I recently attended a CIM Management and Economics Society presentation discussing the differences between actual underground production versus the forecast used in the feasibility study. The presenter was Paul Tim Whillans from Vancouver Canada. His topic is interesting and relevant to today’s mining industry and Paul raised many thoughtful points supported by data. The abstract for his paper is copied below and the entire paper can be downloaded at this LINK and here are the presentation slides.
An underground mining study that is done in accordance with NI43-101, JORC or similar reporting code is generally assumed by the public to be representative, independent and impartial. However, it has been well documented by academics and professionals in our industry that there is a sharp difference between the forecasts presented in these underground studies and the actual costs when a mine is put into production.
For underground mines, the risks associated with obtaining representative information are much greater than for surface mining and the cost of accessing underground ore is also proportionally much greater. There is a pressing need to align expectations, by improving the accuracy of projections. This will result in reduced risk to mining companies and investors and provide more reliable information to government agencies, the public, and more importantly, the communities in which the proposed mine will operate.
The objective of this article and an article currently being written titled “Mining Dilution and Mineral Losses” is to:
– Discuss the dynamics of intention that lead to over-optimism;
– Provide simple tools to identify which studies are likely to be more closely aligned with reality;
– Identify some specific points where underground mining studies are generally weak;
– Discuss practices currently in use in our industry that lead to a composite or aggregate effect of over optimism;
– Describe the effects of overly optimistic studies;
– Outline specific changes that are necessary to overcome these challenges; and
– Stimulate discussion and awareness that will lead to better standards.
In my opinion, I agree with many of the points raised by Paul. The mining industry has some credibility issues based on recent performance and therefore understanding the causes and then repairing that credibility will be important for the future of the industry. Credibility impacts on shareholder returns, government returns, local community benefits, and worker health and safety; so having a well designed mine will realize benefits for many parties.
If you need more information Paul’s website is at http://www.whillansminestudies.com/
In many of the past mining studies that I have worked, stockpiling strategies were discussed and eventually implemented. Sometimes study team members were surprised at the size of the stockpiles that were generated by the production plan. It became apparent that not all members of the team were clear on the purpose of the stockpiling strategy or else they had preconceived ideas on the rationale. To them stockpiling may have seemed to be a good idea until they saw it in action.
In this blog I won’t go into all the costs and environmental issues associated with stockpile operation but will focus simply on the reasons for stockpiling and why stockpiles may get large or numerous .
In my experience there are four main reasons why stockpiling might be done at an operation. They are:
1. Campaigning: For metallurgical reasons, there may be certain ore type(s) that can cause process difficulties if mixed in with other ores. Therefore the problematic ore(s) might be stockpiled until sufficient inventory is built up until it makes sense to process that ore (i.e. campaign) through the mill. Such stockpiles will only grow as large as the operator allows them to, before processing the material and eliminating the stockpile. Be aware that if the mine operations are still delivering different ore types to the crusher area, then those ores may need to be stockpiled during the campaigning period. More different ore types may mean more stockpiles.
2. Grade Maximization: This stockpiling approach is used in situations where the mine delivers more ore than is required by the plant, thereby allowing the best material to be processed directly and the lower grade material to be stockpiled for a future date. Possibly one or more low grade stockpiles may be used, for example a low grade and a medium-low grade stockpile. Such stockpiles may not be processed for years, possibly remaining in place until the mine is depleted or until the mined head grades are lower than those in the stockpile. Such stockpiles can grow to enormous size if accumulated over many years.
3. Surge Control: stockpiling may be used in cases where the mine may have a fluctuating ore delivery rate and on some days excess ore is produced while other days there is underproduction. The stockpile is simply used to make up the difference and provide a steady primary crusher feed rate. These stockpiles are also available as short term emergency feed if for some reason the mine is shut down (e.g. extreme weather). In general such stockpiles may be relatively small in size since they are mainly used for operational surge control.
4. Blending: blending stockpiles may be used where a processing plant needs a certain quality of feed material with respect to head grade or contaminant ratios (silica, iron, etc.). Blending stockpiles enables the operator to ensure the plant feed quality to be consistent and uniform. Such stockpiles may not be large individually; however there could be several of them depending on the orebody character.
There may be other stockpiling strategies beyond the four listed above but those four capture the bulk of the situations.
