66. Cyber Security – Coming to a Mine Near You

The mining industry is being told to take advantage of digitalization. As an example, here is a link to a recent article that discusses this “Can mining decode the opportunities of the future?”. The article says “To achieve sustainable improvements in productivity, mining companies will need to overcome a digital disconnect that has held them back”.
I fully agreement with this sentiment, although there are some cautions when adopting new technology.

Not everything is positive

The mining industry will see positive impacts from digitalization.  Unfortunately more reliance on technology also brings with it significant risks.  These risks are related to cyber security.
I recently attended a CIM presentation here in Toronto that focused on cyber security, specifically related to the mining industry. The potential negative impacts to a company can be significant.
Some mining companies already have experienced these negative impacts, albeit in some cases it may not be well publicized. I will highlight some examples later in this blog.
(By the way, I appreciate that the CIM presenter gave me access to the information in his presentation).

Attackers and threats

There are several ways that mining companies can be attacked via technology channels. The attackers could be foreign governments, anti-mining groups, disgruntled employees, or just your average everyday miscreant. There are several avenues as described below.
  • Hack-tivsm: Where a company website may be defaced and blocked as part of a campaign against the opening of a new operation.
  • Data Breaches: Security breaches on websites resulting in leaked sensitive data including personal identification, credentials, and investor information.
  • Industrial Control Attack: Amending software code on major equipment resulting in shutdown or damage.
  • Business Interruption: Attacking systems so the company must be temporarily disconnected from the internet and forcing replacement of all hard drives and servers.
  • Dependent Business Interruption: Overwhelming servers in order to degrade cloud services and websites.

Examples

The following are some examples of how different attack approaches have been used with success.
  • April 2016 – a Canadian gold-mining firm suffered a major data breach when hackers leaked 14.8 GBs of data containing employee personal information and financial data.
  • May 2015 – a Canadian gold mining company was hacked resulting in 100GBs+ worth of stolen data being released.
  • May 2013 – a large platinum producer experienced a security breach on their website resulting in leaked sensitive data online including personal data, credentials, and investor information.
  • February 2015 – A junior mining company was the victim of a cyber scam that resulted in the company paying a $10M deposit into an unknown bank account intended for a sub-contractor.
  • November 2011 – In an attempt to gain information on bid information about a potential corporate takeover, hackers attacked the secure networks of several law firms and computers of the Government of Canada’s Finance Department and Treasury Board.
  • August 2008 – Hackers were able to gain access to the operational controls of a pipeline where they were able to increase the pressure in the pipeline without setting off alarms resulting in an explosion. Beyond damaging the pipeline, the attack cost millions of dollars and also caused thousands of barrels of oil to spill close to a water aquifer.
  • 2014 – A steel mill was the victim of a phishing attack which allowed attackers to gain access to their office network causing outages of production networks and production machines. The outages ultimately resulted in a blast furnace not being properly shut down causing significant damage to the plant.
  • 2003 – Cyber attackers were able to gain access to the SCADA network of an oil tanker resulting in an 8 hour shutdown.
  • August 2012 – A large state-owned oil and gas supplier, experienced an attack intended to halt their supply of crude oil and gas which resulted in more than 30,000 hard drives and 2,000 servers being destroyed ultimately forcing I.T. systems to be disconnected from the internet for two weeks.
  • 2014 – Malware was used to gain access to a Ukrainian regional electricity distribution company to gain remote access to SCADA systems and remotely switch substations off, leaving 225,000 without electricity for three hours.
How many similar incidents have occurred, being unreported or not as publicly visible as these?  Recently Air Canada had a major computer outage.  Was that a squirrel chewing through a wire or a full-on cyber attack?

Ask yourself if you are ready

As your mining company continues to move into the digital world, you must ask:
  1. If an attacker were to disable your business application or a production facility, how long would it take to recover? How much would it cost you? How would you even measure the cost?
  2. How do you ensure your third party vendors’ security standards are appropriate? What would you do if a key supplier or key customer had a data breach that impacted you or hinder their deliveries? How do you mitigate your exposure to such events?
  3. What type and how much sensitive information are you responsible for? If you learned today that your network was compromised, what is your response plan?  Who would you call to investigate a data breach? What law firm would you use and do they have breach response experts?
A cyber attack can impact on operations, public perception, legal liability, and corporate trust.  This can mirror the legal impact of a tailings dam failure.  So are there any mitigations?

