Articles tagged with: Mine Engineering

Heap Leach or CIL or Maybe Both

Date: July 14, 2020 Author: Ken Kuchling Comments: 1 Reply
Typically gold mines consist of either a heap leach (HL) operation or a CIL type plant. There are a few projects that operate (or are considering) concurrent heap leach and CIL operations. Ultimately the mineral resource distribution determines if it makes economic sense to have both.  This blog discusses this concept based on past experience.
A CIL operation has higher capital and operating costs than a heap leach. However that higher cost is offset by achieving improved gold recovery, perhaps 20-30% higher. At higher gold prices or head grades, the economic benefit from improved CIL recovery can exceed the additional cost incurred to achieve that recovery.

Some background

Several years ago I was VP Engineering for a Vancouver based junior miner (Oromin Expl) who had a gold project in Senegal. We were in the doldrums of Stage 3 of the Lassonde Curve (read this blog to learn what I mean) having completed our advanced studies. Our timeline was as follows.
Initially in August 2009 we completed a Pre-Feasibility Study for a standalone CIL operation. Subsequently in June 2010 we completed a Feasibility Study. The technical aspects of Stage 2 were done and we were entering Stage 3. Now what do we do? Build or wait for a sale?
The property’s next door neighbor was the Teranga Sabodala operation. It made sense for Teranga to acquire our project to increase their long term reserves. It also made sense for a third party to acquire both of us. The Feasibility Study also made the economic case to go it alone and build a mine.
While waiting for various third-party due diligences to be completed, the company continue to do exploration drilling. There were still a lot of untested showings on the property and geologists need to stay busy.
Two years later in 2013 we completed an update to the CIL Feasibility Study based on an updated resource model. Concurrently our geologists had identified seven lower grade deposits that were not considered in the Feasibility Study.
These deposits had gold grades in the range of 0.5 to 0.7 g/t compared to 2.0 g/t for the deposits in the CIL Feasibility Study. We therefore decided to also complete a Heap Leach PEA in 2013, looking solely on the lower grade deposits.
These HL deposits were 2-8 km from the proposed CIL plant so their ore could be shipped to the CIL plant if it made economic sense. Test work had indicated that heap leach recoveries could be in the range of 70% versus >90% with a CIL circuit. The gold price at that time was about $ 1,100/oz.
Ultimately our project was acquired by Teranga in the middle of 2013.

Where should the ore go?

With regards to the Heap Leach PEA, we did not wish to complicate the Feasibility Study by adding a new feed supply to that plant from mixed CIL/HL pits. The heap leach project was therefore considered as a separate satellite operation.
The assumption was that all of the low grade pit ore would go only to the heap leach facility. However, in the back of our minds we knew that perhaps higher grade portions of those deposits might warrant trucking to the CIL plant.
For internal purposes, we started to look at some destination trade-off analyses. We considered both hard (fresh rock) and soft ore (saprolite) separately. CIL operating costs associated with soft ore would be lower than for hard ore. Blasting wasn’t required and less grinding energy is needed. The CIL plant throughput rate could be 30-50% higher with soft ore than with hard ore, depending on the blend.
I have updated and simplified the trade-off analysis for this blog. Table 1 provides the costs and recoveries used herein, including increasing the gold price to $1500/oz.
The graph shows the profit per tonne for CIL versus HL processing methods for different head grades.
The cross-over point is the head grade where profit is better for CIL than Heap Leach. For soft ore, this cross-over point is 0.53 g/t. For hard ore, this cross over point is at 0.74 g/t.
The cross-over point will be contingent on the gold price used, so a series of sensitivity analyses were run.
The typical result, for hard ore, is shown in Table 2. As the gold price increases, the HL to CIL cross-over grade decreases.
These cross-over points described in Table 2 are relevant only for the costs shown in Table 1 and will be different for each project.

