Articles tagged with: Feasibility Study

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

Date: January 19, 2016 Author: Ken Kuchling Comments: 6 Replies

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.

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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3D Model Printing – Who To Contact?

Date: January 2, 2016 Author: Ken Kuchling Comments: 7 Replies

One of the technologies that is still getting a lot of press is 3D printing. It seems new articles appear daily describing some fresh and novel use. Everything from home construction, food preparation, medical supplies, and industrial applications, 3D printing continues to find new applications in a wide range of disciplines.

Mining can take advantage of 3D printing

In a previous blog “3D Printing – A Simple Idea”, I discussed the helpfulness of printing 3D topographic models for the team members of a mining study. I was recently contacted by a consulting firm in Texas that specializes in printing 3D mining models. Here is their story and a few model images as provided to me by Matt Blattman of Blattman Brothers Consulting. (www.blattbros.com/3dprinting)

Blattman Brothers Consulting

Their 3D printed models are used in the same way geologists and mining engineers have employed models for decades. In the past we saw the physical models made of stacked mylar or plexi-glass maps, wood or foam core. We recognized that there is value in taking two dimensional sections or plan maps and making a 3D representation. This provides more information than those viewed on a computer screen.

Physical models convey scale, interactions and scope in ways that no other method can. Technology like 3D printing improves the model-making process by allowing the addition of high def orthophotos, reducing the model cost, increasing its precision and delivery time.

Currently 3D models can be made in a variety of materials, but the primary three are extruded plastic, gypsum powder, or acrylics.

Plastic models (ABS or PLA) are cheap, fast and can created on relatively inexpensive, hobbyist printers. The downside to these models is that the number of colors available in a single model are limited, typically a single color.

Powder-based printers can typically print in 6.5M colors, allowing for vibrant, photo-realistic colors and infinite choices for title blocks, logos and artistic techniques. However, gypsum models can be as fragile as porcelain and require some care in handling.
Acrylic models allow for translucent printing (“looking into the ground to see the geological structure”) and are more durable than the gypsum. Nevertheless, acrylic models are significantly more expensive than the other two types and the color palettes are limited.

Here are some examples.

Leapfrog Model

Acrylic Model

Powder Based 3D Model

Blattman’s models are created from the same 3D digital data already in use by most companies involved in geological modeling and mine design. Other than the units (meters versus millimeters), the triangulated surfaces created by the software are no different than those created by mechanical or artistic 3D modeling programs.

While many 3D printing services are available on the market, not all of them are able to speak “mining”. They may not be able to walk the skilled geologist or mining engineer through the process of creating the necessary digital formats and that’s where Blattman comes in. With more than 20 years of mining experience and having already gone through the 3D printing learning curve, they can assist any natural resource company through the process, either as a full-service/turn-key project or just to advise the client on how to prepare their own files.

Conclusion

The bottom line is that 3D printing is here to stay and its getting better each year. Go ahead and check out the technology to see if it can advance your path forward .

We would be interested in hearing about any experiences your have had with 3D modelling, pro’s and con’s.

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New Mining Software and 43-101 Legal Issues

Date: July 6, 2015 Author: Ken Kuchling Comments: 2 Replies

NI 43-101 puts a fair amount of legal liability on the Qualified Person preparing a resource or reserve estimate or sign off on an advanced study. The QP is to be responsible for the accuracy of their work and take legal responsibility.

Every so often some new mining software comes along and I often wonder what are the risks in using it? Some examples of new mining software that I have heard about (but not personally used) nor have seen mentioned in any 43-101 studies are SimSched, the ThreeDify’s software packages, NPV One, and Bentley.

Is the software doing everything correctly?

Given that as a QP I am legally responsible for my work, I am bit apprehensive about how I can be assured the new software will provide reliable and accurate results for which I accept legal liability. The last thing I would want to do is issue a public technical report which is found to be in error due to a software bug.

Irrespective of 43-101, if you are working at a mining operation the last thing you want to do is present management with an incorrect reserve, pit design, or production plan.

If you are a consultant, how agreeable will your client be when you tell him that his study was done using a novel software package and not one of the industry standard packages, and there was an error in it?

I recall working with a major mining company and there was a reluctance to adopt any new software that was unproven and not an industry standard. Money was not the issue; the company’s concern was with the risk in using unproven software.

What if you have a limited budget?