Cyber insurance is available

Companies can now consider the growing cyber insurance industry. Traditional insurance indemnifies property, casualty, crime, errors & omissions, and kidnap & ransom events. Cyber insurance adds additional coverage for breaches related to data confidentiality, operations technology malfunctions, network outages, disruption of 3rd parties, deletion or corruption of data, encryption of data, cyber fraud and theft.
While nobody wants to add another cost burden on their business, the gains from digitalization don’t come without pains.

Conclusion

The bottom line is that there is no stopping the digitalization of the mining industry. It is here whether anybody likes it or not. At the same time, there is likely no stopping the growth of cyber crime.
Likely we will hear more hacking stories as miners adopt more of the new technology.
The first line of defense are your security policies and procedures.  Bring in an expert for a security audit. As an option, you can contact cyber insurance brokers that have the expertise to help.
 Its great to see an executive at the head office operating a scooptram at their underground mine.  Its not so great to see some kid in a basement operating that same scooptram (and setting production records).
Open your doors to technology but at the same time keep them locked.

 

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65. Flawed Projects – No Such Thing as Perfection

Recently I read a post on LinkedIn where somebody was asking what key metrics companies are looking for in order to develop (or provide financing to) a new mining project. It’s more than just a project having a good NPV or IRR.  They are also looking at how difficult it is to achieve the targeted NPV.
Mining companies are always on the hunt for new projects to grow their cashflows. They would all like to find the “perfect” project; one with ideal conditions and great attributes. However those perfect projects likely don’t exist anymore, if they ever even did.
Consequently companies must be willing to accept some potential flaws (or risks) in their go-forward projects. The question is what flaws are they willing to accept and how far away from the ideal situation are they willing to go.

What makes a perfect project?

If one could envision a perfect mining project, what might it look like?   Here are some attributes that one would want to see (in random order). If a project had 100% of these, it would be a fantastic project.
    • A high grade ore orebody
    • A large reserve and long mine life to ride out commodity price cycles
    • Low operating cost
    • Low cash cost, in the bottom quartile of costs
    • Well defined ore zones, allowing simple mining with low dilution
    • A geotechnically competent rock mass
    • Clean and straightforward metallurgy
    • Consistent and straightforward permitting regulations
    • A stable government and stable fiscal regime
    • Safe security conditions for site personnel
    • High NPV and high IRR
    • No acid runoff issues from waste products
    • Stable tailings disposal conditions
    • Readily available local workforce / local power supply / good water supply
    • Favorable local community and stakeholder support
Other readers may have more attributes that they would like to see if asked to theorize “What constitutes a perfect mining project?”

Take off the promoter hat

backhoe on soft claysNow take an honest look at some recent (or past) projects that you have been involved with. How many of the perfect attributes listed above would be represented? It would be surprising to see them all checked off. Unfortunately that means certain flaws (risks) must be accepted when developing a project.
Each company (or financier) will have their vision as to which attributes are “must have” and which ones are “nice to have”.

But we have risk tools

There are many risk tools available to help in evaluating the potential flaws in a project. Unfortunately these tools don’t make the decisions for management.
Risk based Monte Carlo analysis requires management to pre-define the magnitude of the risks and then decide upon what probability of success is acceptable. Real option analysis or decision trees or Kepner-Tregoe are examples of other tools that can help in the decision making process.
Ultimately risk is risky.  Management must make the go/no-go decision regardless of how many probabilistic histograms and tables they have generated. A 90% chance of success still means there is a 10% chance of failure. The probability of failure may be low, but it is not zero.
It would be interesting to examine recent failed projects to define the cause(s) of failure. One could then see if the cause was something that was pre-determined as a risk, either as a small risk or a large risk. Perhaps the cause was something that management felt could be mitigated or perhaps it was something viewed as highly unlikely. No doubt that successful projects also had risks, which were either mitigated or which (luckily) never occurred.

