Articles tagged with: Mine Engineering

61. Ore Dilution – An Underground Perspective

A few months ago I wrote a blog about different approaches that mining engineers are using to predict dilution in an open pit setting. You can read the blog at this link. Since that time I have been in touch with the author of a technical paper on dilution specifically related to underground operations. Given that my previous blog was from an open pit perspective, an underground discussion might be of interest and educational.
The underground paper is titled “Mining Dilution and Mineral Losses – An Underground Operator’s Perspective” by Paul Tim Whillans. You can download the paper at this link.

Here is the abstract

For the underground operator, dilution is often synonymous with over-break, which mining operations struggle to control. However, there are many additional factors impacting dilution which may surpass the importance of overbreak, and these also need to be considered when assessing a project. Among these, ore contour variability is an important component of both dilution and mineral losses which is often overlooked.  Mineral losses are often considered to be less important because it is considered that they will only have a small impact on net present value. This is not necessarily the case and in fact mineral losses may be much higher than indicated in mining studies due to aggregate factors and may have an important impact on shorter term economics.

My key takeaways

I am not going into detail on Paul’s paper, however some of my key takeaways are as follows. Download the paper to read the rationale behind these ideas.
  • Over-break is a component of dilution but may not be the major cause of it. Other aspects are in play.
  • While dilution may be calculated on a volumetric basis, the application of correct ore and waste densities is important. This applies less to gold deposits than base metal deposits, where ore and waste density differences can be greater.
  • Benchmarking dilution at your mine site with published data may not be useful. Nobody likes to report excessively high dilution for various reasons, hence the published dilution numbers may not be entirely truthful.
  • Ore loss factors are important but can be difficult to estimate. In open pit mining, ore losses are not typically given much consideration. However in underground mining they can have a great impact on the project life and economics.
  • Mining method sketches can play a key role in understanding underground dilution and ore losses, even in today’s software driven mining world.
  • Its possible that many mine operators are using cut-off grades that are too low in some situations.
  • High grading, an unacceptable practice in the past, is now viewed differently due to its positive impact on NPV. (Its seems Mark Bristow at Barrick may be putting a stop to this approach).
  • Inferred resources used in a PEA can often decrease significantly when upgraded to the measured and indicated classifications. If there is a likelihood of this happening, it should be factored into the PEA production tonnage.
  • CIM Best Practice Guidelines do not require underground ore exposure for feasibility studies. However exposing the ore faces can have a significant impact on one’s understanding of the variability of the ore contacts and the properties of minor faults.

Conclusion

Not everyone will necessarily agree with all the conclusions of Paul’s paper on underground dilution. However it does raise many issues for technical consideration on your project.
All of us in the industry want to avoid some of the well publicized disappointments seen on recent underground projects. Several have experienced difficulty in delivering the ore tonnes and grades that were predicted in the feasibility studies. No doubt it can be an anxious time for management when commissioning a new underground mine.
Note: previously I had shared another one of Paul’s technical papers in a blog called “Underground Feasibility Forecasts vs Actuals”. It also provides some interesting insights about underground mining projects.
If you need more information, Paul Whillans website is at http://www.whillansminestudies.com/.
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58. Ore Dilution Prediction – Its Always an Issue

mining reserve estimation
Over my years of preparing and reviewing mining studies, ore dilution often seems to be a contentious issue.  It is deemed either too low or too high, too optimistic or too pessimistic.  Everyone realizes that project studies can see significant economic impacts depending on what dilution factor is applied.  Hence we need to take the time to think about what dilution is being used and why.

Everyone has a preferred dilution method.