How do you view new software if you have a limited budget? The new software may be cheaper, may appear to be be great, and may be a technological improvement and all at a lower cost. However the software risk still remains. There is no guarantee that all software output is correct simply because it comes from a computer.

As a QP, I suggest the onus is on the software developers to demonstrate that they can produce reliable and comparable results under all conditions. They need to be able to convince the future users that their software is accurate.

Perhaps over time the new software will gain wider adoption and be generally accepted. We may see more 43-101 reports that use it and hence it will get more overall acceptance.

Another question when developing a market for new software is whether it is better to focus on more consultant adoption or more mining company adoption?

Will mining companies use the software if their consultants are using it, or will consultants use it if more companies adopt it? It’s an interesting discussion that new software vendors must deal with in trying to grow their market share.

Note: If you would like to get notified when new blogs are posted, then sign up on the KJK mailing list on the website. The entire blog post library can be found at this LINK with topics ranging from geotechnical, financial modelling, and junior mining investing.

Independent Consultants Are Growing

Date: June 23, 2015 Author: Ken Kuchling Comments: 2 Replies

I have read quite a few articles indicating that the mining industry is seeing a shortage of experienced people, on both the technical and management side of the business. Apparently the baby boomer generation is now nearing their retirement or early-retirement stage and there is a gap in the number of experienced people following behind.

Many of these retirees enter the “independent consultant” stage of their careers.

I also hear from recruiters that there is a shortage of engineers willing to take remote or international assignments. This is particularly difficult when a senior level candidate has a growing family.

Can the independent engineers help out?

In a previous article (14. Miners – Why Have Your Own Independent Consultant?) I discussed why mining companies (or even consulting firms) should make use of the independent engineers as advisers or Board members.

I understand from colleagues in the mining industry that many of the people nearing retirement are willing to take on consulting assignments or board or directors roles or other management roles. They are often willing to work part time and independently. Or they may work as “associates” with engineering firms.

So there likely is a significant network of experienced people out there. It’s just a matter of being able to tap into that network when someone needs specific expertise.

So how can one do this?

LinkedIn currently seems to be the only global network for technical people. It is a great way to connect with engineers and geologists industry wide.

LinkedIn members work everywhere, at mine operations, consulting firms, financial houses, as independents, or even retired. Almost every technical person I know is registered on LinkedIn.

The question is how to find these people when you are looking for a specific independent expertise for a short term or over the longer term.

Networking

Networking with people you already know is the most common approach. However what if you need someone with particular knowledge?

LinkedIn is a great search mechanism for technical experts. With a keyword search one can identify a lot of experts with very specific skill sets. The problem is that many of the experts highlighted by the LinkedIn search may be fully employed at mining operations or with large consulting firms and may not be the person you are looking for.

To my knowledge, there is no searchable online registry solely intended for independent geologists and engineers. It would be in the interests of the mining industry to have some type of easily searchable independent consultant directory to be able to tap into the expertise that is out there. I understand that MineLife.org is attempting to build such an online service but it still appears to be early in the development stage.

Mining Cashflow Sensitivity Analyses – Be Careful

Date: June 15, 2015 Author: Ken Kuchling Comments: 1 Reply

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 typical result of this 43-101 requirement is the graph seen below (“a spider graph”, which is easily generated from a cashflow model. Simply change a few numbers in the Excel file and then you get the new economics. The standard 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 is not telling the true story.

I have created this same spider graph in multiple economic studies so I understand the limitations with it. The main assumption is that all of the sensitivity economics are based on the exact same mineral reserve and production schedule.

That assumption may be applicable when applying a variable capital cost but is not applicable when applying varying metal prices and operating costs.

Does anyone really think that, in the example shown, the NPV is $120M with a 20% decrease in metal price or 20% increase in operating cost? This project is still economic with a positive NPV.

In my view, a project could potentially be uneconomic with such a significant decrease in metal price but that is not reflected by the sensitivity analysis. Reducing the metal price would result in a change to the cutoff grade. This changes the waste-to-ore ratio within the same pit. So assuming the same size mineral reserve is not correct in this scenario.

Changes in economic parameters would impact the original pit optimization used to define the pit upon which everything is based.

A smaller pit size results in a smaller ore tonnage, which may justify a smaller fleet and smaller processing plant, which would have higher operating costs and lower capital costs.

