of production scheduling
Scheduling Software
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Mine Scheduling (definition)

A mining schedule, which tell us when things
occur, can be constructed by applying
production constraints to the mining
sequence
Basis for preparing and controlling the
mines development and production
A schedule determines the cash flow ($$$)
associated with mining.
Typical Timeline
Year
-2 -1 +1 +2
Pre-production
(Development Production
Construction)
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Inputs
The scope of the work to be done from Mining
Layout Designs
Rates at which this work is normally prepared,
from Key Performance Indicators (KPI)
Labour working hours and rosters from
Strategic Planning module
Plant capacities, from the Strategic Planning
modules
Production schedules, Ore reserves, tonnes and
grades, recoveries and dilutions
Types of Mining Schedule

Production schedules
Long Term or Life of Mine (10+ years)
Medium Term (5 years approx.)
Short Term (3 months 2 years)
Extremely Short Term (down to a shift, or for specific jobs)
Exploration drilling schedules
Development schedules
Production drilling schedules
Equipment schedules
Labour schedules
Filling schedules
Consumable schedules
Special project schedules
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Scheduling Packages
XPAC
iGannt
MS Project
MS Excel
Whittle 4D
In-house
XPAC
Developed by Runge Software
Business focussed mine scheduling application
Specifically developed for forecasting, reserve
database and mine scheduling management of all
types of mineral deposits and mining methods
Easy-to-use tools for the adaptation, analysis and
scheduling of mineral resources
Designed for surface/underground coal mining
Has limitations in underground mining or in pits with
complex geometries
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iGantt
Developed by MineMax
Tool for open-pit and underground production

scheduling
Integrates Gantt chart, 3D visualization and

spreadsheet views of a production schedule
Used for scheduling a single operation or multiple

operations across an enterprise
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Financial Technical Model

Plant design
Infrastructure (road, power, water, village, etc.)
Equipment selection
Capitals
Operating costs
Royalty
Tax
Revenue

NCF NPV, IRR, PB, etc.
Activity 8 :
Individual learning
Production Scheduling
Calculate the monthly production figures for a small gold

mine
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Module 4
Cut-off grade optimization
1. Background
2. The model
3. Example 1: an hypothetical case
4. Example 2: a copper open pit mine
& mill
5. Conclusions
6. References
1. Background
This model was developed in the early

1960s by Ken Lane, a mathematician who
made his professional career in the Rio
Tinto Group
At the time, the model was used in various

mines of Rio Tinto including Palabora
mine in South Africa, and Bougainville
mine in PNG.
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2. The model
Final product
Concentrates Qr
Ore
Qc
R
C
Cut-off gx
Slag
Qm Tailings
Waste
M
Variables used in Lanes Model
M = Mine capacity per period (t of material)

C= Plant capacity per period (t of ore)
R= Refinery capacity per period (t of product)
Qm = Quantity of run-of-mine material (t of material)
Qc = Quantity of ore (t of ore)
Qr = Quantity of final product (t of product) = Qcgy
T= Time to mine, process or refine Qm
P= Profit
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Models variables (cont)
d= annual discount rate

m= mining costs ($/t of material)
c= concentrating costs ($/t of ore)
r= refining and marketing costs ($/t of product)
f= fixed costs, per period ($/period)
s= selling price ($/t of final product)
y= overall metallurgical recovery
The profit equation for Qm
P s - r Qr c Qc m Qm f T (1)
As Q r Q c g y
P s - r g y c Qc m Qm f T (1a)
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Profit from Qm and Present Value

f
Qm
Qc
V
W
gx Grade
V = Present value at the beginning of period T

W= Remaining present value after mining Qm
P P2 P3 P4 Pn
0 Time
W
PW
V (2)
(1 d)T
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If time T is small:
(1 + d)T 1 + dT (3)
Replacing in (2):
PW
V (4)
(1 d T)
Re-arranging:
V(1 + dT) = P + W (5)
Re-arranging:
v = V - W = P - dVT (6)
Where v is the contribution that the

fraction Qm of the ore deposit makes to
the present value of the business
As such, v is the variable to maximise

when choosing the optimum cut-off
grade
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Replacing (1) in (6):

v s r Qr c Qc m Qm f d V T (7)
But the optimum present value V on the

right side of equation (7) is unknown
until the cut-off grade policy is optimised
This chicken and egg problem is solved

by iterations, using an arbitrary value of
V in the first iteration and stoping when V
converges
Economic cut-off grades
v s r Qr c Qc m Qm f d V T (7)
In equation (7), time T depends on the
stage that limits the pace at which ore is
mined
That is, the quantities Qm, Qc or Qr and

their respective capacities M, C, or R
This leads to three economic cut-off

grades:
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a) When the mine imposes a limit (M)
Qm
In this case, T
M
Replacing this in expression (7):
m f d V
v m s r Qr c Q c Qm
M
Max vm v m
0
g
As Qm is given, g only affects Qc and Qr
Then g must be chosen to make (s-r)Qr - cQc

as large as possible
s - r Qc g y c Qc
Therefore:
c
gm
s r y
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b) When the plant imposes a limit (M)
Qc
In this case, T
C
f d V
v c s r Qr c Q c m Qm
C
Max vc v c
0
g
In the same way, as Qm is given, g must be

chosen to maximise:
s - r Qc g y c f d V Qc
C
Therefore:
c
f d V
gc C
s r y
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c) When the refinery imposes a limit (R)
Qr
In this case, T
R

v r s r
f d V Q c Q m Q
R r c m
Max vr v r
0
g
In the same way, as Qm is given, g

must be chosen to maximise:

s r
f d V Q g y c Q
R c c
Therefore:
c
gr

s r
f d V y

R

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Balancing cut-off grades

The operation is sometimes limited by two or
eventually three stages simultaneously
Then, three balancing cut-off grades can be

introduced into the analysis
gmc: Mine-Plant
gmr: Mine-Refinery
grc : Refinery-Plant
Mine-mill example
f
Qm
gm gmc gc Grade
gmc fully utilises mine and mill capacities;

that is, maximum stripping ratio at the mine
and throughput at the mill
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Mine capacity: 650,000 t/d

Mill capacity: 150,000 t/d
gm: 0.25 %Cu
gc: 0.65 %Cu
Possible throughputs:
Cut-off Mine Mill Grade
% Cu t/d t/d % Cu
0.25 450,000 150,000 0.9