I have seen several different approaches for modelling and applying dilution.   Typically engineers and geologists seem to have their own personal favorites and tend to stick with them.   Here are some common dilution approaches.
1. Pick a Number:
This approach is quite simple.  Just pick a number that sounds appropriate for the orebody and the mining method.  There might not be any solid technical basis for the dilution value, but as long as it seems reasonable, it might go unchallenged.
2. SMU Compositing:
This approach takes each percent block (e.g.  a block is 20% waste and 80% ore) and mathematically composites it into a single Selective Mining Unit (“SMU”) block with an overall weighted average grade.  The SMU compositing process will incorporate some waste dilution into the block.  Possibly that could convert some ore blocks to waste once a cutoff grade is applied.   Some engineers may apply additional dilution beyond SMU compositing while others will consider the blocks fully diluted at the end of this step.
3. Diluting Envelope:
This approach assumes that a waste envelope surrounds the ore zone.  One estimates the volume of this waste envelope on different benches, assuming that it is mined with the ore.  The width of the waste envelope may be correlated to the blast hole spacing being used to define the ore and waste mining contacts.  The diluting grade within the waste envelope can be estimated or one may simply assume a more conservative zero-diluting grade.   In this approach, the average dilution factor can be applied to the final production schedule to arrive at the diluted tonnages and grades.  Alternatively, the individual diluted bench tonnes can be used for scheduling purposes.
4. Diluted Block Model:
This dilution approach uses complex logic to look at individual blocks in the block model, determine how many waste contact sides each block has, and then mathematically applies dilution based on the number of contacts.  Usually this approach relies on a direct swap of ore with waste.  If a block gains 100 m3 of waste, it must then lose 100 m3 of ore to maintain the volume balance.   The production schedule derived from the “diluted” block model usually requires no subsequent dilution factor.

When is the Cutoff Grade Applied?

Depending on which dilution approach is used, the cutoff grade will be applied either before or after dilution.   When dilution is being added to the final production schedule, then the cutoff grade will have been applied to the undiluted material (#1 and #2).
When dilution is incorporated into the block model itself (#3 and #4), then the cutoff grade is likely applied to the diluted blocks.   The timing of when to apply the cutoff grade will have an impact on the ore tonnes and had grade being reported.

Does one apply dilution in pit optimization?

Another occasion when dilution may be used is during pit optimization.  There are normally input fields for both a dilution factor and an ore loss factor.   Some engineers will apply dilution at this step while others will leave the factors at zero.  There are valid reasons for either approach.
My preference is use a zero dilution factor for optimization since the nature of the ore zones will be different at different revenue factors and hence dilution would be unique to each.   It would be good to verify the impact that the dilution factor has on your own pit optimization, otherwise it is simply being viewed as a contingency factor.

Conclusion

My personal experience is that, from a third party review perspective, reviewers tend to focus on the final dilution number used and whether it makes sense to them.   The actual approach used to arrive at that number tends to get less focus.
Regardless of which approach is being used, ensure that you can ultimately determine and quantify the percent dilution being applied.  This can be a bit more difficult with the mathematical block approaches.
Readers may yet have different dilution methods in their toolbox and I it would be interesting to share them.
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56. Does the Mining Industry Employ Interns?

employing interns
Over the couple of years I have been working on a side project in the tech industry.   One of the things that struck me was the hiring of interns, both paid and unpaid.
I’m now aware that interns are being hired in other industries such as legal, politics, journalism, and marketing.  However I have never come across the use of interns within the mining industry.
Intern

Why hire interns?

I was recently talking to a marketing consultant about tips on tech marketing and one of the suggestions she made was to hire an unpaid intern.  They would do much of the legwork of finding sales contacts and establishing contact with them.
My first question was why would anyone work for free?  There are  three main reasons:
  1. For school credit; as part of a course credit in college or university where an internship is part of the program requirement.
  2. For experience; it is difficult to get a real job without experience and so the internship teaches, builds  experience, and establishes a portfolio of work.
  3. Networking; building up industry connections can possibly lead to permanent work down the road.

Its the right thing to do

At first I was taken aback at the thought of asking someone to work for my company for free.  Are we that cheap?
Thinking about it further, if you are paying someone a salary the expectation is that they should be somewhat skilled at their job.  I have come to realize that the internship may actually be a win-win for both parties.