Conclusion

It may make sense for some deposits to have both CIL and heap leach facilities. However one should first examine the trade-off for the CIL versus HL to determine the cross-over points.
Then confirm the size of the heap leach tonnage below that cross-over point. Don’t automatically assume that all lower grade ore is optimal for the heap leach.
If some of the lower grade deposits are further away from the CIL plant, the extra haul distance costs will tend to raise their cross-over point. Hence each satellite pit would have its own unique cross-over criteria and should be examined individually.
Since Teranga complete the takeover in mid 2013, we were never able to pursue these trade-offs any further.
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Pre-Concentration – Maybe Good, Maybe Not

Date: June 2, 2020 Author: Ken Kuchling Comments: Leave a reply
A while back I wrote a blog titled “Pre-Concentration – Savior or Not?”. That blog was touting the benefits of pre-concentration. More recently I attended a webinar where the presenter stated that the economics of pre-concentration may not necessarily be as good as we think they are.
My first thought was “this is blasphemy”. However upon further reflection I wondered if it’s true. To answer that question, I modified one of my old cashflow models from a Zn, Pb project using pre-concentration. I adjusted the model to enable running a trade-off, with and without pre-con by varying cost and recovery parameters.

Main input parameters

The trade-off model and some of the parameters are shown in the graphic below. The numbers used in the example are illustrative only, since I am mainly interested in seeing what factors have the greatest influence on the outcome.

The term “mass pull” is used to define the quantity of material that the pre-con plant pulls and sends to the grinding circuit. Unfortunately some metal may be lost with the pre-con rejects.  The main benefit of a pre-con plant is to allow the use of a smaller grinding/flotation circuit by scalping away waste. This will lower the grinding circuit capital cost, albeit slightly increase its unit operating cost.
Concentrate handling systems may not differ much between model options since roughly the same amount of final concentrate is (hopefully) generated.
Another one of the cost differences is tailings handling. The pre-con rejects likely must be trucked to a final disposal location while flotation tails can be pumped.  I assumed a low pumping cost, i.e to a nearby pit.
The pre-con plant doesn’t eliminate a tailings pond, but may make it smaller based on the mass pull factor. The most efficient pre-concentration plant from a tailings handling perspective is shown on the right.

The outcome

The findings of the trade-off surprised me a little bit.  There is an obvious link between pre-con mass pull and overall metal recovery. A high mass pull will increase metal recovery but also results in more tonnage sent to grinding. At some point a high mass pull will cause one to ask what’s the point of pre-con if you are still sending a high percentage of material to the grinding circuit.
The table below presents the NPV for different mass pull and recovery combinations. The column on the far right represents the NPV for the base case without any pre-con plant. The lower left corner of the table shows the recovery and mass pull combinations where the NPV exceeds the base case. The upper right are the combinations with a reduction in NPV value.
The width of this range surprised me showing that the value generated by pre-con isn’t automatic.  The NPV table shown is unique to the input assumptions I used and will be different for every project.

The economic analysis of pre-concentration does not include the possible benefits related to reduced water and energy consumption. These may be important factors for social license and permitting purposes, even if unsupported by the economics.  Here’s an article from ThermoFisher on this “How Bulk Ore Sorting Can Reduce Water and Energy Consumption in Mining Operations“.

Conclusion

The objective of this analysis isn’t to demonstrate the NPV of pre-concentration. The objective is to show that pre-concentration might or might not make sense depending on a project’s unique parameters. The following are some suggestions:
1. Every project should at least take a cursory look at pre-concentration to see if it is viable. This should be done on all projects, even if it’s only a cursory mineralogical assessment level.
2. Make certain to verify that all ore types in the deposit are amenable to the same pre-concentration circuit. This means one needs to have a good understanding of the ore types that will be encountered.
3. Anytime one is doing a study using pre-concentration, one should also examine the economics without it. This helps to understand the  economic drivers and the risks. You can then decide whether it is worth adding another operating circuit in the process flowsheet that has its own cost and performance risk. The more processing components added to a flow sheet, the more overall plant availability may be effected.
4. The head grade of the deposit also determines how economically risky pre-concentration might be. In higher grade ore bodies, the negative impact of any metal loss in pre-concentration may be offset by accepting higher cost for grinding (see chart on the right).
5. In my opinion, the best time to decide on pre-con would be at the PEA stage. Although the amount of testing data available may be limited, it may be sufficient to assess whether pre-con warrants further study.
6. Don’t fall in love with or over promote pre-concentration until you have run the economics. It can make it harder to retract the concept if the economics aren’t there.

