Strategic Open Pit Mine Planning: Maximizing Pit Value under Uncertainty

Sabry A. Sabour, PhD, P.Eng, Senior Mining Engineer

Tetra Tech
555 West Hastings, Vancouver, Canada V6B 1M1
Sabry.AbdelHafez@tetratech.com

This work presents a procedure to optimize open pit mines considering future metal prices
uncertainty. Historical metal prices have shown that the assumption of conventional pit
optimization approach that future metal prices are flat is inaccurate. This unrealistic
assumption may result in sub-optimal mine plans. The proposed procedure incorporates future
metal price variability into the pit optimization process. Differently from the flat price
assumption of conventional pit optimization, the approach presented in this work incorporates
multiple future metal price scenarios. Metal prices are modeled using stochastic models such as
geometric Brownian motion and mean-reversion process. Volatility of future exchange rates
could be also modeled using the mean-reversion process. The proposed procedure is based on
a combination of the Lerch-Grossman optimization of the commercial MineSight package and
the simulation-based real options valuation. A case study of a poly-metallic open pit mine is
provided to investigate the difference the proposed approach can make in the pit optimization
results.

Bio:

Sabry is a senior mining engineer with 20 years of experience in mine planning & optimization,
economic evaluation of mining projects and advanced financial analysis. Mine planning
capabilities include mine optimization and design using Whittle, MineSight, and Surpac, in
addition to mine cost estimation and modeling using Xeras. Financial analysis capabilities range
from building standard spreadsheet cash flow models to developing advanced simulation-based
real options analysis models. He is experienced in risk analysis and Monte Carlo simulation
using Crystal Ball and @Risk. He performed NI 43-101 reporting for several base metals, gold,
coal, and aggregate mining projects.

Key Words:

open pit, mine planning, pit optimization