A smaller mineral reserve would produce a different production schedule and shorter mine life. It can get quite complex to examine it properly.

Hence the shortcut is to simply change inputs to the cashflow model and generate outputs that are questionable but meet the 43-101 requirements.

The sensitivity information is not just nice to have. Every mining project has some flaws, which can be major or minor. 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. You can read that blog post at this link “Flawed Mining Projects – No Such Thing as Perfection“

So if the spider chart isnt he best way to tackle the risk issue, what way is better? In another blog post I discuss an different approach using the probabilistic risk evaluation (Monte Carlo). Its isn’t new but now well adopted yet by the mining industry. You can learn more at “Mining Financial Modeling – Make it Better!“

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Open Pit Optimization – How I View It

Date: June 3, 2015 Author: Ken Kuchling Comments: 6 Replies

One of the first steps in an open pit design is the pit optimization analysis. Pit optimization is used to define the most profitable pit shell for a given set of economic parameters. The economic parameters include the metal prices, processing recoveries, and site operating costs. Normally when optimization is done, a range of metal prices or Revenue Factors (“RF”) is used to develop a series of nested shells to understand how the pit will expand or contract with increasing or decreasing metal prices.

Once the optimization step is complete, mining engineers will then design the pit inside that shell, introducing benches and ramps. The pit design should mimic the selected optimized shell as closely as possible.

The pit design may (or may not) closely replicate the optimization shell depending on the slope angles used in the optimization and where the haul ramps are located in the design.

Hence the actual ore and waste tonnages mined may be different that the tonnages defined by the optimizer.

Various experts in pit optimization will use approaches of differing complexity. Some may apply variable mining costs with pit depth; apply variable process recoveries linked to head grade; apply variable pit slopes by sector or depth, apply dilution and ore losses; etc. One can make the pit optimization step as simple or detailed as one wants it.

The question is whether detailed pit optimization is warranted. My view is that overly detailed pit optimization is not required, other than if one wants to test parameter sensitivity on the resulting pit size and shape. There are just too many uncertainties in the parameters being used in optimization.

Open Pit Optimization Uncertainties

Some of the uncertainties involved in the optimization approach are listed below:

Pit optimization can generate large pits that would have a long mine life. However one doesn’t really know the metal prices far into the future. So will that final pit ever get mined, or might it even be larger than shown.
Pit optimization is typically done at the start of a study, so one doesn’t have the detailed operating costs yet. The size of the project may be unknown and one has to use rough estimates for future costs and possibly even assume preliminary process recoveries.
Operating costs will also change in the future, and the optimization step is just a snapshot using current information.
Sometimes the optimization includes the use of Inferred resources, which are uncertainty. Sometimes optimization is done only using Measured and Indicated resource, yet there may be areas if Inferred resource that ultimately convert to M &I and these will have been ignored. So, either way you do it, you are not sure what ore the pit can captured and will to shape the pit.
The smaller pits, if developed, would consist of smaller operations and may have different operating costs than assumed in the optimization. Similarly larger pits may have different throughput rates and operating costs than assumed in the optimization.
The ore and waste split reported within the pit will be based on a specific life-of-mine cutoff grade. This is based on the fixed metal price and operating cost assumptions applied.
Overall pit wall slopes may differ for shallow pits versus deep pits. Slopes may vary above the groundwater table and below it. In many instances during pit optimization the wall angles are maintained at the same angle irrespective of the pit depths. Sometimes geotechnical programs have not yet been completed, so optimization slope angles are simply educated guesses.
Dilution may be applied globally during pit optimization (unless one is working with a diluted block model). In reality, dilution may differ in different parts of the ore body, and that may not be considered in the optimization stage. For more discussion on dilution in general, read the blog “Ore Dilution Prediction – Its Always an Issue“.

Conclusion

The bottom line is that pit optimization should be viewed as a guide to the pit design, but not as a highly precise calculation. There are too many uncertainties in the parameters used.

There is always opportunity for future miner operators to examine pushback to grow the pit larger than initially envisioned. Having said all that, one should still understand how future changes in metal prices can impact on the pit size, and then assess whether practical pushbacks are possible. Thin sliver pushbacks are operationally difficult so this should be understood at the start.