Its a win-win

The company gets a chance to learn about potential employees and also gets productive service from them.
The intern gains employment experience and learns about the realities of the business world.  Students have already paid the schools to teach them.  Now businesses can help teach them more, but at no cost.   It’s a win-win for both.
So how did our unpaid intern search go?  We posted a free ad on indeed.ca.  Within 72 hours we received over ten replies, of which only 2-3 came close to meeting the actual qualifications.  Some of the applicants had no relevant experience at all.
Possibly in today’s job market people are willing to work for free on the hope that they can get some experience, which will hopefully lead to a permanent job in the future.

Conclusion

The question is whether the mining industry can make use of interns in the areas of geology, engineering, marketing, presentation graphics, websites, etc?
There may be many students or recent grads looking for an opportunity and are willing to do whatever it takes to  advance their careers.
Even if your operating budget can’t afford the cost of hiring another person, you may still have a chance to help out someone new in the industry.
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55. Underground Feasibility Forecasts vs Actuals

underground costing
I recently attended a CIM Management and Economics Society presentation here in Toronto 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.  Paul raised many thoughtful points supported by data. He gave me permission to share his information.
The abstract for his paper is inerted below.  The paper can be downloaded at this LINK and here are the presentation slides.

ABSTRACT

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.”

Conclusion

I agree with many of the points raised by Paul in his study. 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.
Credibility ultimately 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/
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53. Ore Stockpiling – Why are we doing this again?

ore stockpile
In many of the past mining studies that I have worked, stockpiling strategies were discussed and usually implemented. However sometimes team members were surprised at the size of the stockpiles that were generated by the production plan. In some cases it was apparent that not all team members were clear on the purpose of  stockpiling or had preconceived ideas on the rationale behind it. To many stockpiling may seem like a good idea until they saw it in action.
Mine Stockpile
In this blog I won’t go into all the costs and environmental issues associated with stockpile operation.  The discussion focuses on the reasons for stockpiling and why stockpiles can get large in size or numerous in quantity.
In my experience there are four main reasons why ore stockpiling might be done. They are:
1. Campaigning: For metallurgical reasons if there are some ore types that can cause process difficulties if mixed  with other ores. The problematic ore might be stockpiled until sufficient inventory allows one to process that ore (i.e. campaign) through the mill. Such stockpiles will only grow as large as the operator allows them to grow. At any time the operator can process the material and deplete the stockpile. Be aware that mining operations might still be mining other ore types, then those ores may need to be stockpiled during the campaigning.  That means even more ore stockpiles at site.
2. Grade Optimization: This stockpiling approach is used in situations where the mine delivers more ore than is required by the plant, thereby allowing the best grades to be processed directly while lower grades are stockpiled for a future date. Possibly one or more grade stockpiles may be used, for example a low grade and a medium-low grade stockpile. Such stockpiles may not get processed for years, possibly until the mine is depleted or until the mined grades are lower than those in the stockpile. Such stockpiles can grow to enormous size if accumulated over many years.  Oxidation and processability may be a concern with long term stockpiles.
3. Surge Control: Surge piles 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 to the plant to provide a steady feed rate. These stockpiles are also available as short term emergency supply 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 simply used for 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 within a consistent range. Such stockpiles may not be large individually; however there could be several of them depending on the nature of the orebody.
There may be other stockpiling strategies beyond the four listed above but those are the most common.

Test Stockpiling Strategies

Using today’s production scheduling software, one can test multiple stockpiling strategies by applying different cutoff grades or using multiple grade stockpiles. The scheduling software algorithms determine whether one should be adding to stockpile or reclaiming from it. The software will track 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).
ore stockpile
Stockpiling in most cases provides potential benefits to an operation and the project economics. Even if metallurgical blending or ore campaigning is not required, one should always test the project economics with a few grade stockpiling scenarios.
Unfortunately these are not simple to undertake when using a manual scheduling approach and so are a reason to move towards automated scheduling software.
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.
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50. Landslide Blog – If You Like Failures

slope failure blog
For those of you with a geotechnical background or have a general interest in learning more about rock slides and slope failures, there is an interesting website and blog for you to follow.
The website is hosted by the American Geophysical Union the world’s largest organization of Earth and space scientists. The blogs on their site are written by AGU staff along with contributions from collaborators and guest bloggers.