 

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Climbing the Hill of Value With 1D Modelling

Date: May 12, 2020 Author: Ken Kuchling Comments: Leave a reply
Recently I read some articles about the Hill of Value.  I’m not going into detail about it but the Hill of Value is a mine optimization approach that’s been around for a while.  Here is a link to an AusIMM article that describes it “The role of mine planning in high performance”.  For those interested, here is a another post about this subject “About the Hill of Value. Learning from Mistakes (II)“.
hill of value

(From AusIMM)

The basic premise is that an optimal mining project is based on a relationship between cut-off grade and production rate.  The standard breakeven or incremental cutoff grade we normally use may not be optimal for a project.
The image to the right (from the aforementioned AusIMM article) illustrates the peak in the NPV (i.e. the hill of value) on a vertical axis.
A project requires a considerable technical effort to properly evaluate the hill of value. Each iteration of a cutoff grade results in a new mine plan, new production schedule, and a new mining capex and opex estimate.
Each iteration of the plant throughput requires a different mine plan and plant size and the associated project capex and opex.   All of these iterations will generate a new cashflow model.
The effort to do that level of study thoroughly is quite significant.  Perhaps one day artificial intelligence will be able to generate these iterations quickly, but we are not at that stage yet.

Can we simplify it?

In previous blogs (here and here) I described a 1D cashflow model that I use to quickly evaluate projects.  The 1D approach does not rely on a production schedule, instead uses life-of-mine quantities and costs.  Given its simplicity, I was curious if the 1D model could be used to evaluate the hill of value.
I compiled some data to run several iterations for a hypothetical project, loosely based on a mining study I had on hand.  The critical inputs for such an analysis are the operating and capital cost ranges for different plant throughputs.
hill of valueI had a grade tonnage curve, including the tonnes of ore and waste, for a designed pit.  This data is shown graphically on the right.   Essentially the mineable reserve is 62 Mt @ 0.94 g/t Pd with a strip ratio of 0.6 at a breakeven cutoff grade of 0.35 g/t.   It’s a large tonnage, low strip ratio, and low grade deposit.  The total pit tonnage is 100 Mt of combined ore and waste.
I estimated capital costs and operating costs for different production rates using escalation factors such as the rule of 0.6 and the 20% fixed – 80% variable basis.   It would be best to complete proper cost estimations but that is beyond the scope of this analysis. Factoring is the main option when there are no other options.
The charts below show the cost inputs used in the model.   Obviously each project would have its own set of unique cost curves.
The 1D cashflow model was used to evaluate economics for a range of cutoff grades (from 0.20 g/t to 1.70 g/t) and production rates (12,000 tpd to 19,000 tpd).  The NPV sensitivity analysis was done using the Excel data table function.  This is one of my favorite and most useful Excel features.
A total of 225 cases were run (15 COG versus x 15 throughputs) for this example.

What are the results?

The results are shown below.  Interestingly the optimal plant size and cutoff grade varies depending on the economic objective selected.
The discounted NPV 5% analysis indicates an optimal plant with a high throughput (19,000 tpd ) using a low cutoff grade (0.40 g/t).  This would be expected due to the low grade nature of the orebody.  Economies of scale, low operating costs, high revenues, are desired.   Discounted models like revenue as quickly as possible; hence the high throughput rate.
The undiscounted NPV 0% analysis gave a different result.  Since the timing of revenue is less important, a smaller plant was optimal (12,000 tpd) albeit using a similar low cutoff grade near the breakeven cutoff.
If one targets a low cash cost as an economic objective, one gets a different optimal project.  This time a large plant with an elevated cutoff of 0.80 g/t was deemed optimal.
The Excel data table matrices for the three economic objectives are shown below.  The “hot spots” in each case are evident.