While open pit optimization is not a precise science, there is still merit in examining how the pit size and shape reacts to changes in different parameters. There are many ways to examine this and help select which shell should be advanced into the design stage. It can be more than just looking at the NPV versus Revenue Factor chart. You can read this post at this link “Pit Optimization – More Than Just a “NPV vs RF” .

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3D Printing – A Simple Idea

Date: May 25, 2015 Author: Ken Kuchling Comments: 4 Replies

We hear more and more about 3D printing and what it is able to do. 3D printers have come down in price and can be bought for under $500. Here is an example of using a 3D printer from a recent project that I consulted on.

The open pit was going to be located in hilly terrain, and issues related to haul road access, waste dump sites, and leach pad location were all important. The client used a 3D printer to create a small desktop model of the terrain, which was given to each of the consulting firms.

The photo below shows the scale of the model.

Members of the engineering team were each given their own 3D model to take back to their offices. Putting one of these on your desk helps with familiarity of the overall site and allows you to better understand the siting and drainage issues.

Topographic maps may give data on actual elevations and distances, but even a small 3D model gives you a feel for the site. The model shown above was for undisturbed topography but one could easily print off a similar model once the final pit and dump design is done.

With the current three-dimensional printing capabilities, creating simple 3D topographic models for the engineering team is feasible and I recommend doing so.

At the same time provide the Owner’s team with their own models, helping them understand the site issues that must be dealt with.

Work Breakdown Structures – Don’t Forget About The WBS

Date: May 22, 2015 Author: Ken Kuchling Comments: Leave a reply

Normally at the start of a mining study, the team members receive a matrix of responsibilities. This table shows which people (or groups) are responsible for different aspects of the study, i.e. who is responsible for geology, for mine design, for process design, infrastructure, etc. This is great tool and a necessity in making sure that everyone knows what they are supposed to do.

Next we generate a project schedule based on some work plan. In realty this isn’t the correct sequence.

Sometimes the WBS is forgotten

What often gets forgotten in early stage studies is providing the team members a Work Breakdown Structure (“WBS”). I consider the WBS an equally important component as the responsibility matrix and both should always be provided.

The WBS is a hierarchical breakdown of the project into phases, deliverables, and work packages usually associated with cost estimation. It is a tree based structure, developed by starting with the final objective and then dividing that into manageable components based on size, duration, and responsibility. Typically this is done for the capital cost estimate, breaking it down into individual cost areas and cost components. A WBS can also be used for the operating cost estimate.

The WBS can provide the following information to the team:

It assigns the costing responsibility to specific people or group so each know what must be delivered.
It provides a consistent format for developing and reporting the capital costs (and operating costs).
It helps ensure that no cost components get omitted and no costs get double counted.
It provides the cashflow modeler with a clean format to import the capital cost into the cashflow model.
The WBS should be developed before the project schedule, not after it.

Any study will benefit from a WBS

Typically a WBS is developed for pre-feasibility and feasibility mining studies but is often ignored at the PEA stage. Some feel it is too detailed for that level of study. I don’t feel this is the case.

The WBS is a communication tool to confirm responsibilities. Thus even a simplified WBS is still useful at the PEA stage.

I have seen some instances where a WBS has been created but does not get wide distribution to the entire team. The WBS should be provided to everyone and ideally a team session be held to walk through the WBS structure.

The idea is not make everyone a costing expert, but rather to ensure all understand how the project cost estimate will be structured.

Conclusion

The bottom line is that regardless of the level of study, a WBS should always be created.

Some will say the WBS is not required for early stage studies but I have found benefits in having one, at least for the capital cost estimate. Obviously the level of detail in the WBS should be appropriate to the level of the study.

Once the WBS is in place, then go ahead and build your project schedule.

A competent Study Manager can easily create an initial WBS, thereby mitigating some headaches when the final study is being assembled. You may even want a basis WBs at the proposal stage.

By the way, before awarding a study to anyone, try to have a prepared Request for Proposal beforehand. I have written about the benefit of this document in a blog post titled “Request For Proposal (“RFP”) – Always Prepare One“

My entire blog post library can be found at this LINK with topics ranging from geotechnical, financial modelling, and junior mining investing.

Note: If you would like to get notified when new blogs are posted, then sign up on the KJK mailing list on the website.

Importance of a Study Manager – That’s the Key

Date: May 18, 2015 Author: Ken Kuchling Comments: 1 Reply

Over my career I have worked as an engineering team member on numerous projects and mining studies. Some studies went better than others. Unfortunately some dragged on, ran over budget, and ended up delivering a less than optimal product once all was said and done.