Landslide Blog screenshot

The independent bloggers have editorial freedom in the topics they choose to cover and their opinions are those of their authors and do not necessarily represent the views of the American Geophysical Union. This provides for some leeway on the discussions and the perspectives the writers wish to take.

Landslide Blog

One specific area they cover well in their Landslide Blog are the various occurrences of rock falls and landslides from any location around the globe. They will present commentary, images, and even videos of slope movements as they happen.
Often they will provide some technical opinion on what possibly caused the failure event to occur. The Landslide Blog has a semi-regular email newsletter that will keep you updated on new stories as they happen.
The following links are a few examples of the type of discussions they have on their website.
Here is a description of a small water dam failure in Greece.
Here is some video of the Samarco tailings runout in Brazil.
From time to time the Landslide Blog will examine mine slopes, tailings dams, and waste dump failures, however much of their information relates to natural earth or rock slopes along roads or in towns.
Some of their videos are quite fascinating, illustrating the forces behind some of earth’s natural erosion processes. Check it out for yourself.
The bottom line on all of this is that the less the mining industry is mentioned in the Landslide Blog, the better it is.
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49. Remote Sensing of Ore Grades

mining automation
Update:  This blog was originally written in March 2016 and has been updated Jan 2019. 
The mining industry must continually find ways to improve and modernize. The most likely avenue for improvement will be using new technologies as they become available.
One of the players on the scene is a start-up company called “MineSense Technologies Ltd.”  They are a British Columbia company looking to improve ore extraction and recovery processes based on the sensing and sorting of low-grade ore. They hope their technology will improve mine economics by reducing the consumption of energy, water, and reagents.

Minesense

Having first written about this in 2016, its still not entirely clear to me how developed their technology is in 2019. Thus far they appear to be secretive with respect to their testing and performance results.  Certainly they are able to raise financing to keep them going.

Sensors are the answer

It appears MineSense is relying on a combination of ground-penetrating sensors with other technology in order to measure and report the grade of ore in real time.
Existing ore sorting technologies seem to focus on distinguishing mineralized material from gangue, but MineSense seems to be targeting using actual ore grades as the defining factor.
They hope to be able to eventually integrate their technology into equipment such as shovels, scooptrams, conveyors, feeders, and transfer chutes.
Their proprietary technology is based on High Frequency Electromagnetic Spectrometry and High Speed X-Ray Fluorescence sensors. Reportedly these can deliver better sensitivity and operate at high speeds. They plan to develop two distinct product lines; shovel-based systems; and conveyor belt-based systems.

ShovelSense

Their ShovelSense system would be a real-time mineral telemetry and decision system and used for measurement of ore quality while material is being scooped into the dipper, then reporting the ore quality and type to the grade control/ore routing system, and then enabling real-time online ore/waste dispatch decisions. Additional features may include tramp metal and missing tooth detection.  Sounds like a good idea, albeit some practical operating issues will need to be overcome.

BeltSense

Their belt conveyor systems (BeltSense) will use high-speed multi-channel sensing to characterize conveyed ore and waste in real time, allowing grades and tonnages to be reported and allowing ore to be diverted to correct destinations based on the sensor responses.
MineSense say that pilot units are operating at 20 tph and systems of up to 2000 tph are in the development stages.
Ore sorting has been around for a long time, with companies like Tomra, but possibly the MineSense technical approach will be different.