Conclusion

The bottom line is that management understandably have a difficult task in making go/no-go decisions. Financial institutions have similar dilemmas when deciding on whether or not to finance a project.
In my career I have sat in on such management discussions and it’s never been a simple process, mainly because no project is perfect. Management know all the flaws (at least they think they do) and thus have to decide whether to push forward knowing the flaws exist.
I fully expect that future mining project risk will increase due to the complexity of project designs and broadening of stakeholder dynamics. Hence decision making in the mining industry isn’t going to get any easier regardless of the decision tools being used.  Look at your own situation, are your projects getting easier or harder?
Perhaps this is one reason we are seeing the flight of investment capital from mining into software/cannabis businesses. The risk/reward profile may be viewed more favorably in these investments.
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64. Is Insitu Leaching the “Green Mining” Future

It is no surprise to anyone that permitting new open pit mines in today’s environment is getting more difficult and even impossible in some areas.   Underground mines also have their challenges, permitting as well as requiring relatively high grades to be economic.
So where might our future metal supplies come from?  What are the options?

Insitu leaching may be the answer

I recently came across an insitu leaching website, called BIOMore.  This was an initiative sponsored by the EU that looked at insitu leaching technology for metal recovery.    Environmental issues associated with mining in Europe, particularly open pit mining, raised concerns about how ore bodies in the EU might be developed in the future.
Insitu leaching technology was viewed as playing an important role.  This is due to its minimal surface disturbance, ability to operate at great depth, and its potential in urban and developed locations.  Sounds like a nice solution to have on hand.
The EU-funded BIOMOre research project was completed in 2018.  It was designed to develop a new technological framework for the insitu recovering of metals from deep deposits.  The process would rely on controlled stimulation of pre-existing fractures in combination with insitu bio-leaching.  The study mainly focused on the application of existing technologies.

Fracing will be an issue

Insitu leaching essentially relies on exposing mineralized surfaces to leach solutions.  This may require hydro-fracturing (fracing) to enhance insitu bio-leaching using bacteria and acid.   Fracing is currently banned in some European countries so this is going to be a potential issue.  From a leaching perspective, the trade-off would be between no fracing, reduced cost & lower metal recovery against higher cost & higher metal recovery with fracing.
If insitu leaching technology development is successful, it could help exploit European base metals from porphyry deposits (Cu, Au, Mo, Cu, REE, PGE, Re, Pb, Cu, Pt, Au) and other gold and uranium deposits.   Insitu leaching would avoid building a mine, mine infrastructure, and it generates almost no tailings nor waste dumps.  Leaching is expected to be cheaper than traditional mining and more acceptable to the public. Insitu leaching is being touted as “Green Mining”

What did they conclude

This study deliverables included comprehensive documentation, an economic evaluation, and risk analysis of a potential insitu bio-leaching operation.  The basis was a theoretical deposit, looking at different well field set-ups.
The study concluded that accessing potential deposits at depths of around 1000 m is economically feasible only if curved wells are used.  The most relevant operational parameters are sufficient permeability in the ore zone and an adequate contact surface between the ore and leaching solution.   The depth of the deposit is indirectly relevant, but more importantly the well installation cost per volume of deposit is critical.  Hence curved wells are optimal.
One interesting suggestion was combining an insitu leach operation with geothermal energy recovery.  This might result in additional project revenue stream with only a marginal cost increase.
It was suggested that insitu leach operations might be attractive in former mining regions where high grade deposits have been mined out yet nearby low grade deposits are well defined. Social license for insitu leaching may also be more accepting in these areas.
If you are interested in learning more about insitu leaching technology and the chemistry aspect, the BIOMore study deliverables are available for downloading at this site.
In the past, mining engineers like myself were told to learn the basics of crushing, grinding, and flotation to become more well rounded.  I may suggest that future mining engineers may need to learn the basics of directional drilling, hydro-fracing, and chemistry.  Sounds like petroleum engineering.

Some aspects are still uncertain

In practical terms, some things are still not clear to me. For example are how much effort and diligence must go into properly characterizing the permeability of a rock mass.  As well, how complex a task is it to metallurgically characterize the deposit spatially with regards to it being amenable to insitu leaching.  Not all ore types will behave the same and be amenable to leaching.
I am also curious about the ability to finance such projects, given the caution associated with any novel technology.  Many financiers prefer projects that rely on proven and conventional operating methods.
Notwithstanding those concerns, likely insitu leaching technology will continue to advance and show even more promise, and eventually gain greater acceptance.
While some innovators are looking at new ways to drill, blast, and move rock, the real innovators are looking at ways to recover metals without moving any rock at all.
For those interested, Excelsior Mining is looking to open a copper oxide insitu leaching operation in Arizona.  Here is video of how their technology will work.
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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

The bottom line is that 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.
5. Using UG Stope Modelling
I have also heard about, but not yet used, a method of applying open pit dilution by adapting an underground stope
modelling tool.  By considering an SMU as a stope, automatic stope shape creators such as Datamine’s
Mineable Shape Optimiser (MSO) can be used to create wireframes for each mining unit over the entire
deposit. Using these wireframes, the model can be sub-blocked and assigned as either ‘ore’ (inside the
wireframe) or ‘waste’ (outside the wireframe) prior to optimization.   It is not entirely clear to me if this approach creates a diluted block model or generates a dilution factor to be applied afterwards.

 

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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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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51. Pre-Concentration – Savior or Not?

pre-concentration
Can pre-concentration become a savior for the mining industry by lowering metal production costs?
Pre-concentration is a way of reducing the quantity of ore requiring higher cost downstream processing, i.e. grinding in particular.  One can attain significant cost savings in energy consumption and operating expenses by using a low cost method to pre-concentrate minerals into a smaller volume. A previous blog “Remote Sensing of Ore Grades” discussed one new pre-concentration method currently under development.

Pre-concentration isn’t new

Pre-concentration has been around for many years.  However the techniques available are generally limited.  Hence many ore types are not amenable to it..unfortunately.
The main methods available are:
Ore sorting, which can be done using automated optical, electrical, or magnetic susceptibility sensors to separate ore particles from waste. The different sensors can rely on colour recognition, near infrared radiation, x-ray fluorescence, x-ray transmission, radiometric, or electromagnetic properties. 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 separation, or specific gravity differences are another property that some pre-concentration methods can use. Gravity based systems such as dense media separation (DMS), jigs, or centrifugal concentrators are currently in commercial production.
Scrubbing, another very simple pre-concentration method is scrubbing, whereby simply separating fines or coatings may remove deleterious materials prior to final processing.

 BenefitsJig Plant 1

Pre-concentration provides several benefits:
  • If done underground or at satellite mine site, the ore hoisting or 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 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 scalped.
  • Minimizing waste through the process plant will reduce the quantity of fine 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.

Limited ore types are suited for pre-concentration

Not all ore types are amenable to pre-concentration and therefore a rigorous testing program is required. In most cases a pre-con method is relatively obvious to metallurgical engineers but testing is still required to measure performance.
Testing is required to determine the waste rejection achieved without incurring significant ore loss. Generally one can produce a higher quality product if one is willing to reject more ore with the waste.  It becomes a trade-off of metal recovery versus processing cost savings.
Fine particles generated in the crushing stage might need to bypass the pre-con circuit. If this bypassed material is sent to downstream processing circuits, one may need to examine crushers that minimize fines to avoid excessive material bypassing the pre-con circuit.

Reject waste or reject ore?

One must decide if the pre-con system should reject waste particles from the material stream or reject ore particles from the stream.  The overall metal recovery and product quality may be impacted depending on which approach is used.

Conclusion

The 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 take a 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 more ways to pre-concentrate.  This is probably an area where research dollars would be well spent.
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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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45. Do Any Junior Producers Model a Gold ETF?

junior mining company
I have often wondered if any of the smaller gold producers have ever considered modelling their business plan similar to a gold Exchange Traded Fund (“ETF”).
This hybrid business model may be a way for companies to provide shareholders a way to leverage themselves to physical gold rather than leveraging to the performance of a mine.