There are numerous factors that will influence the successful completion of a study. They can be related to the quality of the technical team, the budget, the time window, and direction from the Owner. However the key factor that I observed is the competency of the Study Manager (or Project Manager).

Study Managers must wear many hats

Study managers are responsible for being the main liaison with the Owner. They must herd a team of geologists and engineers in the same direction. They must ensure that technical quality and consistency is maintained by the entire group. They are responsible for ensuring that budgets and timelines are being met. The combination of all of these responsibilities can be an onerous mission, more so depending on the experience of the Owner’s team.

Every technical team has those members that will deliver quality within timelines consistently. There are also team members that have difficulty meeting targets. The Study Manager, early on, needs to figure out who fits into which category and then must be able to work with each.

Studies can quickly grind to a halt

An entire study can quickly grind to a halt simply because one key component becomes bogged down. A good Study Manager may occasionally ruffle some feathers but is always appreciated by the team knowing that everyone will be held to account.

The Study Manager also needs to understand the objectives of the Owner and ensure the team is working towards those objectives.

The Study Manager however must also be honest with the Owner, keeping him informed of the actual progress and warn if some target will not be met.

The Study Manager coordinates communication within the team and with the Owner. Some managers are excellent at this while others fall into the trap of communicating on a “need-to-know” basis or “too late” basis.

Timely and thorough communication is important. Don’t assume that one is hampering progress by involving the team in frequent communications. They serve a purpose.

Environmental Assessments need engineering input

Often the Environmental Impact Assessment is being conducted concurrently with an engineering study. The level of internal and external communication now becomes even more critical due to the large number of new technical disciplines involved.

It is not uncommon for EIA’s to make regulatory commitments that have not been signed off by the engineering side. The Study Manager should be aware when such commitments are being made because the engineering design needs to reflect them.

You should approve the Study Manager

When approving the consultant’s Study Manager, keep in mind that in some instances you may find that different managers within the same organization may have different internal authority. For example, if technical people are needed on another project, some managers are able to keep their team together. Other managers may lose team members to the other project if that manager has more internal authority. Losing manpower doesn’t help a study progress, so if possible try to get a sense for the authority that the Study Manager has within the organization.

Conclusion

The bottom line is that when a project Owner has received proposals for a study and is in the process of awarding that job, the most important consideration is who will be the Study Manager. If possible meet or chat about how they will manage the study and what their experience is. Check references if possible.

The voluminous proposals provided by consulting firms contain a lot of information like Gantt charts, organizational charts, cost estimates, team resumes, safety plan, and corporate project experience. Focus on the Study Manager. Don’t assume they are simply an administrator scheduling meetings and issuing monthly reports. They are the key to success.

A good Study Manager can make a poor engineering team perform, while a poor Study Manager can bog down a great technical team.

One thing to be aware of is that with some firms, a Study Manager is not the same role as a Project Manager. The SM may undertake more clerical duties, such as weekly or monthly reports, manhour tracking, distributing documents, and coordinating the logistics of the study rather than the technical aspects that a Project Manager may look after.

Another blog post discusses undertaking studies using multiple engineering teams and the pitfalls to watch out for. That blog post is at “Multi-Company Mining Studies Can Work Well…or Not“.

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Request For Proposal (“RFP”) – Always Prepare One

Date: May 15, 2015 Author: Ken Kuchling Comments: Leave a reply

When it comes to time to undertake any type of mining 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.

I know that it can be an annoyance, but an RFP document is a lot better than a simply phone calling a consultant describing what you want. Its also 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. It provides the documentation that can help make things go smoothly.

The RFP doesn’t need to be complicated

Owner’s Perspective: preparing an RFP gives the opportunity to collect the Owner’s team thoughts on the scope of study needed, on the deliverables required, and on the timing. The RFP will outline this for the consultants and simultaneously help the owner’s team to get on the same page themselves.

The RFP is the opportunity for the owner to tell the consultants exactly what they are looking for in the mining study. It also specifies what they want to see in the proposal to help them compare multiple proposals if needed.

Consultant’s perspective: receiving an RFP is great to them since having a detailed scope of work laid out means they don’t need to guess the scope when preparing their cost estimate. It will be clear to the consultant what work is “in scope”. If extra services are required in the future, then “out-of-scope” work can be defended.