Conclusion

The bottom line is that we should all keep an eye on the continued development of this technology, especially as MineSense completes larger field trials.  Hopefully they will soon share results with industry since it will be critical for operators to see more actual case study data on their website.
I recognize that developing new technology will have its successes and failures. Setbacks should not be viewed as failure since innovation takes time. Hopefully after fine tuning their technology they can advance to the commercialization stage.
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48. Online Collaboration and Management Tools (Part 2)

networking
This blog is the Part 2 continuation of a prior post regarding collaboration software tools that mining teams should consider.   Here are a few more ideas I’d like to share, having found that these are great to have in your toolbox.
G-suite and miningG-Suite: is the family of Google Drive, Docs, Sheets, and Slides online services.
Group collaboration can be frustrating using spreadsheets or text documents.  We typically end up with different versions of the same document floating around.  No one is sure whether they are editing the most recent version or which version they should be editing.
With G-Suite (Google Sheets and Google Docs) you can create online spreadsheets and documents and allow multiple team members to review and edit them in real-time online at the same time.
Writing reports gets simpler since there is only one working version of the document. A “track changes” option is there (called “Suggesting”) and everyone can see the edits as they are being made. No more asking “who has the most current version?”  This type of collaborative editing is also great for Design Criteria Documents that are regularly being updated by different team members.
I have used both DropBox and Google Drive, but my preference is using Google Drive since it integrates well with G-Suite.

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 due to commenting capability that it provides.
Google Hangouts:  This is an online and mobile application for team conference calling.  It allows screen sharing, online group video conversations, sends out meeting reminders, and it will call participants at the require time.
While Hangouts has many of the same features as Skype, it integrates with Google Calendar and Gmail.   Most of the tech world uses Hangouts instead of Skype, but I’m not sure if the mining industry is ready to move away from Skype.
An honorable mention for video-conferencing goes to Zoom. Some tech developers have been switching to Zoom, they feel it has more capabilities than Hangouts and better video resolution. I have never used it however.

Other Software

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. :

Geology & Mining Software

One of the standard marketing approaches used by tech software is to provide a fully functional product for free and then charge money to access the enhanced features. The goal is to get future users familiarized and trained on the product.  They hope that they will get hooked on the product and decide to upgrade their plan for the full product suite.
I’m not sure whether any geology or mining software  is available for free in a fully functional format with optional upgrading. By functional, I don’t mean simply providing a “viewer” to view the work of others or a 30-day free trial period.  I mean actual software that provides some useful capability for free in order to get you hooked. Please let us know if this software marketing approach exists in the mining industry.

Conclusion

The bottom line is that there is a lot of interesting collaboration software out there.  Its readily available, much of it is free, and can make managing your remote project teams easier. Just because the software is used by the tech industry and millennials, don’t assume it won’t have a benefit to the mining industry.
The downside is the need to train and learn the new software, and the mining industry may not be so receptive to that.
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47. Online Collaboration and Management Tools (Part 1)

networking
Update:  This blog was originally published March 2016.   However like all things, the online world keeps evolving. So I have updated Part 1 and Part 2 of the blog (Dec 2018).  I added new software suggestions and removed some.
As part of a side business, I have been working alongside a team of software developers. It has been a good learning experience for me to see how the tech world does things compared to how the mining industry likes to work. We see a lot of private equity flowing into tech and less into mining, so they must be doing something right.
The tech start-up industry has developed its own set of jargon.  Common terms are agile management, lean start-ups, disruption, minimum viable products, pings, fail fast, and sprints.
Some of their work approaches do not make sense for the mining industry where one doesn’t have the luxury of using trial-and-error and customer feedback to help complete a project.
For software, the attitude is get it out the door fast and your customers will then tell you what fixes are needed. In mining you want to get it right the first time.  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 guidance is in the implementation of collaboration tools. It is becoming more common for software developers to work remotely.  To collaborate they use the technology available or they develop new technology to meet their needs.  Mining teams are also working more and more from remote offices these days.