Using today’s automated production scheduling software, one can test multiple stockpiling strategies by applying different cutoff grades or using multiple grade stockpiles. The scheduling software will have algorithms to determine whether one should be adding to the stockpile or drawing from it. It will track the grades in the stockpile and sometimes be able to model stockpile balances assuming reclaim by average grade, or first in-first out (FIFO), or last in-first out (LIFO).
Stockpiling in most cases will provide some potential benefits to an operation and the project economics. Even if metallurgical blending or campaigning is not required, one should always test the production schedule and project economics with a few grade stockpiling scenarios. Unfortunately these are not simple to undertake when using a manual scheduling approach and so are another reason to move towards automated scheduling software. Also make sure everyone on the team understands the rationale for the stockpiling strategy and what the stockpiles might ultimately look like. They might be surprised.
There are numerous sources of mining information on the internet, encompassing topics such as technical articles, analyst opinions, and company press releases. It can be overwhelming sometimes. Now if your main interest is just seeing company news releases in a timely manner then what is the best way to do this?
One way is to go to the individual company website and sign-up one their email list. This approach generally works well but it forces you to sign up on a myriad of websites if you intend to follow a lot of companies. There are alternatives however.
One option is to sign-up for a free account with a newswire service where you can select the specific companies that you want to follow and then will get emailed news releases as soon as they are disseminated. The nice thing here is that you can select mining companies, non-mining public companies, as well as entire industries. Here are a few that I personally make use of.
Since different companies may use different news release distributors, the three websites that I track are:
Marketwire: There you can create a “Hot Off the Wire” account and then select your companies of interest. You can also select entire industries to add to your company list.
CNW Group Ltd. Create an account there and search various companies to add to your “My Subscriptions” list.
Junior Mining News is another source to get general news updates via their daily newsletter, a screenshot is shown below. Their daily email gives a brief summary of events that happened recently and includes “Read More..” links if you want to read the entire press release. This website accesses some of the same news release distributors as mentioned above so there could be some repetition from time to time.
Using the services described above, it’s very easy to sign up for a lot of companies, too many companies in fact, and then get inundated with emails. We know that public companies need to keep the news flow active and some companies are very good at continually issuing news alerts. However by using the press release distribution websites you are consolidating your requests, thereby making it easier to control the amount of information you want to receive.
Feel free to share your method for tracking companies, whether using the same websites or something entirely different and better.
Can pre-concentration become a key savior for the mining industry and help in lowering metal production costs?
Pre-concentration is a way to reduce the quantity of ore requiring higher cost downstream processing, i.e. grinding in particular. By using a low cost method to pre-concentrate mineral-bearing particles into a smaller volume, one can attain significant cost savings in overall energy consumption and operational expenses. A previous blog “Remote Sensing of Ore Grades” discussed a new pre-concentration method under development.
Pre-concentration is nothing new and has been around for many years but is generally limited in the techniques available. Hence many ore types are not amenable to it..unfortunately. The main methods being used are:
Ore sorting can be done using automated optical, electrical, or magnetic susceptibility sensors to separate ore particles from waste particles. The different sensor types can include colour recognition, near infrared radiation sensors, x-ray fluorescence, x-ray transmission, radiometric, or electromagnetic sensing. The sensors can determine if a particle contains valuable mineral or waste, thereby sending a signal to activate air jets to deflect material into ore and waste bins.
Density or specific gravity difference is another property that some pre-concentration methods can rely on. Gravity based systems such as dense media separation (DMS), jigs, or centrifugal concentrators are currently in production use.
Another simple pre-concentration method used is scrubbing, whereby simply washing away fines may remove some deleterious materials prior to final processing.
Pre-concentration can provide several benefits to an operation:
-If done underground or at remote mine site, the net ore hoisting and ore transport costs can be reduced.
-If the pre-concentration rejects can be used as mine backfill, this can reduce backfilling costs.
-Processing of higher grade pre-concentrated mill feed can reduce total energy costs and ultimately reduce the cash cost of metal produced.
-Grinding costs can be reduced if waste particles are harder than the ore particles and they can be removed beforehand.
-Minimizing waste through the process plant will reduce the quantity of tailings that must be disposed of.
-Lowering operating costs may potentially allow lowering of the cutoff grade and increasing mineral reserves.
-Higher head grades would increase metal production without needing an increase in plant throughput.