An RFP also gives the consultant some reassurance that the Owner has put thought into exactly what they want them to do.

What to include in the RFP

The RFP sent to bidding consultants should contain (at a minimum) the items listed below. A sole sourced study can have a scaled back RFP document, but many of these key items should be maintained.

Much of this RFP information can be a single template document that will 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 (a high level overview of the project and the Owner).
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 from the scope.
Additional Requirements (update meetings, monthly reports, timesheets, documentation, etc.)
Schedule (the timing for the proposal, job award date, study kickoff, and completion date).
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.).

Specifying format makes it easier to compare proposals

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.

Conclusion

The bottom line is that an owner should always take the time to prepare some type of RFP for any mining study they want to undertake. The owner should also request a consultant proposal based on that RFP, even if it is being sole sourced to just one consultant.

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 one should always have the proper documentation in place beforehand.

A key part of any mining study is the project capital cost estimate. In my view it is important that any RFP includes the requirement to develop a Work Breakdown Structure. This has many uses, and is discussed further in the blog post “Work Breakdown Structures – Don’t Forget About The WBS“

Inferred resources have a role

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?

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.

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.

Conclusion

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Mining can take advantage of 3D printing

Blattman Brothers Consulting

Physical models convey scale, interactions and scope in ways that no other method can. Technology like 3D printing improves the model-making process by allowing the addition of high def orthophotos, reducing the model cost, increasing its precision and delivery time.

Currently 3D models can be made in a variety of materials, but the primary three are extruded plastic, gypsum powder, or acrylics.

Plastic models (ABS or PLA) are cheap, fast and can created on relatively inexpensive, hobbyist printers. The downside to these models is that the number of colors available in a single model are limited, typically a single color.

Powder-based printers can typically print in 6.5M colors, allowing for vibrant, photo-realistic colors and infinite choices for title blocks, logos and artistic techniques. However, gypsum models can be as fragile as porcelain and require some care in handling.

Acrylic models allow for translucent printing (“looking into the ground to see the geological structure”) and are more durable than the gypsum. Nevertheless, acrylic models are significantly more expensive than the other two types and the color palettes are limited.

Here are some examples.

The ability to grasp a map or technical drawing is a learned skill and not everyone has it. If you’ve just spent $20M on a feasibility study, why assume that the attendees in a public meeting will fully appreciate the scale and overall impact of your proposed project with 2D maps?

That message can be better conveyed with a model that is easily understood. One of Blattman’s clients, Luck Stone, recently described how they use their 3D printed models in this video.

Conclusion

The bottom line is that 3D printing is here to stay and its getting better each year. Go ahead and check out the technology to see if it can advance your path forward .

We would be interested in hearing about any experiences your have had with 3D modelling, pro’s and con’s.

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NI 43-101 puts a fair amount of legal liability on the Qualified Person preparing a resource or reserve estimate or sign off on an advanced study. The QP is to be responsible for the accuracy of their work and take legal responsibility.

Is the software doing everything correctly?

Irrespective of 43-101, if you are working at a mining operation the last thing you want to do is present management with an incorrect reserve, pit design, or production plan.

If you are a consultant, how agreeable will your client be when you tell him that his study was done using a novel software package and not one of the industry standard packages, and there was an error in it?

I recall working with a major mining company and there was a reluctance to adopt any new software that was unproven and not an industry standard. Money was not the issue; the company’s concern was with the risk in using unproven software.

What if you have a limited budget?

As a QP, I suggest the onus is on the software developers to demonstrate that they can produce reliable and comparable results under all conditions. They need to be able to convince the future users that their software is accurate.

Perhaps over time the new software will gain wider adoption and be generally accepted. We may see more 43-101 reports that use it and hence it will get more overall acceptance.

Another question when developing a market for new software is whether it is better to focus on more consultant adoption or more mining company adoption?

Will mining companies use the software if their consultants are using it, or will consultants use it if more companies adopt it? It’s an interesting discussion that new software vendors must deal with in trying to grow their market share.

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Many of these retirees enter the “independent consultant” stage of their careers.

I also hear from recruiters that there is a shortage of engineers willing to take remote or international assignments. This is particularly difficult when a senior level candidate has a growing family.

Can the independent engineers help out?