What are the collaboration software available

The following is a partial list (Part 1) of free software tools that I have used, mainly because I was forced to. With some hesitation at first, I have subsequently found the tools easy to use.  Many of them can definitely be applied in the mining industry with remote and diverse study teams.
There are a lot more tech tools out there but my list includes some that I have personally used. Most of these are free to begin with, and enhanced features are available at a minimal cost. However even the free versions are functional and can be used to build a comfort level in the team. Most of them provide both web based access and mobile access so even when you’re on the road you can still use them and contribute.

Trello

Trello: If you want to create a “to-do list” or task list for your team, this is the software to use. Imagine a bunch of  post-it notes that you can place under different categories, assign persons to each note, attached a file to the note if you wish, and then have back and forth discussions within each note.   Once a task is done, just drag the note to another category (e.g. “In Progress”, “Completed”). Anyone on the team can be invited to the Trello Board and can collaborate. See the image below for an example Trello screenshot.   This is a great tool for helping to manage tasks in a mining study.

 

Trello screenshot

Slack

Slack: If you want to maintain a running dialogue of group discussions that invited team members can follow and join in on, then Slack (a Canadian company) is for you. It can replace the long confusing back-and-forth emails that we commonly see.  If someone forgets to “reply all” the rest of the team is out of the loop. See the image below for an example Slack screenshot. It’s great for discussions among the team.  You can also have private one-on-one discussions or wide open team discussions.  You can attach files too and you can get pinged when something new is added. It provides permanent record of conversations and decisions.

Slack Screenshot

Mural

Mural:  Mural is a recent innovation to solve the issue that remote teams have of not sitting in the same room and writing ideas down on a whiteboard.   For that last while, there was no good white boarding software out there but I understand that Mural fills the gap.  i have not used it so cannot vouch for its simplicity, however it seems to be catching with the tech developers.  The screenshot below shows the type of inter-actions possble.  Each person has access to write on the whiteboard.
Basecamp: is similar program to Slack 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.

Conclusion

The bottom line is that there is a lot of good stuff out there, readily available, much of it free, and can facilitate collaboration among your teams. Just because its tech industry related, don’t assume it wouldn’t have an application in the mining world.  As millennials enter the mining workforce, these tools may gain a foothold.
To read about even more collaborative tools, take a look at Part 2 of this blog.  Comments on any of the discussions or software are appreciated.
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44. Higher Metal Prices – Should We Lower the Cut-Off Grade?

When metals prices are high, we are generally told that we should lower the cutoff grade. Our cutoff grade versus metal price formula tells us this is the correct thing do. Our grade-tonnage curve reaffirms this since we will now have 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, available on Amazon HERE.
Recently we have seen a trend of higher cash costs at operating mines when commodity prices are high. Why is this?
It may be due to higher cost operating inputs due to increasing labour rates or supplies. It may also be partly due to the lowering of cutoff grades.  This lowers the 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 concern was that since the plant throughput rate is fixed, when gold prices are high we suddenly decide to lower the head grade and produce fewer and higher cost ounces of gold.

Do the opposite

His point was that we should do the opposite.  When prices are high, we should produce more ounces of gold, not fewer. In essence, periods when supply is low (or demand is high) may not be the right time to further cut  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 of gold.  The upside being an extension in the mine life.  A company can report more ounces in reserves and perhaps the overall image of the company looks better (if it is being valued on reserves).

What if metal prices drop back?

The problem is that there is no guarantee that metal prices will remain where they are and the new lower cutoff grade will remain where it is. If the metal prices drop back down, the cutoff grade will be increased and the mineral reserve will revert back to where it was. All that was really done was accept a year of lower metal production for no real long term benefit.
This trade-off  contrasts a short term vision (i.e. maximizing annual production) against a long term vision (i.e. extending mineral reserves).

Conclusion

The bottom line is that there is no simple answer on what to do with the cutoff grades.  Hence there is a 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 changes on the orebody.
I would like to caution that one should be mindful when plugging in new metal prices, and then running off to the mine operations department with the new cutoff grade. One should fully understand both the long term and short term impacts of that decision.
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43. Mining Fads and the Herd Mentality

minerals
Have worked in the mining industry for over the last 35 years it is always interesting to watch the herd mentality that exists.  Its obvious how easily we all get caught chasing the latest fads.
All it takes is a short term spike in a commodity price or a big discovery somewhere and then off everyone goes running in that direction.  It doesn’t matter the rationale driving the event, all we know is that we need to be in there and our investors want to be in there too.