Not all ore types are amenable to pre-concentration and therefore a rigorous testing program is required. In most cases the pre-con method would be relatively obvious to the metallurgical engineer but testing is still required to measure performance. Testing is required to determine the amount of waste rejection that can be achieved without incurring significant ore loss during the process. Generally one can produce a higher quality final product if one is willing to reject more ore with the waste, so it becomes a trade-off of recovery versus total processing cost.
Fine particles from the primary and secondary crushing stages might require bypassing the pre-con circuit. If this bypassed material is sent for downstream processing, one may need to examine crushing systems that minimize fines generation to avoid too much material bypassing the pre-con circuit.
One must also decide if the pre-con system should reject waste particles from the material stream or reject ore particles from the stream since the overall recovery and product quality will be impacted depending on which approach is used.
My bottom line is that the mining industry is continually looking for ways to improve costs and pre-concentration may be a great way to do this. Every process plant design should at least take an initial look at it to see if is feasible for their ore type. While the existing pre-concentration methods have their limitations, future technologies may bring in new ways to pre-concentrate and so this is probably an area where research dollars would be well spent.
This blog is the Part 2 continuation of the post from last week regarding software tools that the mining people should take a look at. Here are a few more ideas that I would like to share, having found that these are also great to have in your toolbox.
Google Sheets and Google Docs: When undertaking group reviews of spreadsheets or text documents don’t many of us have frustrations? We typically end up with different versions of the same document floating around and nobody knows which one is the most recent version and which one they should be editing. With Google Sheets and Google Docs you can create online spreadsheets and documents and then allow people on your team to review and edit them in real-time online. Writing reports gets simpler since there is only one version of the document with which everyone is working. A “track changes” option is still there (called “Suggesting”) and everyone can see the edits as they are being made. No more asking “who has the most current version?” it’s always there on-line. This type of collaborative editing is also great for certain types of spreadsheets as well as for Design Criteria Documents that are regularly being updated by different team members.
Foxit Reader: This is an alternative to Adobe Reader and can be used for reviewing PDF documents, whether text documents or drawings. Foxit provides great editing and commenting tools like highlighting text, adding comments, drawing lines and boxes, adding comment balloons, cut & pasting images into the PDF file, and then saving the commented version. For the most part I have stopped using Adobe Reader and have now switched over to Foxit.
UberConference: This is an online application for team conference calling that allows screen sharing, online conversations, sends out meeting reminders, and it will call participants at the require time. Watch the video on their website to gain a better understanding; it’s entertaining and true to life.
Those are a few of the software tools that I have found useful and so now you’re probably wondering “what else is out there for me?” The website The Freelance Stack lists many of different tools that exist. Check them out and some of the others may be of value to you. :
One of the key marketing approaches used by most of the tech companies is to provide a fully functional product for free and then charge money to access the enhanced features. The objective is to get future users familiarized and trained on the system, and then they will decide that they wish to upgrade their capability and so pay for the full product suite. I’m not sure if any geology or mining software is available in a basic functional format enabling optional upgrading. By functional, I don’t mean simply providing a “viewer” to view the work of others or a 30-day trial period, I mean actual software that provides some actual useful capability for free in order to get you hooked.
My bottom line is that there is a lot of good stuff out there, readily available, much of it free, and it can make managing your project teams easier. Just because it’s related to the tech industry, don’t assume it wouldn’t have an application in the mining industry.
As part of a new side business venture I have been working alongside a team of website and mobile app developers. It has been a good learning experience for me to see how the tech teams do things versus how the mining consulting industry conducts its business. We know there is a lot of private equity money flowing into tech and not mining, so they must be doing something right.
The tech start-up industry has developed its own set of jargon, like agile management, lean start-ups, disruption, minimum viable products, pings, and sprints. Some of their key methodologies would not make sense for the mining industry where one doesn’t have the luxury of trial-and-error and customer feedback to help complete your project. For software development, the attitude is get it out the door fast and your customers will then tell you what fixes they want to see. In mining you need to get it right the first time (hopefully). Having said that, some mining people will say they have seen 43-101 technical reports that follow the “wait for customer feedback” model.
Now where the tech industry can provide us with some useful advice is in the use of project management and collaboration tools. The software developers often work remotely and so make heavy use of the technology that exists or they develop new technology tools to meet their needs. Mining teams are starting to work from remote offices more often these days.
