Advanced Open Pit Planning and Design 20

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
1
5/11/2014
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?
2
5/11/2014
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

3
5/11/2014
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
Tactical Mine
Mine Planning
Planning
Strategic Mine
Planning
Prospecting Exploration Development Production Closure
Life cycle of an orebody
4
5/11/2014
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
5
5/11/2014
Decision-Making Behaviour:
 Risk Averse – seeks other business goals
 Risk Neutral – seeks maximise NPV
Mine Planning Process Flowchart
6
5/11/2014
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.
7
5/11/2014
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…
8
5/11/2014
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)
9
5/11/2014
• 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
10
5/11/2014
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?
11
5/11/2014
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)
12
5/11/2014
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

13
5/11/2014
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
14
5/11/2014
• 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
15
5/11/2014
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
16
5/11/2014
• 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)
17
5/11/2014
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
18
5/11/2014
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
19
5/11/2014
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
20
5/11/2014
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
21
5/11/2014
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
22
5/11/2014
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)
23
5/11/2014
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

24
5/11/2014
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
25
5/11/2014
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
26
5/11/2014
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
27
5/11/2014
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 1960’s.
• More complex and larger mining operations in
1960’s and 1970’s 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
28
5/11/2014
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 project’s viability.
• Enable determination of a “go” or “no
go” decision
• Have become an aid in obtaining
financial backing
29
5/11/2014
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.
30
5/11/2014
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.
31
5/11/2014
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

32
5/11/2014
Pre Feasibility – looking at

alternate scenarios
Andean Gold’s 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
33
5/11/2014
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
34
5/11/2014
(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
35
5/11/2014
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
36
5/11/2014
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
37
5/11/2014
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
38
5/11/2014
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
39
5/11/2014
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.
40
5/11/2014
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
41
5/11/2014
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
42
5/11/2014
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
43
5/11/2014
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)
44
5/11/2014
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 ...
Don’t Include
• Time costs which continue whether
you continue mining or not
• Up-front/sunk costs
45
5/11/2014
Activity 3:
Individual learning
Refer to worksheet 2 –
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

and design
Revenue, cost and
slope parameters
sheet Potential Ore Mining production Overburden

Reserve schedule & sub-grade
Reserve Ore Reserve estimate Beneficiation

Classification Proved and Probable product
46
5/11/2014
Activity 4 :
Individual learning
Refer to worksheet 3
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
47
5/11/2014
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
48
5/11/2014
Floating Cone Method
Courtesy: Kores Corpration

Floating Cone- Mining too little
-30
-80 -80
+100 +100
49
5/11/2014
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
50
5/11/2014
• Works with block values
• Works with block mining precedence
• Guarantees to find the three-dimensional

outline with the highest possible value
51
5/11/2014
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
52
5/11/2014
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)
53
5/11/2014
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!
54
5/11/2014
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
55
5/11/2014
Data Import
Import
+
3D Borehole
Processing
Geological Interpretation
56
5/11/2014
Block Model + Grade Assessment
Block Model with Grade
Economical Model - Grade

>>> $Value
Au >>> Value
[g/t] $$$
57
5/11/2014
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
58
5/11/2014
Optimal Pit
Mine Design
59
5/11/2014
Mine Design
 Geomechanics/Geotechnical
 Access constraints
 Equipment selection
 Ventilation network (underground)
 Rehabilitation
 Environmental constraints
Final Optimal Pit
60
5/11/2014
Final Optimal Pit & Pushbacks
Reporting & Evaluation
61
5/11/2014
Scheduling
The Pushbacks Generation
62
5/11/2014
Optimizing Production
Schedules
Optimizing Production Schedules
+ =
63
5/11/2014
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
64
5/11/2014
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)
65
5/11/2014
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.
66
5/11/2014
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
67
5/11/2014
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
68
5/11/2014
Waste Dump Optimisation-

Recent Developments
Integrated modelling of dumping system (Yu 2013)
Module 3
PRODUCTION SCHEDULING
• Principles of production scheduling
• Scheduling Software
69
5/11/2014
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
mine’s development and production
• A schedule determines the cash flow ($$$)
associated with mining.
Typical Timeline
Year
-2 -1 +1 +2
Pre-production
(Development Production
Construction)
70
5/11/2014
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
71
5/11/2014
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
72
5/11/2014
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
73
5/11/2014
74
5/11/2014
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
75
5/11/2014
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.
76
5/11/2014
2. The model
Final product
Concentrates Qr
Ore
Qc
R
C
Cut-off gx
Slag
Qm Tailings
Waste
M
Variables used in Lane’s 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) = Qc·g·y
T= Time to mine, process or refine Qm
P= Profit
77
5/11/2014
Model’s 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)
78
5/11/2014
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
PW
V (2)
(1  d)T
79
5/11/2014
If time T is small:
(1 + d)T  1 + d·T (3)
Replacing in (2):
PW
V (4)
(1  d  T)
Re-arranging:
V·(1 + d·T) = P + W (5)
Re-arranging:
v = V - W = P - d·V·T (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
80
5/11/2014
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:
81
5/11/2014
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 - c·Qc

as large as possible
s - r  Qc  g  y  c  Qc
Therefore:
c
gm 
s  r   y
82
5/11/2014
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
83
5/11/2014
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 

84
5/11/2014
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
85
5/11/2014
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, Lane’s 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!
86
5/11/2014
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 
87
5/11/2014
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
88
5/11/2014
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 %
89
5/11/2014
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
90
5/11/2014
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
91
5/11/2014
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 – 2·50 – 1·83.3 – 300·1
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 