In a previous article (14. Miners – Why Have Your Own Independent Consultant?) I discussed why mining companies (or even consulting firms) should make use of the independent engineers as advisers or Board members.

So there likely is a significant network of experienced people out there. It’s just a matter of being able to tap into that network when someone needs specific expertise.

So how can one do this?

LinkedIn currently seems to be the only global network for technical people. It is a great way to connect with engineers and geologists industry wide.

LinkedIn members work everywhere, at mine operations, consulting firms, financial houses, as independents, or even retired. Almost every technical person I know is registered on LinkedIn.

The question is how to find these people when you are looking for a specific independent expertise for a short term or over the longer term.

Networking

Networking with people you already know is the most common approach. However what if you need someone with particular knowledge?

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.”

I have created this same spider graph in multiple economic studies so I understand the limitations with it. The main assumption is that all of the sensitivity economics are based on the exact same mineral reserve and production schedule.

That assumption may be applicable when applying a variable capital cost but is not applicable when applying varying metal prices and operating costs.

Does anyone really think that, in the example shown, the NPV is $120M with a 20% decrease in metal price or 20% increase in operating cost? This project is still economic with a positive NPV.

Changes in economic parameters would impact the original pit optimization used to define the pit upon which everything is based.

A smaller pit size results in a smaller ore tonnage, which may justify a smaller fleet and smaller processing plant, which would have higher operating costs and lower capital costs.

A smaller mineral reserve would produce a different production schedule and shorter mine life. It can get quite complex to examine it properly.

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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Once the optimization step is complete, mining engineers will then design the pit inside that shell, introducing benches and ramps. The pit design should mimic the selected optimized shell as closely as possible.

The pit design may (or may not) closely replicate the optimization shell depending on the slope angles used in the optimization and where the haul ramps are located in the design.

Hence the actual ore and waste tonnages mined may be different that the tonnages defined by the optimizer.

Open Pit Optimization Uncertainties

Some of the uncertainties involved in the optimization approach are listed below:

Pit optimization can generate large pits that would have a long mine life. However one doesn’t really know the metal prices far into the future. So will that final pit ever get mined, or might it even be larger than shown.

Pit optimization is typically done at the start of a study, so one doesn’t have the detailed operating costs yet. The size of the project may be unknown and one has to use rough estimates for future costs and possibly even assume preliminary process recoveries.

Operating costs will also change in the future, and the optimization step is just a snapshot using current information.

The smaller pits, if developed, would consist of smaller operations and may have different operating costs than assumed in the optimization. Similarly larger pits may have different throughput rates and operating costs than assumed in the optimization.

The ore and waste split reported within the pit will be based on a specific life-of-mine cutoff grade. This is based on the fixed metal price and operating cost assumptions applied.

Conclusion

The bottom line is that pit optimization should be viewed as a guide to the pit design, but not as a highly precise calculation. There are too many uncertainties in the parameters used.

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We hear more and more about 3D printing and what it is able to do. 3D printers have come down in price and can be bought for under $500. Here is an example of using a 3D printer from a recent project that I consulted on.

The open pit was going to be located in hilly terrain, and issues related to haul road access, waste dump sites, and leach pad location were all important. The client used a 3D printer to create a small desktop model of the terrain, which was given to each of the consulting firms.

The photo below shows the scale of the model.

Members of the engineering team were each given their own 3D model to take back to their offices. Putting one of these on your desk helps with familiarity of the overall site and allows you to better understand the siting and drainage issues.

Topographic maps may give data on actual elevations and distances, but even a small 3D model gives you a feel for the site. The model shown above was for undisturbed topography but one could easily print off a similar model once the final pit and dump design is done.

With the current three-dimensional printing capabilities, creating simple 3D topographic models for the engineering team is feasible and I recommend doing so.

At the same time provide the Owner’s team with their own models, helping them understand the site issues that must be dealt with.

Next we generate a project schedule based on some work plan. In realty this isn’t the correct sequence.

Sometimes the WBS is forgotten

What often gets forgotten in early stage studies is providing the team members a Work Breakdown Structure (“WBS”). I consider the WBS an equally important component as the responsibility matrix and both should always be provided.

The WBS can provide the following information to the team:

It assigns the costing responsibility to specific people or group so each know what must be delivered.

It provides a consistent format for developing and reporting the capital costs (and operating costs).