hill of value

hill of value

Conclusion

The Hill of Value is an interesting optimization concept to apply to a project.  In the example I have provided, the optimal project varies depending on what the financial objective is.  I don’t know if this would be the case with all projects, however I suspect so.
In this example, if one wants to be a low cash cost producer, one may have to sacrifice some NPV to do this.
If one wants to maximize discounted NPV, then a large plant with low opex would be the best alternative.
If one prefers a long mine life, say to take advantage of forecasted upticks in metal prices, then an undiscounted scenario might win out.
I would recommend that every project undergoes some sort of hill of value test, preferably with more engineering rigor. It helps you to  understand a projects strengths and weaknesses.  The simple 1D analysis can be used as a guide to help select what cases to look at more closely. Nobody wants to assess 225 alternatives in engineering detail.
In reality I don’t ever recall seeing a 43-101 report describing a project with the hill of value test. Let me know if you are aware of any, I’d be interested in sharing them.  Alternatively, if you have a project and would like me to test it on my simple hill of value let me know.
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Simple Financial Models Can Really Help

Date: April 27, 2020 Author: Ken Kuchling Comments: 3 Replies
A few years ago I posted an article about how I use a simple (one-dimensional) financial model to help me take a very quick look at mining projects. The link to that blog is here. I use this simple 1D model with clients that are looking at potential acquisitions or joint venture opportunities at early stages. In many instances the problem is that there is only a resource estimate but no engineering study or production schedule available.

By referring to my model as a 1D model, I imply that I don’t use a mine production schedule across the page like a conventional cashflow model would.
The 1D model simply uses life-of-mine reserves, life-of-mine revenues, operating costs, and capital costs. It’s essentially all done in a single column.  The 1D model also incorporates a very rudimentary tax calculation to ballpark an after-tax NPV.
The 1D model does not calculate payback period or IRR but focuses solely on NPV. NPV, for me, is the driver of the enterprise value of a project or a company. A project with a $100M NPV has that value regardless of whether the IRR is 15% or 30%.

How accurate is a 1D model?

One of the questions I have been asked is how valid is the 1D approach compared to the standard 2D cashflow model. In order to examine that, I have randomly selected several recent 43-101 studies and plugged their reserve and cost parameters into the 1D model.
It takes about 10 minutes to find the relevant data in the technical report and insert the numbers. Interestingly it is typically easy to find the data in reports authored by certain consultants. In other reports one must dig deeper to get the data and sometimes even can’t find it.
The results of the comparison are show in the scatter plots. The bottom x-axis is the 43-101 report NPV and the y-axis is the 1D model result. The 1:1 correlation line is shown on the plots.
There is surprisingly good agreement on both the discounted and undiscounted cases. Even the before and after tax cases look reasonably close.
Where the 1D model can run into difficulty is when a project has a production expansion after a few years. The 1D model logic assumes a uniform annual production rate for the life of mine reserve.
Another thing that hampers the 1D model is when a project uses low grade stockpiling to boost head grades early in the mine life. The 1D model assumes a uniform life-of-mine production reserve grade profile.
Nevertheless even with these limitations, the NPV results are reasonably representative. Staged plant expansions and high grading are usually modifications to an NPV and generally do not make or break a project.

Conclusion

My view is that the 1D cashflow model is an indicative tool only. It is quick and simple to use. It allows me to evaluate projects and test the NPV sensitivity to metal prices, head grades, process recovery, operating costs, etc. These are sensitivities that might not be described in the financial section of the 43-101 report.
This exercise involved comparing data from existing 43-101 reports. Obviously if your are taking a look at an early stage opportunity, you will need to define your own capital and operating cost inputs.
I prefer using a conventional cashflow model approach (i.e. 2D) when I can. However when working with limited technical data, it’s likely not worth the effort to create a complex cashflow model. For me, the 1D model can work just fine. Build one for yourself, if you need convincing.
In an upcoming blog I will examine the hill of value optimization approach with respect to the 1D model.
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Connecting With Investors – Any New Ideas?

Date: April 2, 2020 Author: Ken Kuchling Comments: Leave a reply
I recently read some LinkedIn posts from junior mining executives and IR staff asking for ideas about new ways to engage with investors.  The commonly used ways rely on PowerPoints, webinars, and trade show booths.   However during this Covid-19 crisis, trade shows are no longer an option.  Therefore these face to face discussions with investors will now be missing.  This will impact on the ability of a company to connect with and establish trust with those people.

What else can be done?

Perhaps with technology, like Zoom, one can replicate the personal feel of a trade show booth. One can still have back and forth conversations with investors rather than just doing lecture style webinars.
Free discussion is good in most cases. