Articles tagged with: PEA

48. Online Collaboration and Management Tools (Part 2)

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.
Foxit Reader screenshot

Foxit Reader screenshot

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.
Uber Conference screenshot

Uber Conference screenshot

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.
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47. Online Collaboration and Management Tools (Part 1)

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.

 

Trello screenshot

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.
Slack Screenshot

Example Slack Screenshot

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.
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42. Global Tax Regimes – How Do They Compare?

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.

 

PWC Mining taxes information

The PWC tax and financial information includes topics such as:
  • Corporate tax rates
  • Excess profits taxes
  • Mineral taxes for different commodities
  • Mineral royalties
  • Rates of permissible amortization
  • VAT and other regulated payments
  • Export taxes
  • Withholding taxes
  • 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.

 

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

One of the first things we look at when examining a resource estimate is how much of the resource is classified as Measured / Indicated (“M&I”) versus the tonnage classified as Inferred.  It’s important to understand the uncertainty in the estimate and to a large degree the Inferred proportion gives us that.   At the same time I think we tend to focus less on the split between the Measured and Indicated tonnages.
We are all aware of the study limitations imposed by Inferred resources.  They are speculative in nature and hence cannot be used in the economic models for feasibility and pre-feasibility studies. However Inferred resource can be used for production planing in Preliminary Economic Assessments (“PEA”).
Inferred resources are also so speculative that one cannot add them to the Measure and Indicated tonnages in a resource statement, although that is what just about everyone does when looking at a project.   I don’t think I fully understand the concerns with a resource statement if it included a row that adds M&I tonnage with Inferred tonnes as long as everything is open and transparent.   When a PEA production schedule is presented, the three resource classifications are combined into a single tonnage number but in the resource statement itself the M&I&I cannot be totaled.  A bit contradictory I feel.
With regards to the M&I tonnage, it appears to me that companies are most interested in what part of their  resource meets the M&I threshold but are not as interested in how the tonnage is split between Measured and Indicated.   It seems that M&I are largely being treated the same.  Since both Measured and Indicated resources can be used in the feasibility economic analysis, does it matter if the split is 100% Measured (Proven) or 100% Indicated (Probable)?   The NI 43-101 and CIM guidelines provide definitions for Measured and Indicated resource 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).

 

In my past experience with feasibility studies, some people used the rule-of-thumb that the tonnage mined during the payback period must largely consist of Measure resource (i.e. Proven reserve) and then the rest of the production schedule could rely on Indicated tonnage (Probable reserve).  The idea was that a way to reduce project risk was to ensure that the production tonnage providing the capital recovery should be based on the resource with the highest certainty.   Nowadays I generally do not see this same requirement for Measured resources, 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 shift Indicated resource to Measured so there may be some hesitation. Hence it may be simpler for everyone to simply regard the Measured and Indicated tonnages in roughly the same way.
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 can be used?  I see some potential merit to this idea but adding more regulation and cost to an already burdened industry is not helpful.
Perhaps in the interest of increased transparency, feasibility studies just need to add two rows to the bottom of the production schedule showing how the annual processing tonnages are split between Proven and Probable reserves.  One can get a better sense of the resource risk in the early years of the project.  Given the mining software available today, it likely isn’t difficult to provide such additional detail.
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34. On-Line Technical Report Library