Let me explain further

Consider two identical small mining companies each starting up a new mine. Their projects are identical; 2 million gold ounces in reserves with annual production rate of 200,000 ounces with a 10 year mine life. On an annual basis, let’s assume their annual operating costs and debt repayments could be paid by the revenue from selling 180,000 ounces of gold. This would leave 20,000 gold ounces as “profit”. The question is what to do with those 20,000 ounces?

Gold Dore

Company A

Company A sells their entire gold production each year. At $1200/oz, the 20,000 oz gold “profit” would yield $24 million. Income taxes would be paid on this and the remaining cash can be spent or saved.
Company A may decide to spend more on head offices costs by adding more people, or they may spend money on exploration, or they could look at an acquisition to grow the company. There are plenty of ways to use this extra money, but returning it to shareholders as a dividend isn’t typically one of them.
Now let’s jump forward several years; 8 years for example. Company A may have been successful on grassroots exploration and added new reserves but historically exploration odds are working against them. If they actually saved a portion of the annual profit, say $10M of the $24M, after 8 years they may have $80M in cash reserves.

Company B

Company B only sells 180,000 ounces of gold each year to cover costs.  It puts the remaining 20,000 ounces into inventory. Their annual profit-loss statement shows breakeven status since their gold sales only cover their financial commitments. In this scenario, after 8 years Company B would have 160,000 gold ounces in inventory, valued at $192 million at a $1200 gold price.
If you’re an investor looking at both these companies in the latter stages of their mine life, which one would you rather invest in?
Company A has 400,000 ounces (2 years) remaining in mineral reserves and $80M cash in the bank. Company B also has 400,000 ounces of mineral reserves and $192 million worth of gold in the vault. If I’m a bullish gold investor and foresee a $1600/oz gold price, then to me Company B might theoretically have $256M in the vault (160k oz x $1600). If I’m a super bullish, their gold inventory could be worth a lot more..theoretically.

Which company is worth more?

I assume that the enterprise value (and stock price) of Company A would be based on its remaining reserves at some $/oz factor plus its cash in the bank. Company B could be valued the same way plus its gold inventory. So for me Company B may be a much better investment than Company A in the latter stages of its mine life. In fact Company B could still persist as an entity after the mine has shutdown simply as a “fund” that holds physical gold. If I am a gold investor, then Company B as an investment asset might be of more interest to me.
If Company A had good exploration results and spend money wisely, then it may have more value but not all companies are successful down this path.

Conclusion

It appears that most of the time companies sell their entire annual gold production to try to show profit on the annual income statement. This puts cash in the bank and shows “earning per share”.
My question is why not stockpile the extra gold and wait for gold prices to rise?  This might be an option if the company doesn’t really need the money now or doesn’t plan to gamble on exploration or acquisitions.
This concept wouldn’t be a model for all small miners but might be suitable for a select few companies to target certain types of gold investors.
They could provide an alternative mining investment that might be especially interesting in the last years of a mine life. Who really wants to buy shares in a company who’s mine is nearly depleted?  I might buy shares, if they still hold a lot of gold.
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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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42. Global Tax Regimes – How Do They Compare?

mining economics
Update: This blog was originally written in Feb 2016, but has been updated in Dec 2018.
As a reminder for all QP’s doing economic analysis for PEA’s, don’t forget that one needs to present the economic results on an after-tax basis.
Every once in a while I still see PEA technical reports issued with only pre-tax financials.  That report is likely to get red- flagged by the securities regulators.  The company will need to amend their press release and technical report  to provide the after tax results.    No harm done other than some red faces.

Taxes can be complicated

When doing a tax calculation in your model, where can you find international tax information?  PWC has a very useful tax-related website.  The weblink below was sent to me by one of my industry colleagues and I thought it would be good to share it.
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 a searchable database for tax information for specific countries.
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 tax changes happen constantly.   It would be nice to see them add more countries to their 23 country database but it’s already good.  Check it out.
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