Just don’t be the last on the bandwagon

Based on my experience, the fads that grab us can include commodities, locations, or technologies. The mining industry is very flexible in that regard. I’ll give a few examples that I have seen.  You probably have even more from your own experience.

Commodity Fads

It seems that as soon as there is a price spike or positive market narrative, a commodity can take on a life of its own.  The following list gives a few examples and when you think about them ask how many actually came into successful production.
  • Potash: a few years ago potash prices spiked and potash properties were all the fad no matter where they were located around the globe, be it Canada, Russia, Ethiopia, Thailand, Brazil, etc.  That has largely fizzled out as prices returned to normal.
  • Lithium / Graphite:  as soon as green battery technology started to be promoted in the news, miners couldn’t run fast enough to pick up the lithium properties.  The same idea hold for the graphite, vanadium, cobalt, and rare earth categories.  Parts of the sector are still hot in 2018 although lithium stories seem to have run their course.
  • Uranium: years ago uranium prices spiked and Ur properties were hot everywhere.  Prices have dropped but seem to be ramping up in late 2018.
  • Nickel: years ago a spike in nickel prices caused a surge in nickel properties, whether it was sulphide nickel, laterite nickel, or other forms.
  • Iron Ore: in conjunction with the Chinese construction boom, iron ore properties were hot around the globe, in high cost or low cost jurisdictions, it didn’t matter where the property was.  Iron is still being pursued but mega scale projects always overhang the market.
  • Diamonds: in conjunction with the first diamond discoveries in Canada in the 1990’s, diamond properties became hot, whether in the Canada or around the globe.  If you couldn’t get a property in Canada’s NWT boom area, anywhere else was fine.
  • China in general: a few years ago every base metal project was thought of as either a potential supplier to China or a potential acquisition for Chinese companies.  As long as it could meet Chinese investor interest it was good.

Location Fads

Mineral claim map exampleWe have all seen the staking rushes that occur when a world class prospect is discovered.  I’m sure we can all recall getting the large claim maps (as shown) with their multicolored graphics showing the patchwork of acquisitions around a discovery. PDAC was great for distributing these.  They were well done and interesting to study.
Picking up properties in hot areas became the fad and share prices would move upwards regardless of whether there was any favorable geology on the property.  Who recalls the following?
  • Voisey Bay: with a mad staking rush around there, with nothing else really paying off in the long run.
  • Saskatchewan:  the potash staking rush where almost every inch of the potash zone was staked with only a couple of companies eventually moving forward and only one going into production.
  • Indonesia: during Bre-X people could not acquire properties in Indonesia fast enough.
  • NWT:  where the diamond property staking rush was crazy in the mid 1990’s.

Technology Fads

Even mining or processing technologies could get caught up in somewhat of a wave and become a fad for further study.  Sometimes this is driven by suppliers or consultants.  Who can recall…
  • Paste Tailings: with numerous conferences and consultants promoting thickened or paste tailings technology as the panacea.  This lead to numerous studies related to thickening, pumping, and disposal at each mine.
  • Block Caving: whereby in order to deliver high tonnages at low cost, bulk underground mining was being promoted.  Everyone wanted their underground project to be a low cost caving style operation.
  • High Pressure Grinding Rolls (HPGR): where process consultants would highlight HPGR as the new replacement for conventional grinding mills.  I’m not sure this technology has taken the industry by storm as they were hoping in the 1990’s.
  • IPCC: whereby inpit crushing and conveying systems were being promoted in many articles and global conferences as the solution to operating cost issues.  I think implementation of IPCC technology isn’t as simple as envisioned and I’m not aware of many cases of its successful implementation.
  • Dot.com: in the early 2000’s many junior miners left exploration behind and transitioned to the dot.com boom, a fad that essentially went nowhere for most.
  • Medical marijuana: it seemed to be the hopeful future for some junior miners in 2000 and still today. The new marijuana entrepreneurs are building on the junior mining model of heavy promotion with skyrocketing valuations and questionable economics.
  • Pre-concentration: this seems to be a growing technology that may be gaining momentum.  It isn’t new technology and it will definitely have its benefits.  However a big stumbling block is how many deposits are actually suitable for its application.  I have written more about this technology “Pre-Concentration – Savior or Not?

Conclusion

Have I missed anything?
The bottom line is that over the years it has been interesting to watch the mining industry react to events.  Sometimes it seems like we’re passengers on a boat, running from one side to other side and then back again.  Unfortunately that doesn’t necessarily make for smooth sailing and can result in upset stomachs.
What’s the next fad? I don’t know but if you can predict it you can probably make a lot of money.

 

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39. Measured vs. Indicated Resources – Do We Treat Them the Same?

measured and indicated
One of the first things we normally look at when examining a resource estimate is how much of the resource is classified as Measured or Indicated (“M+I”) compared to the Inferred tonnage.  It is important to understand the uncertainty in the estimate and how much the Inferred proportion contributes.   Having said that, I think we tend to focus less on the split between the Measured and Indicated tonnages.

Inferred resources have a role

We are all aware of the regulatory limitations imposed by Inferred resources in mining studies.  They are speculative in nature and hence cannot be used in the economic models for pre-feasibility and feasibility studies. However Inferred resource can be used for production planing in a Preliminary Economic Assessment (“PEA”).
Inferred resources are so speculative that one cannot legally add them to the Measure and Indicated tonnages in a resource statement (although that is what everyone does).   I don’t really understand the concern with a mineral resource statement if it includes a row that adds M+I tonnage with Inferred tonnes, as long as everything is transparent.
When a PEA mining schedule is developed, the three resource classifications can be combined into a single tonnage value.  However in the resource statement the M+I+I cannot be totaled.  A bit contradictory.

Are Measured resources important?

It appears to me that companies are more interested in what resource tonnage meets the M+I threshold but are not as concerned about the tonnage split between Measured and Indicated.  It seems that M+I are largely being viewed the same.  Since both Measured and Indicated resources can be used in a feasibility economic analysis, does it matter if the tonnage is 100% Measured (Proven) or 100% Indicated (Probable)?
The NI 43-101 and CIM guidelines provide definitions for Measured and Indicated resources but do not specify any different treatment like they do for the Inferred resources.
CIM Resources to Mineral Reserves

Relationship between Mineral Reserves and Mineral Resources (CIM Definition Standards).

Payback Period and Measured Resource

In my past experience with feasibility studies, some people applied a  rule-of-thumb that the majority of the tonnage mined during the payback period must consist of Measure resource (i.e. Proven reserve).
The goal was to reduce project risk by ensuring the production tonnage providing the capital recovery is based on the resource with the highest certainty.
Generally I do not see this requirement used often, although I am not aware of what everyone is doing in every study.   I realize there is a cost, and possibly a significant cost, to convert Indicated resource to Measured so there may be some hesitation in this approach. Hence it seems to be simpler for everyone to view the Measured and Indicated tonnages the same way.

Conclusion

NI 43-101 specifies how the Inferred resource can and cannot be utilized.  Is it a matter of time before the regulators start specifying how Measured and Indicated resources must be used?  There is some potential merit to this idea, however adding more regulation (and cost) to an already burdened industry would not be helpful.
Perhaps in the interest of transparency, feasibility studies should add two new rows to the bottom of the production schedule. These rows would show how the annual processing tonnages are split between Proven and Probable reserves. This enables one to can get a sense of the resource risk in the early years of the project.  Given the mining software available today, it isn’t hard to provide this additional detail.
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