The following is a partial list (Part 1) of free software tools that I have used recently, mainly because I was forced to by the tech teams. Subsequently I have found the tools easy to use and most definitely some can be applied in our own industry, especially with diverse mining study teams. There are a lot more tech tools out there but my list includes the ones that I have personally come in contact with. Most of these are free to use with limited features and enhanced features are available if you subscribe to the full version at minimal cost. However even the free versions are useful and can be used to train your team. Most of them provide both web based and app based access so even when you’re on the road you can still use them and contribute to the team.
Trello: If you want to create a task list for your team, this is the app to use. Imagine a bunch of yellow post-it notes that you can put under various project categories, assign persons to each note, attached a file if you wish, and then have back and forth discussions within each note. Then once a task is done, just drag the note to another category (e.g. “In Progress”, “Completed”). Anyone or selected people can create a note or provide comment. See the image below for an example Trello screenshot.
Slack: If you want to have a running record of group discussions that all or only selected team members can follow and join in on, then Slack is for you. It can replace the long confusing back-and-forth emails that we commonly see, when people sometimes forget to “reply all” so now you’re out of the loop. See the image below for an example Slack screenshot. It’s great for discussions amongst the team and you can have private one-on-one discussions or wide open team discussions and can attached files too. It provides permanent record of discussions or decisions made.
Basecamp: is similar program that incorporates features from both the above and some people swear by this tool. I have not personally used it so cannot vouch for it, but some say it is very good. Watch the video on their website describing what it can do.
My bottom line is that there is a lot of good stuff out there, readily available, much of it free, and can facilitate the management of your project teams. Just because its tech industry related, don’t assume it wouldn’t have an application in the mining world. Next week in Part 2 of this blog, I will describe a few more of the tech tools that I have found useful.
After the Mt Polley and Samarco tailings failures, there have been ongoing conversations about the benefits of filtered or dry stack tailings as the only way to eliminate the risk of catastrophic tailings failure. Mining companies would all like to see a similar risk reduction at their own project. However what mining companies don’t like is the capital and operating costs associated with dry stacking. The dry stack tailings processing cost and the transport cost are both costlier than for conventional tailings disposal and therefore would negatively impact on the overall value of the project. Obviously this reduction in value would get offset against an improved environmental risk and a better closure condition. So what’s a company to do?
In my experience when designing a new mining project, all mining companies at one point in time complete a trade-off study for different tailings disposal methods and disposal sites. Contrary to some environmental narratives, companies really do wish to know how the different tailings options compare because they would adopt the dry stack approach if it was the most advantageous method. The mining companies are fully aware of the benefits but the dilemma the company runs into is the cost and being able to somehow justify the technology. Complicating their final decision, companies also have options for reducing their tailings risk even if using another tailings disposal method and so the final decision can get very complex.
Often proponents of the risk analysis approach will use a risk-weighting approach to assign an expected economic cost to their tailings plans. For example, if the cost of a failure is $200 million and the risk is 0.1%, then the Expected Value is $200,000. The problem is that this is a theoretical calculation on an assumed likelihood of failure but in reality either the dam will fail or it won’t. So failure remediation money will be spent or it won’t be spent, it won’t be partially spent.
The degree of acceptable tailings risk therefore becomes a subjective factor. While implementing a dry stack may reduce the risk of catastrophic failure to zero, implementing a $100,000 per year monitoring program on a conventional tailings pond will reduce its risk. Implementing a $500,000 per year monitoring program would reduce that risk even further. Installing in a water treatment plant to enable periodic water releases may further lower the tailings risk. The company can look at different mitigations to keep lowering their risk, although recognizing that none of the mitigations would necessarily bring the risk down to zero. Finally the companies could compare the various risk mitigation costs against the incremental dry stack costs in order to arrive at an optimal path forward.
So the question becomes how low does one need to reduce the tailings storage risk before it is acceptable to shareholders, regulators, and the public. I don’t think the answer is that one must lower the risk down to zero. There are not many things in today’s world that have zero risk. Driving a car, flying in a plane, shipping crude oil by ocean tanker, having a natural gas furnace in your house..none of these have zero risk yet we accept them as part of living in modern society.
Environmental groups are always discussing ways of forcing regulators and mining companies to take action against the risk of tailings failure. This is commendable, however they generally fail to provide any guidance on what level of risk would be acceptable to them or to the public. It seems to be impossible for these groups to define what an acceptable risk is or provide any ideas other than the standard “shut down all mining” solution.
We know that in the long run mining is here to stay so we all should work together towards solutions. The solutions need to be realistic in order to be taken seriously and for them to play a role in redefining tailings disposal in modern mining. Dry stack may not be the only solution and we should be open to ways of improving the other tailings disposal methods so that companies have more low risk options available to them.
When metals prices are high, we are generally taught that we should lower the cutoff grade. Our cutoff grade versus metal price spreadsheet tells us this is the correct thing do. Our grade-tonnage curve reaffirms this since we will now get more ounces of gold in the mineral reserve. But is lowering the cutoff grade really the right thing to do?
Books have been written on the subject of cutoff grades where readers can get all kinds of detailed logic and calculations using Greek symbols (F = δV* − dV*/dT). Here is one well known book by Ken Lane that sells for $998 on Amazon the last time I checked. You can also download a 38-page abridged sample of this book at THIS LINK and the full version is available for $150 at the COMET Strategy web site.
Recently we have seen higher production cash costs at operating mines when commodity prices are high. Why is this? It may be due to higher operating costs inputs caused by increasing labour rates or supplies costs. It also may be partly due to the lowering of cutoff grades, thereby lowering the milled head grade, which then requires more tonnes to be milled to produce the same quantity of metal.
A mining construction manager once said to me that he never understood us mining guys who lower the cutoff grade when gold prices increase. His rationale was that, since the plant throughput rate is fixed, when gold prices are high you suddenly decide to lower the head grade and produce fewer ounces of gold and at a higher cash cost. His point was that we should be doing the opposite; when prices are high you should produce more ounces of gold, not fewer. In essence, in times when supply is low (or demand is high) may not be the right time to further cut back on supply by lowering head grades.
Now this is the point where the grade-tonnage curve comes into play. Certainly one can lower the cutoff grade, lower the head grade and produce fewer ounces now with the upside being extending the mine life. By doing this a company is able to report more ounces in their mineral reserve and the overall snapshot of the company looks better if it is being valued on reserve ounces.
The problem with this is that there is no assurance that metal prices will remain where they are or that the new lower cutoff grade will remain where it is. If the metal prices dip back down next year, the cutoff grade will be increased and the mineral reserve is back to where it was. All that was really done was accept a year of lower metal production for no real benefit. Such a trade-off essentially contrasts a short term vision (i.e. annual production) against a long term vision (i.e. mineral reserves).
My bottom line is that there is no simple answer on what to do with the cutoff grades, hence the need to write books about it. Different companies have different corporate objectives and each mining project will be unique with regards to the impacts of cutoff grade adjustments on their orebody. I would like to caution that one should be careful when taking your cutoff grade spreadsheet, plugging in new metal prices, and then running off to the mine operations department with the result. You need to fully understand the long term and short term impacts of that decision.
Just as a reminder for all QP’s doing financial analysis for PEA’s, don’t forget that one needs to present the financial results on an after-tax basis. Every once in a while we still see a PEA technical report issued only with pre-tax financials. That report is likely to get red- flagged by the securities regulators and the company will then have to amend their press release and technical report in order to show the after tax results. No harm done other than some red faces.
When doing a tax analysis in your model, where can you find regional tax information? For those of you that prepare financial models or are simply looking at mining projects in different jurisdictions, PWC has a very useful tax-related website. The weblink was sent to me by one of my industry colleagues and I thought it would be good to share this.
The PWC micro-site provides a host of tax and royalty information for selected countries. The page is located at http://www.pwc.com/gx/en/industries/energy-utilities-mining/mining/tax.html
On the site they have tax information for specific countries and you can either view the information on your computer screen or download a PDF version. Below is a screen capture from the PWC website.
The PWC tax and financial information includes topics such as:
Corporate tax rates
Excess profits taxes
Mineral taxes for different commodities
Rates of permissible amortization
VAT and other regulated payments
Fiscal stability agreements
Social contribution requirements
PWC has a great web site and hopefully they will keep the information up to date since changes in the laws are occurring constantly. It would be nice to see them add more countries to their 22 country database but it’s already good as it is. Check it out.