92
5/11/2014
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
93
5/11/2014
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 – 2·50 – 1·100 – 300·1

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
94
5/11/2014
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
95
5/11/2014
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
96
5/11/2014
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
97
5/11/2014
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
Lane’s 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
98
5/11/2014
Activity 8 :
Individual learning
Cutoff Grade Optimisation
Follow the calculations to the problems
Lane’s 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
99
5/11/2014
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
100
5/11/2014
Common Software Packages

203
Categories of Mining Software

204
101
5/11/2014
Mapping Software

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

206
102
5/11/2014
Geological Modelling/
Resource Estimation
Drill hole display (Source: Geovia, SUPARC)

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

208
103
5/11/2014
Mine Design
Pit Design (Source: Maptek, VULCAN)

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

210
104
5/11/2014
Financial Evaluation
Financial Analysis Software

(RungePincockMinarco)

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

212
105
5/11/2014
Monitoring & Control
Truck Dispatching (Modular Mining System; (DISPATCH)

213
Simulators
Coal Mining Simulator (Immersive Technologies)

214
106
5/11/2014
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
107
5/11/2014
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...
108
5/11/2014
• 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
109
5/11/2014
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
Voids ratio* Hole deviation monitor
LCM Process Geophysical data
TKPM rating
Autonomy Optimization Real time drilling data
Routing data
Blast design,
Excavation/Loading
Load-Haul
Digability* S01U264007
Blast Design
Dig rate* 120
100 Pattern layout

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.
110
5/11/2014
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
111
5/11/2014
Case Study
Modeling Muck Pile Fragment Size to Optimize
Excavator Productivity in Open Pit Mining
Prominent Hill Copper Mine, South Australia
Prominent Hill
112
5/11/2014
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.
113
5/11/2014
Prominent Hill
Blast master 10040RL

Prominent Hill
114
5/11/2014
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
115
5/11/2014
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
116
5/11/2014
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.
117
5/11/2014
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
118
5/11/2014
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
119
5/11/2014
Methodology
Animation
Methodology
Mine Layout (Draw, Class and Paths)
120
5/11/2014
Methodology
Run
Methodology
Animation
121
5/11/2014
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
122
5/11/2014
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
123
5/11/2014
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
124
5/11/2014
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
125
5/11/2014
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

254 of 10
Design
126
5/11/2014

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
127
5/11/2014

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
128
5/11/2014

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
129
5/11/2014

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?

262 of 10
Design
130
5/11/2014
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
131
5/11/2014

• 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

266 of 10
Design
132
5/11/2014

• 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
133
5/11/2014
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
134
5/11/2014
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
135
5/11/2014
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.
136
5/11/2014
• 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.
137
5/11/2014
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
138
5/11/2014
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.
139
5/11/2014
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.
140
5/11/2014
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 (don’t 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
141
5/11/2014
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
142
5/11/2014
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
143
5/11/2014
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.
144
5/11/2014
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
145
5/11/2014
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.
146
5/11/2014
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)
147
5/11/2014
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
148
5/11/2014
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
149
5/11/2014
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
150
5/11/2014
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
151
5/11/2014
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.
152
5/11/2014
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
5/11/2014
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
5/11/2014
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 α=36⁰
89 m
β=75⁰
 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 𝑥×𝑦×ℎ
Low Wall 𝑎×ℎ×𝑦
Edge 2
High Wall 𝑏×ℎ×𝑦 Paramete Formula Value
Edge 2 r
Sides 2×𝑏×ℎ×𝑥 x 70
2 y 1km-2b 973.21
Corners 1 2 × ℎ × 𝑏2 h 50
3 a ℎ 68.82
Corners 2 2×ℎ×𝑎×𝑏 tan 36𝑜
3 b ℎ 13.40
Open Pit Mine Planning and Design tan 75𝑜 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:
𝑎(ℎ−𝑍) 𝑏(ℎ−𝑍)
𝑋= ℎ
+ ℎ +𝑥
2𝑏(ℎ−𝑍)
𝑌= ℎ
+𝑦
Therefore, the volume is calculated by integrating the area of the cross
section over the height of the model:
ℎ ℎ
𝑉𝑜𝑙𝑢𝑚𝑒 = 𝐴𝑟𝑒𝑎 𝑐𝑟𝑜𝑠𝑠 𝑠𝑒𝑐𝑡𝑖𝑜𝑛 𝑑𝑍 = 𝑋𝑌 . 𝑑𝑍
0 0
2𝑎𝑏ℎ 2𝑏2 ℎ 𝑎𝑦ℎ 𝑏𝑦ℎ
That is, 𝑉𝑜𝑙𝑢𝑚𝑒 = 3
+ 3 + 2 + 2 + 𝑏𝑥ℎ + 𝑥𝑦ℎ
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
5/11/2014
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
R² = 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: Bernoulli’s Equation
𝑝1 𝑉12 𝑝2 𝑉22
+ 𝛼1 + 𝑧1 = + 𝛼2 + 𝑧2 + Σℎ𝐿
𝛾 2𝑔 𝛾 2𝑔
• Major head loss:
𝐿 𝑉2
ℎ𝐿𝑚𝑎𝑗𝑜𝑟 = 𝑓
𝐷 2𝑔
• Minor head loss:
𝑉2
ℎ𝐿𝑚𝑖𝑛𝑜𝑟 = 𝐾𝐿
2𝑔
• Friction factor: Reynold’s 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
162
5/11/2014
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

Advanced Open Pit Planning and Design 20

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Advanced Open Pit Planning and Design 20

Uploaded by

Copyright:

Available Formats

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