0.50 650,000 150,000 1.2
0.65 650,000 120,000 1.3
0.5 %Cu is a balancing cut-off
In summary, Lanes model considers six

cut-off grades:
three economic cut-off grades, and
three balancing cut-off grades
The former depend on economic factors
and capacities whereas the latter are
determined by the grade distribution that
can vary widely throughout irregular ore
bodies
None of these considers mining costs!
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Optimum cut-off grades
The overall optimum is one of the six cut-

off grades already defined:
1) gm
2) gc
3) gr
4) gmc
5) gmr
6) grc
To assess which one is the optimum it is

best to consider each pair of stages in
turn
To see which one is the optimum it is best

to plot the value functions considering
each pair of stages in turn
Mine-Concentrator
m f d V
v m s r Qr c Q c Qm
M
f d V
v c s r Qr c Q c m Qm
C
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Gmc = gmc
vm vc
gm gmc gc g
Gmc = gm
vm vc
gmc gm gc g
Gmc = gc
vm vc
gm gc gmc g
In a similar way, by considering the other

pair of stages, it is possible to obtain Gmr
and Grc
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The overall optimum cut-off grade is:
G = Middle value (Gmc,Gmr,Grc)
vr
vm vc
gm grc gmr gmc gc gr g
3. Example 1: an hypothetical case

Mine capacity (M) = 100
Plant capacity (C) = 50
Refinery capacity (R) = 40
Mining costs (m) =1
Concentrating costs (c)= 2
Refining costs (r) =5
Fixed costs (f) = 300
Selling price (s) = 25
Overall recovery (y) = 100 %
Annual discount rate (d)= 15 %
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Grade-tonne relationship
f(t)
Grade
Quantity
interval
0.0 0.1 100
0.1 0.2 100
0.2 0.3 100 100
. .
.
0.9 1.0 100
1000
0 0.5 1.0 g
Balancing cut-off grades

Tonnage Ratios
Cut-off
Mine Mill Grade Ref. M/C M/R C/R
0.0 1000 1000 0.50 500 1.00 2.00 2.00
0.1 1000 900 0.55 495 1.11 2.02 1.82
0.2 1000 800 0.60 480 1.25 2.08 1.66
0.3 1000 700 0.65 455 1.43 2.20 1.54
0.4 1000 600 0.70 420 1.67 2.38 1.43
0.5 1000 500 0.75 375 2.00 2.67 1.33
0.6 1000 400 0.80 320 2.50 3.13 1.25
0.7 1000 300 0.85 255 3.33 3.92 1.18
0.8 1000 200 0.90 180 5.00 5.56 1.11
0.9 1000 100 0.95 95 10.00 10.53 1.05
M/C = 100/50 = 2.00 gmc = 0.50

Balancing
M/R = 100/40 = 2.50 gmr = 0.45 cut-off grades
C/R = 50/40 = 1.25 grc = 0.60
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Economic cut-off grades

c
gm 0.10
s r y
c
f d V For V = 0
gc C 0.40
s r y
c
gr 0.16

s r
f d V
y

R

Gmc = Mid (0.10, 0.40, 0.50) = 0.40
Gmr = Mid (0.10, 0.16, 0.45) = 0.16
Grc = Mid (0.16, 0.40, 0.60) = 0.40
G = Mid (0.16, 0.40, 0.40) = 0.40
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Intermediate mine plan

Year Cut-off Mine Mill Ref. Profit
1 0.4 83.3 50 35 216.7
2 0.4 83.3 50 35 216.7
. . . . . .
. . . . . .
. . . . . .
12 0.4 83.3 50 35 216.7
P = (25 - 5)35 250 183.3 3001
P = 216.7
PV@12y and 15% = 1174
Second iteration
c
gm 0.10
s r y
c
f
d V For V = 1174
gc C 0.58
s r y
c
gr 0.25

s r
f d V
y

R

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Gmc = Mid (0.10, 0.50, 0.58) = 0.50
Gmr = Mid (0.10, 0.25, 0.45) = 0.25
Grc = Mid (0.25, 0.58, 0.60) = 0.58
G = Mid (0.25, 0.50, 0.58) = 0.50
A new mine plan...
With the new cut-off grade of 0.5, a new

mine plan can be developed but this time
changing the present value from year to year
If annual profits are discounted to time 0 and
added up, it gives another estimate of V
If the difference of the initial and final value
of V exceeds a defined tolerance threshold,
the whole process is repeated
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Annual profit for the first year...
For a 0.5 cut-off grade, the annual profit and

present value is as follow:
P = (25 - 5)37.5 250 1100 3001

P = 250
PV@ 10y and 15% = 1255
Optimum mine plan and cut-off grades policy

Year Cut-off Mine Mill Ref. Profit PV
1 0.50 100 50 37.5 250 1255
2 0.50 100 50 37.5 250 1194*
3 0.50 100 50 37.5 250 1123
4 0.50 100 50 37.5 250 1041
5 0.50 100 50 37.5 250 947
6 0.50 100 50 37.5 250 840
7 0.50 100 50 37.5 250 716
8 0.49 97 50 37.1 245 573
9 0.46 93 50 36.5 238 414
10 0.41 89 50 35.9 229 238
11 0.41 21 13 8.8 55 45
1000 513 380.8 2517
PV @ 11y and 15%= 1256

* W = V(1+d) - P
W = 1255 1.15 250 = 1194
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4. Example 2: a copper open pit mine & mill

Relevant data:
Mine capacity (M) = 18.9 Mt/a
Plant capacity (C) = 7.2 Mt/a
Mining costs (m) = 0.85 $/t material
Milling costs (c) = 3.7 $/t ore
Fixed costs (f) = 3.5 M$/a
Copper price (s) = 2205 $/t Cu ($1.0 /lb)
TC/RC & selling cost (r) = 705 $/t Cu ($0.32 /lb)
Overall recovery (y) = 85 %
Annual discount rate (d) = 10 %
A set of four pushbacks
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Input to the model: four scheduled, nested pits

(periods) from a preliminary mine plan
PP 1
1
3
1
3
2 4
Grade-tonnage relationship for the four pits

Cut-off Period 1 Period 2 Period 3 Period 4
% Cu Mt % Cu Mt % Cu Mt % Cu Mt % Cu
0.0 20.3 1.05 36.5 0.79 56.3 0.57 80.1 0.59
0.2 18.7 1.13 30.1 0.92 40.8 0.76 60.4 0.77
0.4 15.3 1.32 24.4 1.08 28.5 0.97 50.2 0.87
0.6 12.9 1.47 19.7 1.22 21.7 1.11 38.3 0.98
0.8 11.0 1.61 13.7 1.45 15.1 1.30 22.7 1.18
1.0 8.6 1.80 10.2 1.64 10.0 1.49 14.6 1.35
1.2 7.1 1.95 7.6 1.83 6.9 1.67 9.0 1.49
1.4 5.9 2.08 5.6 2.02 4.4 1.88 5.0 1.65
1.6 4.4 2.27 4.0 2.24 2.7 2.11 2.9 1.75
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Output for a Base case