Recently on LinkedIn I noticed a discussion from a member of an Australian/New Zealand consulting group about developing an on-line community for undertaking free peer reviews of new resource estimates and technical reports.   The objective was to help the mining industry improve on their standards, consistency, and quality of resource estimates and the supporting technical reports.
RSC are steadily compiling a Dropbox library of technical reports that can be accessed via a searchable map on their web site at this link.  The map functionality is quite unique and interesting.  Check it out – there are many global projects already listed on the map.
The proposed peer review concept is not described on the web site but was part of a LinkedIn discussion, which now seems to be deleted from LinkedIn. The goal is (or was) to develop a team of pre-approved volunteer mineral consultants that would review the various technical reports for accuracy and compliancy.  The list of comments would then be complied and would generate a ranking to be provided back to the original author and/or the mining company.   The hope is that such on-going peer reviews would help improve the quality of technical work.
Via LinkedIn, they were seeking out volunteer reviewers and had numerous people interested already.  My understanding is that they were planning to start a trial run of the system within the next few weeks, however seeing the article gone from LinkedIn, the idea may have been put aside.  Nevertheless the searchable map is still there and it is an interesting way to see what project developments are occurring in the mining industry.
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26. Cashflow Sensitivity Analyses – Be Careful

One of the requirements of NI 43-101 for Item 22 Economic Analysis is “sensitivity or other analysis using variants in commodity price, grade, capital and operating costs, or other significant parameters, as appropriate, and discuss the impact of the results.”
 The result of this 43-101 requirement is typically the graph seen below, which is easily generated from a cashflow model.  Simply change a few numbers and then you get the new economics.  The usual main conclusions derived from this chart are that metal price has the greatest impact on project economics followed by the operating cost.   Those are probably accurate conclusions, but is the chart itself telling the true story?
 DCF Sensitivity GraphI myself have created the same chart in several economic studies so I understand the limitation with it.   The main assumption is that sensitivity economics are generated on the exact same reserve and production schedule as for the base case.  That assumption may be applicable when applying a variable capital cost but may not be applicable when applying varying metal prices and operating costs.   Does anyone think that in the example show, the NPV is still $120M with a 20% decrease in metal price or 20% increase in operating cost? Potentially a project could really be uneconomic with such a significant decrease in metal price but that is not shown by the sensitivity analysis.
Increasing the operating cost changes the cutoff grade, which changes the waste-to-ore ratio within the same pit.  So assuming the same the life-of-mine production tonnage is not entirely correct in this scenario.
Reducing the metal price would also result in a change to the cutoff grade.  If one were to go all the way back, these changes in economic parameters would impact on the original pit optimization used to define the pit upon which everything is based.  A smaller pit size results in a different pit tonnage, which may require a smaller processing plant, which would then have new (higher) operating and lower capital costs than assumed.  A smaller reserve would produce a different production schedule and shorter mine life.  It can all get quite complex.
So due to all the changes these sensitivities generate, it does require a lot of work to properly examine them. However generally the project proponent does not want to incur the costs necessary to run multiple pit designs and multiple life of mine plans simply to examine sensitivities.  Hence the shortcut is to simply change inputs to the cashflow model and generate outputs that are questionable but meet the 43-101 requirements.
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16. Request For Proposal (“RFP”) – Always Prepare One

When it comes to time to solicit prices for any type of engineering study, whether small or large, whether sole sourced or competitively bid, it is always a good idea to prepare a Request For Proposal (“RFP”) document. An RFP is better than an informal phone call to a consultant asking for a proposal and better than a cursory email outlining what you want. In many cases the RFP doesn’t need to be a complex document; however RFP’s are appreciated by everyone involved.
From a company perspective, preparing an RFP gives the opportunity to collect the thoughts on the scope of study needed, on the deliverables wanted, and on the timing required.   The RFP will outline this out for the consultants and simultaneously helps company management get on the same page themselves.  The RFP is the opportunity for the company to tell the consultants exactly what they are looking for in the study and what they want to see in the proposal itself.
From a consultant’s perspective, receiving an RFP is great since having a detailed scope of work laid out means you don’t need to guess when preparing a cost estimate.  It will be clear to the consultant what work is “in scope” and if ultimately extra services are required then “out-of-scope” work can easily be defined.   An RFP gives the consultant some reassurance that the company has put consideration into exactly what they want to do.
The RFP that is sent to bidding consultants should contain (at a minimum) the items listed below. A sole sourced study can have a scaled back RFP but some of the key items should still be maintained.   Much of this RFP information can be built into a single template that will simply be modified if different scopes of work will be sent to different consultants (e.g. tailings design, pit geotechnical, groundwater, feasibility study, etc.).
  • Project Introduction (an overview of the project).
  • Table of Responsibilities for the Study (if other consultants are being involved in different areas).
  • Scope of Work (for this Proposal), and highlight any specific exclusions.
  • Additional Requirements (update meetings, monthly reports, documentation requirements).
  • Schedule (what timing the owner wants for the return of proposal, when the job will be awarded, when the study will kickoff, and when completion is required).
  • Instructions to the Bidder (e.g. what information should be provided in each proposal and in what format).
  • Other (the legal rights of the Owner, confidentiality statement, how proposals will be evaluated, etc.).
If a company is competitively bidding the study, it can be easier to compare multiple proposals if certain parts are presented in the exact same format.  Usually different consulting firms have their own proposal format, which is fine, however certain sections of the proposal should be made easily comparable.   The RFP can request that each proposal should contain (at a minimum):
  • Confirmation of the scope of work based on the RFP, which may be more detailed than the RFP itself.
  • List of exclusions.
  • List of final deliverables.
  • Proposed Study Manager, resume and relevant study management experience.
  • Proposed team members, organizational structure by areas of responsibility, and resumes.
  • Cost estimate on a not-to-exceed basis for each area, subdivided by team member, hours and unit rates ,and possibly in a specific table format.
  • A fee table for the various job classifications that would be applied to out-of-scope additional man hours.
  • All indirect costs, administrative costs, indicating mark-ups (if any).
  • Miscellaneous disbursements (i.e., airfares, hotel, vehicles) and indicate if there are mark-ups.
  • Detailed study schedule to completion.
  • Payment schedule.
  • Specify if there are any potential conflicts of interest with other projects.
My bottom line is that a company should always take the time to prepare some type of RFP for any study they wish to undertake.  The company should also request a proposal from the consultant based on that RFP, even if it is being sole sourced to one company.  Depending on the size and nature of the study, one can use judgement on how detailed the RFP or consultant’s proposal must be, but I suggest that one always gets the proper documentation into place beforehand.
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10. Google Earth – Make Good Use of It

In a previous article (3. Site Visit – What Is the Purpose?) I briefly discussed the requirements for a site inspection to be completed by one or more Qualified Persons (“QP”) in a 43-101 compliant study.    Unfortunately the entire study team does not participate in the site visit; however the next best thing may be a viewing with Google Earth.  Here are the possibilities with Google Earth:
  • It can be used to fly-around the project area examining the 3D topography across the site.
  • It can be used to view regional features, regional facilities, land access routes, and existing infrastructure.
  • It  has the capability to measure distances, either in a straight line or along a zigzag path.
  • It has the ability to view historical aerial photos (if they exist) to show how the project area might have changed over time.
  • It can import GPS tracks and waypoints.  If a member of the study team has visited the site with a GPS, they can describe their route and their observations.
As an aside, also check the aerial photos and Bird’s Eye views on the Bing Maps website (www.bing.com/maps).  Sometimes those images can be different than what you will find in Google Maps or Google Earth.
My bottom line recommendation is to have a Google Earth session with your engineering team to view the project site and the regional infrastructure. A viewing session ensures that everyone sees and hears the same things about the site. It’s like taking a helicopter tour of the site with your entire team at once!  If people are working in different offices, this can be done via screen sharing in Skype, Glance, GoToMeeting, or any of the other online conferencing methods.    A “helicopter tour” like this would be a good agenda item at the first study kickoff meeting and is useful when done as a group with a “tour guide”.  This is better than people viewing the mine site by themselves on their own time.
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9. Large Consulting Firms or Small Firms – Any Difference?

I have come across some junior mining companies that have based the selection of their engineering consultant on the assumption that they needed a “big name” firm on the cover page to give credibility to the study.   This is an interesting dilemma that many smaller mining companies run into and also a dilemma for the smaller engineering firms trying to win jobs.  Large consultants may ultimately be higher cost due to their overheads, however their name on the study may bring some intangible value.
Based on my experience I feel that larger consultants are best suited for managing large scope feasibility level studies.  This isn’t because they will necessarily provide a better technical product, but rather they tend to have the management and costing systems in place to undertake the larger studies.  The larger firms will be able to draw in more management resources; for example, project schedulers and document control personnel.  Ultimately one will pay for all of these people, which may help in getting to the endpoint of the final study but it will come at a cost.
For certain aspects of a feasibility study, one may actually get better technical services from smaller specialized engineering firms.  However the overall coordination of a large feasibility study can be an onerous task and the large firms may be well positioned to do this.   In my view, likely the best result will come from a combination of a large firm managing the feasibility study but undertaking only the technical work where they can be deemed to be experts in.  The large lead firm would be supported by smaller firms for the specialized aspects, as per a previous article “Multi-Company Engineering Studies Can Work Well..Or Not”.
For smaller studies, like scoping studies (i.e. PEA’s) which can be based on limited amounts of technical data, I personally don’t see the need for the large engineering firms.  The credibility of such early studies will largely be based on the amount of data used to support the design assumptions; for example how much metallurgical testing has been completed; how much geotechnical investigation been completed; how much inferred resource is being used in the mine plan (see “PEA’s – Not All PEA’s Are Created Equal”).  A large firm’s use of limited data may be no more defensible than a small firm’s use of the same data.
One of the purposes of an early stage study is to see if the project has economic merit and would therefore warrant further expenditures in the future.  An early stage study is generally not used to defend a production decision.  In addition, the objective of an early study is not necessarily to terminate the project outright unless it is obviously highly uneconomic.   I have seen cases where larger firms, in order to protect themselves from limited data, were only willing to use the most conservative design assumptions. This may not be helpful to a small mining company trying to decide what to do with a developing project.
My bottom line is that for early stage studies like a PEA, smaller engineering firms can do as good a job as larger firms.  However one must select the right firm, review some of their more recent 43-101 reports to gauge their quality of work, and don’t hesitate to check their client references.   For the more advanced feasibility level studies, if the small firm indicate they can do the entire study too, one should be wary. Perhaps they can do parts of the feasibility study by sub-contracting to a larger firm but managing such large study may be beyond their internal capabilities.   Whether considering a small or large engineering firm, one needs to be aware of their strengths and weaknesses as regards to the specific study.
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8. PEA’s – Is it Worth Agonizing Over Details

As stated in a previous article (“PEA’s – Not All PEA’s Are Created Equal“) different PEA’s will contain different levels of detail due to the amount of hard technical data used in each.    The same statement holds within a single PEA itself whereby different chapters of the same study can be based on different quality of data.
I have seen PEA’s for which many of the chapters were fairly high level based on limited data but then some parts of the technical report may go into great depth and detail. This may not be necessary.  For example, if the resource is largely inferred then the mine production plan will have a fair bit of uncertainty built into it.  So there is not a lot of value in the engineers preparing a detailed tailings design concept for that mine plan.  Similarly there is little value in developing a very detailed operating cost model or cashflow model for a study which has uncertainty in many areas.  This is a waste of time and money, it adds to the study timeline, and may give the impression that the study is more accurate than it really is.
Differing levels of detail in the same study is a common problem when diverse teams are each working on their own aspect of the study.   Some groups may think they are working with highly accurate data (e.g. production tonnage) when in reality the data is still somewhat speculative.
My bottom line is that it is important for the Study Manager and Owner to ensure the entire technical team is on the same page and understands the type of information they are working with.   The final study should be consistent throughout.  Experienced reviewers will recognize the data gaps in the study and hence view the entire study in that light regardless of how detailed the other sections of the report appearing to be.
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