Cut-off Mine Mill Ratio Profit PV
Year Period 1
(% Cu) (Mt) (Mt) (% Cu) (W/O) (M$) (M$)
1 1 0.85 14.2 7.2 1.67 0.97 110.3 475.5

2 1 0.78 6.1 3.4 1.59 0.82 49.6 412.8
2 2 0.78 9.8 3.8 1.43 1.56 44.8 412.8
3 2 0.72 16.8 7.2 1.37 1.34 81.3 359.6
4 2 0.67 9.9 4.7 1.31 1.13 50.4 314.2
4 3 0.61 6.7 2.5 1.12 1.62 19.4 314.2
5 3 0.61 18.9 7.2 1.12 1.62 56.3 275.8
6 3 0.60 18.6 7.2 1.11 1.58 55.8 247.0
7 3 0.56 12.1 4.9 1.08 1.45 36.5 215.9
7 4 0.56 4.5 2.3 0.96 0.98 14.9 215.9
8 4 0.53 13.6 7.2 0.94 0.89 44.5 186.1
9 4 0.50 13.1 7.2 0.92 0.82 43.3 160.3
10 4 0.47 12.6 7.2 0.91 0.75 42.4 132.9
11 4 0.44 12.1 7.2 0.89 0.68 41.4 103.9
12 4 0.41 11.6 7.2 0.87 0.61 40.2 72.9
13 4 0.37 11.2 7.2 0.86 0.55 38.9 39.9
14 4 0.33 1.5 1.0 0.84 0.50 5.1 5.0
193.2 94.6 1.11 1.04 PV = 475.5

Output for an expanded case (Mill from 7.2 to 9.0 Mt/a)

Cut-off Mine Mill Ratio Profit PV
Year Period 1
(% Cu) (Mt) (Mt) (% Cu) (W/O) (M$) (M$)
1 1 0.78 16.3 9.0 1.59 0.81 131.8 521.2

2 1 0.71 4.0 2.3 1.53 0.71 33.1 441.6
2 2 0.67 14.0 6.7 1.30 1.10 71.3 441.6
3 2 0.65 18.5 9.0 1.29 1.05 95.4 381.3
4 2 0.60 4.1 2.2 1.22 0.86 22.1 324.0
4 3 0.45 14.2 6.8 1.00 1.10 46.6 324.0
5 3 0.45 18.9 9.0 1.00 1.10 62.0 287.7
6 3 0.45 18.9 9.0 1.00 1.10 62.0 254.4
7 3 0.45 4.2 2.0 1.00 1.10 13.7 217.9
7 4 0.51 12.9 7.0 0.93 0.84 43.2 217.9
8 4 0.48 15.9 9.0 0.91 0.76 54.1 182.8
9 4 0.45 15.2 9.0 0.89 0.69 52.9 146.9
10 4 0.42 14.6 9.0 0.88 0.62 51.5 108.8
11 4 0.38 14.1 9.0 0.86 0.56 50.0 68.1
12 4 0.34 7.4 4.9 0.84 0.51 26.4 25.0
193.2 103.9 1.06 0.86 PV = 521.2
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Conclusion for this case

The Base Case produces a declining cut-off
grade policy starting at 0.85 %Cu and yielding
a PV of $ 475.5 million
The Expanded Case lowers the initial cut-off
from 0.85 to 0.78 %Cu and increases the PV
by $46 million from $475.5 to $521.2 million
If the expansion capital investment is less than
$46 million, then it is worth going ahead
5. Concluding remarks
Lanes cut-off grade model is a first attempt to
define economically what material is ore in a
life-of-mine (LOM) plan
It requires a holistic view of mining in that the
optimisation needs a preliminary LOM plan.
That is, a final pit limit, pushbacks design and
scheduling based on a breakeven cut-off - the
mine or plant cut-off grade, for instance
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Activity 8 :
Individual learning
Cutoff Grade Optimisation
Follow the calculations to the problems
Lanes model considers various variables as

fixed input capacities, and downstream cut-
offs such as metallurgical recovery at the mill
Most recent developments have expanded the
model to include some of these variables and
handle them simultaneously
When the problem becomes too complex, it is
solved using other mathematical tools, integer
linear programming being one of them
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6. References
Kenneth F. Lane - The economic definition of ore, Mining
Journal Books, London 1988
Kenneth F. Lane - Choosing the optimum cut-off grade,
Colorado School of Mines Quarterly. Vol. 59-4, 1964, pp. 811-
829
Blackwell, M. Some aspects of the evaluation and planning of
the Bougainville copper project, Decision-Making in the
Mineral Industry, CIM Special Vol 12, 1971 pp. 261-269
Module 5
Mine Planning Software
Software Packages
Categories
Capabilities
Providers

202
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Common Software Packages

203
Categories of Mining Software

204
101
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Mapping Software

205
Geological & Data managent
Source: (Sable, 2013)

206
102
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Geological Modelling/
Resource Estimation
Drill hole display (Source: Geovia, SUPARC)

207
Geological Modelling/
Resource Estimation
Ore body model(Source: CAE, STUDIO 3)

208
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Mine Design
Pit Design (Source: Maptek, VULCAN)

209
Planning and Scheduling
Pit Design (Source: Geovia, MineSched)

210
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Financial Evaluation
Financial Analysis Software

(RungePincockMinarco)

211
Optimisation/Risk Analysis
Pit Optimisation (Geovia, WHITTLE)

212
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Monitoring & Control
Truck Dispatching (Modular Mining System; (DISPATCH)

213
Simulators
Coal Mining Simulator (Immersive Technologies)

214
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Virtual Reality
ViMine VR Software 3D Ore body model

215
Summary
Advances in Computer technology has

made it possible to model complex mining
environments
Most widely software is for Mine Design &
Planning
Further developments in simulation and
risk modelling
Mining software harmonisation by
suppliers

216
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Module 6
mine to mill optimisation
Concept embraced and practiced by mining
companies
The philosophy is base on:
Characterise
Track
Measure
Model
Potential to save mining companies thousands of
Dollars

217
Mine production system processes
Drilling
Blasting
Loading
Hauling
Milling (Crushing, grinding)
Examine total system with regard to cost,

productivity, product quality, optimisation...
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Loading: increased fragmentation => higher rate of

shovel productivity, hence lower costs per BCM.
Hauling: Truck production per hour will increase with
greater fragmentation due to faster shovel loading rates.
Reduced cycle time.
Crushing: Lower crushing costs result from increased
fragmentation as more material pass through as under
size.
Drilling and blasting costs are harder to relate to
fragmentation).
Optimum Fragmentation Curves
Unit costs as a function of the degree of

fragmentation
Systems optimisation:
Overall Cost Curve
Degree of fragmentation
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Exploration Drilling
Intact rock data
Crushing/grinding
Mineralogy data
Energy data Ore body modeling and
Bond's Work Index Fracture frequency data pit design
Settings
Hauling Blasthole Drilling

Payload data Bore diameter
Process
Voids ratio* Hole deviation monitor
LCM Geophysical data
Optimization
TKPM rating
Real time drilling data
Autonomy
Blast design,
Routing data
Excavation/Loading
Load-Haul
Digability* S01U264007
Blast Design
Dig rate* 120
100 Pattern layout

Percentage Passing (%)
Dipper design 80
60
S01U264007
35.2Mtpa ROM Target
VOID
Power consumption 40
20 Powder factor
Swing analysis 0
1 10
Size (mm)
100 1000
Explosive
Autonomy
Muckpile properties
Blast Modelling
Size distribution*
Displacement model
Voids ratio*
Fly rock
LCM
Heave mechanics
Visualization
Density
Optimum Fragmentation
Examine individual components and the whole system
Goal: achieving a prescribed level of fragmentation at
minimum cost
In-situ ore with particle size considered to be very large
and reducing to size in the order microns (eg -80 mesh).
Measuring Fragmentation, how?
Diggability (BCM/HR)
Size distribution of muckpile (WIPFrag Software),

Split-Desktop software
Photographs are taken from muck pile, digging
face, moving truck, etc.
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Drilling and Blasting SubSystem
Fragmentation evaluation
Measurement of parameters- correlate with
fragmentation
Photographs are taken from muck pile, digging face,
moving truck, etc.
Crusher monitoring - energy, feed, product size,
throuputghput
Shovel monitoring- load, wait, down time, swing, power
Case Study
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Case Study
Modeling Muck Pile Fragment Size to Optimize
Excavator Productivity in Open Pit Mining
Prominent Hill Copper Mine, South Australia
Prominent Hill
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Prominent Hill
Muckpile Image Analysis using SPLIT DESKTOP:
The split desktop system uses digital image

analysis technology to convert an image
captured from a digital camera to a distribution
of defined areas within the photograph.
The software was developed from a system of

manual image analysis where a photographic
image was manually delineated and the diameter
of each particle measured
Prominent Hill
Camera
Photo of muckpile
Photo collection and scale placement on flitch face.
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Prominent Hill
Blast master 10040RL

Prominent Hill
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Prominent Hill
Prominent Hill
Our modelling of the excavator production rates

has suggested that P80 of 800 mm would be the
optimal size to maximise excavator productivity
at 6300 t/hr.
However due to mine machinery and crusher

constraints we believe a revised figure of 600
mm would be more appropriate
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Module 7
Equipment Selection
Simulation modelling using GPSS/H Case Study
Cost Estimation (Capital & Operating)

233
Simulation and Animation of an

Australian Surface Mine
Study Background
Methodology
Results
Discussion
Conclusion
Recommendations
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Wilcherry Hill Iron Ore Mine

The Wilcherry Hill project is
located 30 km north of the
township of Kimba in South
Australia.
The Wilcherry Hill project
comprises of four tenements
and covers an area of 976
square kilometres.
The tenements are EL4162-
Wilcherry Hill, EL4286-Valley
Dam, EL4421- Peterlumbo,
EL3981-Eurilla Dam.
Project Development
Development at Wilcherry Hill is proposed in three
phases; stage 1, 2 and 3.
Stage 1 will be the focus of this project
Comprises mining, crushing and export of Direct

Shipping Ore (DSO)
Ore sourced from the upper parts of the mining pits.
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Methodology
Aim
Simulation and animation model using the Stage
1 layout of the mine
Determine the optimum number of shovels and
trucks required for this mining scenario
Provide the company with a model they can use
for many what if? scenarios.
Programming in GPSS/H
Approximately 1,200 lines of computer code were
used to model this mining scenario
Over 60,000 command lines were used to generate

this animation
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Methodology
GPSS/H Simulation Main Commands
Methodology
Variables, User Information and Generate
Variables:
REAL &X,&Y,&Z,&A,&B,&C,&D,&E,&F,&G,&H,&I
User Information:
PUTSTRING (' ')
PUTSTRING ('HOW MANY TRUCKS?')
PUTSTRING (' ')
INTEGER &TRUCKS
GETLIST &TRUCKS
Generate:
GENERATE 3,,0,&TRUCKS,,12PH,12PL
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Methodology
Animation
Methodology
Mine Layout (Draw, Class and Paths)
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Methodology
Run
Methodology
Animation
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Methodology
Animation
Results
Assumptions
HD 785
EMPTY: 72 t
LOADED: 164 t
LOADED SF: 147.6 t
ORE WEIGHT: 75.6 t
STRUCK BODY CAPACITY: 40 m3
ORE SPECIFIC GRAVITY: 4
FULL STRUCK LOAD ORE WEIGHT: 160 t
HOURS PER SHIFT: 8
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Results
Ore Results
TRUCKS: 3 4 5 6 7
ORE DUMPS PER SHIFT: 9 13 17 20 23 DUMPS
STOCKPILE DEPOSITION PER SHIFT: 1440 2080 2720 3200 3680 T
STOCKPILE WITHDRAWAL RATE: 180 260 340 400 460 T/HR
COMPARISON (IRONCLAD): 291 T/HR
Results
Ore Results
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Results
Waste Results
TRUCKS: 3 4 5 6 7
WASTE DUMPS PER SHIFT: 68 87 104 123 142 DUMPS
DUMP DEPOSITION PER SHIFT: 5140.8 6577.2 7862.4 9298.8 10735.2 T
DUMP RATE: 642.6 822.15 982.8 1162.35 1341.9 T/HR
COMPARISON (IRONCLAD): 885 T/HR
Results
Waste Results
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Conclusion
GPSS/H Simulation and Animation

Number of shovels: one shovel
Number of trucks: five trucks and possibly an
extra standby truck
TALPAC simulations
Number of shovels: one shovel
Number of trucks: six trucks
Acknowledgements
Postgraduate Students:
Sophie Mellor
Jian Liu
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Cost Estimation
Capital Costs
Operating Costs
Capital cost estimation: general

considerations
Indicative capital cost estimates
Based on empirical data from other
projects
Estimates are within +/- 30% accuracy
Suitable for scoping or pre-feasibility
studies
Often use rules-of-thumb to estimate
costs

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Design
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considerations:
Indicative capital cost estimates (cont.)
The sixth-tenths rule (Mular, 1978):
Cost 1 / Cost 2 = (Capacity 1 / Capacity 2)0.6
Capacity 2 and Cost 2 relate to a known similar
operation in a similar environment
Capacity 1 relates to the operation being
studied
Cost 1 is then estimated
Annualised cost per tonne rule:
Annualised cost per tonne of a known operation
= {Total capital cost} {tonnes per year}
Use this factor directly to estimate capex for
another, similar operation.

considerations
Cost indices
Most cost estimations are based on historical
data available to the estimator.
These data date and cost indices can be used to
update them:
Cost now = {cost then}{cost index now/cost index
then}
Indices available from Cost Guides
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considerations
Working capital
This is the capital component of operating
costs needed to support the operation
prior to substantial revenue inflows.
Often underestimated and can result in
project failure.
Sometimes a factor (such as 10% of fixed
capital cost) is applied. However a more
detailed analysis is usually good practice.

257 of 10
Design

considerations
Options for capital equipment
Contract mining
capital not available;
short duration;
specialist skills required; and/or
specialist equipment required.
Hired equipment
machine only and hirer responsible for fuel,
oil, servicing and operation (dry hire); or
full hire (all inclusive), usually hourly rate
with standby rate.
Open Pit Mine

258
Planning
of 10 and Design
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considerations
Ownership cost
Fixed cost per hour irrespective of whether
the machine is working or not
It is a function of:
purchase price
cost of any extras
freight charges
tyre costs
resale value
depreciation period

considerations
Ownership cost (cont.)
Straight-line depreciation formula:
D = (P - R) / (N.H) where D is depreciation per
hour, P is purchase price, R is residual value, N is
useful life in years, H is hours of service per year.
Interest component of the cost:
I = P(r + i)(N + 1) / 200 N.H where I is interest cost
per hour, r is interest rate on capital (%), i is
insurance rate (%).
Total hourly ownership charge in $/hour, C = D + I
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considerations
Ownership cost example:
Assume:
Cost $400,000;
Life 10,000 hours over seven years;
residual value 35% of capital cost; and
interest and insurance is 12% per year.
D = (400,000 - 140,000) / 10,000 = $26.00/hour
I = (400,000 x 12 x 8) / (200 x 10,000) =
$19.20/hour
C = 26 + 19.20 = $45.20/hour
Capital cost estimation: general considerations

Equipment replacement
Equipment becomes uneconomic when actual owning and
operating cost exceeds that of a new unit
Overhaul or replace?
Cost of overhaul?
Time to overhaul and requirement for temporary
replacement?
How long will economic life be extended?
Other work required during the extension of life?
Rate charged to mining operation to cover cost compared
with cost of new equipment and economics of mine?
Will overhauled equipment have acceptable availability?

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Design
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Infrastructure capital (cont.)

Access and site works
location and logistics
access and service roads ($65,000 to $230,000/km
depending on purpose)
port facilities
airstrips ($700,000 to $4.5 million)
site works (highly variable; $65,000 to
$400,000/ha).
drainage
fencing and security
Open Pit Mine

263
Planning
of 10 and Design

Industrial facilities
workshops and servicing facilities
warehouses
materials handling
mobile equipment
Utilities
power generation, transmission, distribution
water supply (source, quantities, storage,
distribution)
fuel storage and distribution
sewerage and solid waste disposal
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Communications
external
internal
Port and marine facilities
Waste disposal systems
overburden dumps
water management
tailings handling and storage
solid wastes

Administration facilities
administration building
laboratories
training facilities
change rooms
crib/lunch rooms
safety and medical facilities
fire station
core storage
security

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Transportation
road transport
rail transport
slurry pipeline
overland conveyors
sea or river transport
cableways (aerial ropeways)

Townships
housing
roads
services
recreation facilities
shopping facilities
medical facilities
educational facilities
service industries
Construction facilities
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Estimating of Operation Costs

Before any economic analysis or decision-making can be
undertaken the operating and capital costs of equipment
must be estimated.
Equipment operating costs vary between mine sites and
there is no cost which can be applied universally.
Equipment costs are generally derived from mine
statistics, from suppliers or estimated from first
principles.
The standard presentation of costs is Dollars per
Operating Hour or Dollars per Tonne
Make sure to cross-check your estimated costs with
currently prevailing mine sites.
Major Mine Equipment Operating Costs
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Cost Calculation Steps Some equipment needs to be

replaced. Equipments have
lifetime as 5, 10, 20 yrs.
Ownership Costs consists
ore and Capital and Owning depreciation and average annual
investment cost.
Daily Production waste Costs for the
Rate equipment AAI=(n+1)Capital Cost / 2n
AAI should include tax, interest,

Shovels, insurance. So AAIC with a
Mine buildings
trucks, percent
and costs
drills,
excavators
associated with Other capital AAIC=P x AAI
the mine
Select Equipment etc.
development expenditures
Ownership Cost = Depreciation +
period AAIC
Direct operating
# of Milling Costs costs, total
machines operating costs,
Production Rate for (ownership and direct operating
required
each equipment capital costs) costs +
maintenance -
Ore and Waste
Mining Costs
# of production &
support employees Productivity
(tonnes/manshift)
salaries
Total Mining Cost = Total
Operating Cost + ownership Cost
Other Costs Materials,
supplies, power
and labour costs Total Mining Cost
($/hr or $/m or
$/tonnes)
Ore and waste
Operating Costs separation will be
Open Pit Mine
madePlanning and Design 272
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Module 8
Financial Technical Modelling
What is Financial Technical Modeling?

Revenue Assumptions
Project Financing
Evaluation Guidelines
The Frame Work of Evaluation
Project Cost of Capital
Conclusions

273
WHAT IS A FINANCIAL TECHNICAL MODEL

(FTM)?
Financial/technical models of mining projects are
spreadsheets in which the technical processes of
ore and waste mining, ore processing and
production of salable product are incorporated as
quantities mined, processed and sold and, in turn,
as generating the revenues earned and costs
incurred in such processes.
The revenues earned depend on forecasts of
product prices, generally supplied by sources
external to the mining operation.
The costs are determined by technical analysis of
the project by project staff.
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Other financial inputs, such as interest rates,

debt raisings and repayments and
depreciation schedules will normally be
supplied by head office corporate staff.
Forecasts of future inflation rates and

exchange rates may well be supplied by
external sources.
Example 1 of Financial Technical Model
REVENUE ASSUMPTIONS - 1
World market prices dominant but hard to
predict
World economic conditions are volatile
Uneven outlook throughout the world
Supply and demand dominates - excess
supply is usual but not now (China!)
Potential for major economic disruptions,
e.g. oil price shocks, Soviet collapse, GFC,
war, China effect, etc.
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PROJECT FINANCE
Money lent for developing a project

Secured against assets and cash flow
of project
Repayable from earnings of project
Limited recourse (sometimes no
recourse) to other assets of project
owners
SOURCES OF FINANCE
EQUITY:
New Issues (shares, options, hybrids, units)
Asset sales
Retained earnings
Term loans
Securities (bills, bonds, notes, debentures)
Commodity loans-Leases
Project finance
DEBT: security, recourse to borrowing
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ADVANTAGES OF EQUITY FINANCING

It's less risky than a loan because you don't have to pay
it back, and it's a good option if you can't afford to take
on debt.
You tap into the investor's network, which may add
more credibility to your business.
Investors take a long-term view, and most don't expect
a return on their investment immediately.
You won't have to channel profits into loan repayment.
You'll have more cash on hand for expanding the
business.
There's no requirement to pay back the investment if
the business fails.
DISADVANTAGES OF EQUITY FINANCING

It may require returns that could be more than the rate
you would pay for a bank loan.
The investor will require some ownership of your
company and a percentage of the profits. You may not
want to give up this kind of control.
You will have to consult with investors before making
big (or even routine) decisions -- and you may disagree
with your investors.
In the case of irreconcilable disagreements with
investors, you may need to cash in your portion of the
business and allow the investors to run the company
without you.
It takes time and effort to find the right investor for your
company.
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ADVANTAGES OF DEBT FINANCING
The bank or lending institution has no say in the way

you run your company and does not have any
ownership in your business.
The business relationship ends once the money is paid
back.
The interest on the loan is tax deductible.
Loans can be short term or long term.
Principal and interest are known figures you can plan in
a budget (provided that you don't take a variable rate
loan).
DISADVANTAGES OF DEBT FINANCING

Money must paid back within a fixed amount of
time.
If you rely too much on debt and have cash flow
problems, you will have trouble paying the loan
back.
If you carry too much debt you will be seen as
"high risk" by potential investors which will limit
your ability to raise capital by equity financing in
the future.
Debt financing can leave the business vulnerable
during hard times when sales take a dip.
Debt can make it difficult for a business to grow
because of the high cost of repaying the loan.
Assets of the business can be held as collateral to
the lender.
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EQUITY/DEBT FINANCING MIX
Most businesses opt for a blend of both equity and

debt financing to meet their needs when expanding
a business.
The two forms of financing together can work well

to reduce the downsides of each.
The right ratio will vary according to your type of

business, cash flow, profits and the amount of
money you need to expand your business (50:50;
30:70, etc)
EVALUATION GUIDELINES
Made at a point in time
Sunk costs (dont worry!)
Constant $ or current $
For comparing alternatives, make sure
techniques used permit fair comparisons
Computer financial models (spreadsheet
modeling)
Investment decision versus sale/purchase
evaluation
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FRAMEWORK OF EVALUATION
A construction of cash flows - in and out
Express every aspect in terms of cash
Express uncertainty in ranges of values,
creating multiple models of the one project
Cash flows not accounting profits
Evaluate on a stand alone basis
Ignore side issues unless the side issue is the
purpose of the project
MAJOR ITEMS IN FTM
CASH ($):
Cash is the lifeblood of the enterprise
Cash flows are actual $ spent or received
Non-cash items (e.g. depreciation) are important as
far as they affect cash flows
Project cash flows for a period are inflows minus
outflows - may be +ve or -ve
Periods are usually years; may be quarters or
months, depending on the size of the project
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INFLOWS AND OUTFLOWS*
Inflows: sales revenue; may include other

minor items
Outflows: Initial capital expenditure, working
capital, maintaining capital, operating costs,
taxes, royalties, rehabilitation costs, etc
Royalties: ?Treat as reductions in revenue
Off site costs, such as realisation costs, ?
Treat as reductions in revenue
Open Pit Mine Planning and Design * Very important! 287
WORKING CAPITAL
Component of initial Cap. ex. - to fund op.
costs until sales revenues arrive - in theory
recovered at end of mine life
Required throughout project life but generally
supplied by sales revenues
Itemised on a period by period basis in
detailed financial models
Avoid double counting in financial model but
must be counted in initial funding
requirement
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CURRENCY
Local currency (A$ for Australian projects in Australia)
Because costs in local currency
Convert revenues to local currency
Forecast exchange rates can dominate the evaluation
Foreign projects in host country currency - limited
conversion to A$ needed
In cases of foreign country hyperinflation, use a stable
currency, e.g. US$, if sales revenues in US$
EXCHANGE RATES
$ EXCHANGE RATE IS QUITE VOLATILE
Moves with commodity prices but affected by other
influences as well.
Forex turnover in all currencies in Australian market
represents 4.3% of global turnover, 7th largest forex
market in the world.
A$/US$ pair ~45% of total turnover. Euro/US$ pair ~14%.
A$/JPY only 1%
Aust. forex market grew with world market. Also, helped
by carry trade and hedge fund activity, plus growing funds
under management in Australia seeking to invest
overseas. Bulk of trades with overseas FIs
Aust. banks hedge ~ 100% of forex deals.
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CONSTANT VS CURRENT $
$ change in value over time
Constant $ - generally average value of $ of the day
at time of evaluation, preserved throughout project
life.
Current $ - $ of the day for each period in the future
- requires calculation of the change in value from
period to period, i.e. usually inflation rates
Costs affected by local inflation, revenues by world
inflation, up to a point. Mineral commodity
revenues controlled by supply and demand most of
the time.
MORE CONSTANT VS CURRENT $

Constant $ evaluation easier
Present day costs known but not future revenues
Current $ evaluation both costs and revenues based
on forecasts of future events
But current $ are the real world - constant $ is
artificial simplification
Constant $ evaluations can be misleading by ignoring
inflation but can be very effective in choosing
between alternatives
Constant $ cost of funds different from current $ cost
of funds
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INTEREST RATES
A function of the time value of money
On debt, represent low risk return
Therefore, risky investments offer higher
return
Diversified equity investments offer about
6% above the risk free rate
Government bonds represent risk free rate
Interest rates and discount rates closely
linked
PROJECT COST OF CAPITAL

Invested funds are recovered from future
returns with interest
What rate of interest is appropriate for using
funds in this project?
Must be above the risk free rate but how much
above?
Individual resource projects generally have a
slightly higher cost of capital than the
company as a whole
Function of project risk, diminishing reserves
and need for exploration
The appropriate cost of capital should be the
discount rate for project evaluation purposes.
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COMPANY COST OF CAPITAL

Co funds - equity plus debt
Cost of equity - empirical measures
Cost of debt - average after tax interest rate on debt
- factual
Cost of funds = weighted average cost of equity and
debt
Current $ cost of capital - includes allowance for
inflation -can be converted to constant $
CURRENT $ TO CONSTANT $
1 + CONSTANT $ COST OF CAPITAL

= (1+ CURRENT $ COST OF CAP)/(1+ INFLATION
RATE)
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MORE ON COST OF CAPITAL

Cost of equity capital applies for 100% equity
funding
Debt lowers the cost of capital but increases
risk
What is the minimum acceptable return on
equity?
Historically, 8% real on all equities - therefore,
higher in current $ terms
Should it be higher for risky mining
investments?
CAPITAL ASSET PRICING MODEL

Developed from long term studies of equity markets
in USA:
R = Rf + B(Rm -Rf)
Where:
R = required rate of return
Rf = risk free interest rate
B =relative risk of particular stock
Rm = average market return
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MARKET RISK PREMIUM

Rm-Rf = market risk premium
Expected premium, but based on historical data as
proxy
Australian data over 100 years indicates 5% to 6%
arithmetic average - 6% geometric average
US data indicates 5% to 6% geometric average
Volatility of returns means (Rm-Rf) geometric
average is 2% to 10% with 95% confidence. A pretty
big range.
WEIGHTED AVERAGE COST OF

CAPITAL
WACC* = (E/A)R +(D/A)Rd(1-tc)
Where;
E = market value of equity
D = debt
A =debt + equity
R = cost of capital, from CAPM
Rd = interest rate on debt
and tc = corporate tax rate
R is after tax, Rd is pre-tax
*used where a mix of DEBT & EQUITY applies
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PROJECT PERIODS
Equal length periods cover entire life of project
Permits use of standard compound interest
relationships and rules
Periods = years, generally
May be quarters or months for small projects
Project commences with the first period of
investment
Evaluation relates to beginning of first period
SUNK COSTS:
Past expenditures have no bearing on the
evaluation,e.g., exploration expenditure.
The evaluation is considering future expenditures

and revenues resulting from a decision yet to be
made.
True of cost of evaluation and confirmatory work

except for tax benefits
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END OF PERIOD CONVENTION

Expenditures and receipts occur irregularly
through time - but, for purposes of
evaluation, all cash flows are deemed to take
place at the end of the period
Generally conservative
Midpoint of period can be used
PAUSE REFLECT!
Revenue assumptions
Sources of finance
Cash
In- Outflow $
Lagged revenue
Sunk Costs
Project periods
WACC
Cost of Capital
Currency, Exchange rates
Constant vs Current $
Working Capital
CAPM
Interest rates
Equity vs Debt Financing
Royalties
End of period convention
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DEPRECIATION
Depreciation is the means of recovering capital
expenditure
Depreciation deducted from cash flow to
determine taxable income, and thus tax payable
Depreciation then added back to after tax profit
to determine period cash flow
Dividend payments are not part of the project
evaluation.
Positive NPV of cash flows mean capital has
been serviced at the discount rate while
invested, has been recovered and excess return
has been received
Capital Expenditure
Expenditure providing for mine operations for
longer than one year
Expenditure for operations within the year are

expensed, not capitalised
Depreciation schedules straight line over life of

asset, life of mine or 10 years; declining balance
depreciation can defer tax but eventually returns to
straight line.
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Tax payable calculations
Taxable income = sales revenue for year

minus all operating costs, overhead costs,
interest payments and depreciation
Tax rate 30% at present (Australia)
Negative taxable income, no tax paid and no
tax refund except where group taxation
makes immediate use of tax losses possible
Usually, tax losses carried forward to reduce
taxable income in later years
Period cash flows

Project cash flows for each year (or shorter period)
made up of:
After tax profit or loss
Plus any depreciation added back
Plus adjustments for any after tax items such as
capital expenditures, loan drawdowns or loan
repayments made or received during the year.
153
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ROYALTIES
Charge levied by State or Federal Government in
return for permission to mine
Reflects Crown ownership of minerals
Various forms of royalty: ad valorem, pro rata, profit

share, resource rent taxation in different
jurisdictions
Check what applies to specific project and treat as a

reduction in revenues
LAGGED REVENUE
Example: Smelter pays to the company based
on the waiting period to produce the expected
amount of product depending to the shipping
capacity.
For gold it is not much time to produce gold from

ore/concentrate to gold bullion, say1 week, but
base metals may take more time, say 2-3 months
lagged.
154
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Module 9
Dewatering and Pump
Selection
Case Study
Pump & Pipe Selection
Pumping Costs

311
Introduction
Proposed mine is in the Mudgee area of NSW
Populated towns nearby in every direction
Long history of coal mining in the Central West
NSW with several active coal mines nearby;
deposits of high-grade coking coal are endemic
The old abandoned open cut mine had 4 identical
pits. Water has filled these pits to an average depth
of 50m
Coking coal prices are expected to rise, thus
prompting a review of the feasibility of
recommissioning and extending the abandoned
mine pits
155
5/11/2014
Dogweed Coking Coal Mine
Mudgee
Sydney
Objectives
Design a suitable
system to dewater the
pits ahead of the
mining operation
Determine capital
costs and pump
operating costs per
year
156
5/11/2014
Methodology
3 methods of water volume estimation:
Volume by Integration
Volume by Parts
Volume by using a modelling program eg
AutoDesk Inventor
Dewatering times, depth of water with time
Calculation of required pump head over water
depth at different velocities/pipe diameters
Pipe system selection and costing
Geometry of the Pit
Dimension
70m wide, 75o highwall, 36 lowwall of spoil
80m high, 9m thick, dipping at 6
Depth of water 50m
Infrastructure setting
Top Overburden
In situ density
lowwall
highwall =36
89 m
=75
Waste 2.3t/BCM
Bottom
Overburden
Coal 1.4t/BCM
157
5/11/2014
Volume of water estimation
Dimensions of the water in pit
Method#1
Estimate volume by parts
The dimension of the water in the pit can be
considered as different parts adding together:
Volume/m3 Formula
Rectangle
Low Wall
Edge 2
High Wall Paramete Formula Value
Edge 2 r
Sides 2 x 70
2 y 1km-2b 973.21
Corners 1 2 2 h 50
3 a 68.82
Corners 2 2 tan 36
3 b 13.40
Open Pit Mine Planning and Design tan 75 318
158
5/11/2014
Method #2
Estimate volume by integration
Looking at the model from top, we can evaluate width X and length Y
in terms of the
incremental height Z:
() ()
=
+ +
2()
=
+
Therefore, the volume is calculated by integrating the area of the cross
section over the height of the model:

= = .
0 0
2 22
That is, = 3
+ 3 + 2 + 2 + +
This confirms the volume by parts. By inputting known variables,
volume of the water in the pit is 5.49x106 m3
Method #3
Estimate volume by using Inventor
159
5/11/2014
Method #3
Estimate volume by using
Inventor
Dewatering time
The disposal flow rate limit is 200 L/s,
therefore the dewatering time can be
calculated:
Volume of Rate of de- Time to Number of Total time
water per watering dewater pits taken for
pit (m3) (m3/s) one pit dewatered dewatering
(days) per year (years)
V Q T=V/(Qx24x N=365/T TT=Nx4
60)
5490065 0.2 317.7 1.15 3.48
160
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Depth of Water Over Time

Depth Of Water In Pit Over Time
60.00
50.00
40.00
y = -0.0001837707x2 - 0.0958277546x + 49.5843902089
Depth of Water
R = 0.9996479452
30.00
Depth
20.00
10.00
0.00
0 50 100 150 200 250 300 350
Days Since Dewatering Commenced
Calculating Pump Head

Pressure drop: Bernoullis Equation
1 12 2 22
+ 1 + 1 = + 2 + 2 +
2 2
Major head loss:
2
=
2
Minor head loss:
2
=
2
Friction factor: Reynolds number and Moody Chart

161
5/11/2014
Pipe System Model
Calculation Example
Dept Target Pipe Diameter Pipe Length Reynolds Friction

h Velocity (m) (m) Number Factor
30 2 0.356825 76.25 71364.96 0.022
hZ hV hP hLM hLm V (m/s) L (m) (0 if negligible)

0 30 0 0 0 0 0 0
1 30.5 0.20408 -0.70408 0 0 2
2 30.5 0.20408 61.75476 0 0 2 0
3 30.5 0.20408 61.74711 0 0.007653 2 0
4 30.5 0.20408 60.66451 1.082598 0 2 86.039
5 80 0.20408 10.08396 1.070343 0.010204 2 85.065
6 80 0.20408 0 10.06611 0.017857 2 800
TOTAL PUMP PRESSURE HEAD (m) 62.46
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Variation of Pump Head with

Depth
Pump Pressure Head wrt Velocity (V)/Pipe Diameter (D)
115
105
95
Required Pump Pressure Head
85
2.829421211 0.3
75
0.439714514 0.761
1.123896216 0.476
65
1.390120911 0.428
y = -x + 109.53
55 1.763489674 0.38
2.228982782 0.338
45 y = -x + 96.312
y = -x + 89.115
35 y = -x + 85.056
y = -x + 82.993
y = -x + 80.325
25
0 10 20 30 40 50 60
Water Depth
Pump selection
Must be capable of meeting largest flow rate
Must be capable of pumping largest pressure head
Relatively acceptable costs
ALLIGHT SYKES-HH220I
163
5/11/2014
Pump Power Curve

HH220i Power Curve at 200 L/s
400
350
300
250
y = -0.0003x3 + 0.0837x2 - 4.411x + 187.66
kW
200
150
100
50
0
20 40 60 80 100 120 140
Total Head (m)
Pump selection
Features:
Diesel, electric or hydraulic drive
Low fuel usage, reduced engine size
Lower maintenance costs
164
5/11/2014
Pipe system selection

Pipe type: HDPE
Suited to butt welding
Corrosion, abrasion, weathering and chemical
resistant
Relatively low item cost
Easy installation
Flexible and resilient
Keep in mind:
Velocity must be high enough to prevent too
much settling
Electricity Consumed by Pump

kW-Hours Consumed by Pump During Dewatering of a Pit for Different
Pipe Diameters
330
280
kW Required by Pump
230 0.761
0.476
0.428
180 0.38
0.338
0.3
130
80
0 50 100 150 200 250 300 350
Time (Days)
165
5/11/2014
System Costs
Change in Costs per System with Increasing Pipe Diameter
700000
600000
500000
400000
Cost ($)
Cap cost of pipes
300000 Op cost of system

Total
200000
100000
0
0.25 0.35 0.45 0.55 0.65 0.75 0.85
Pipe Diameter (m)
Optimised System Costs

Optimal pipe diameter = 380mm
Costs from R2, Australian suppliers,
PIPE DIAMETER 380mm
Capital cost of pipe $115697.7 Pipe, transport, installation
Capital cost of pump $81960 Installation costs required
Electricity costs $174935.6 At 10.2 c/kWh
TOTAL $303301.5
166
5/11/2014
What Have We
Achieved?
Fundamentals of open pit mine design and
current developments in planning and design
methodology,
Current industry practices to maximise
economic return (technology, operations).
Open pit mine planning and design process in
theory and practice,
Unit Operations Drill-Blast-Load-Haul
Mining Economics
Apply this knowledge to plan/evaluate new open
pit projects and/or existing mines.
Bottom Line is..
We mine for profit !!!
167

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5/11/2014

ADVANCED OPEN PIT MINE

ADVANCED OPEN PIT MINE

Fundamentals of open pit mine design and

Open Pit Mine Planning and Design 3

What do you expect to learn from this

Open Pit Mine Planning and Design 4

2. Mine planning process

Big picture decision-making process

Applies to Greenfields as well operating mines

SP takes place at all levels of the company

Analogy: military strategy

What is Strategic Mine

Open Pit Mine Planning and Design 7

Types of planning and mine life cycle

Prospecting Exploration Development Production Closure

Life cycle of an orebody

Open Pit Mine Planning and Design 8

Strategic mine planning focuses on those technical

Go! List variables (factors) considered in SMP

Open Pit Mine Planning and Design 9

Strategic Decision- Economic

Open Pit Mine Planning and Design 10

Open Pit Mine Planning and Design 11

Mine Planning Process Flowchart

Open Pit Mine Planning and Design 12

Mine Planning Process

Mine Planning Process*:

Optimisation Mine Design Optimal Schedulling Financial Technical Model

* A dynamic and iterative process *

Open Pit Mine Planning and Design 14

Open Pit Mine Planning and Design 15

All these variables are inextricably interrelated in the

Open Pit Mine Planning and Design 16

Mining Method Selection

The choice of the mining method depends on the

In general, there are two main mining methods:

Open Pit Mine Planning and Design 18

However, depending on the emplacement of the

Open Pit Mine Planning and Design 19

Many decisions concerning the choice of the mining

Underground mining usually requires more

Open Pit Mine Planning and Design 20

Considerations in Mining Method Selection

Length of pre-production development and phases

Thoroughness of the ore body delineation program

Scale of operations bulk mining methods, eg., block

Technology applications - automation

Open Pit Mine Planning and Design 21

The mining method should be flexible enough to

When and how to high grade during peak commodity

Changes to mine development schedule

Focus on production of by-products (eg. cobalt in copper

Mining companies are price takers. What can be done

Technology and Human Resources

Later change in method will be at a cost

Must allow for possibility of introducing new

Necessary skills must be available to operate selected

Consider specific training and supervision

The selection of the processing route depends

Essentially, there are basically two main routes:

Open Pit Mine Planning and Design 24

In short, technical and financial considerations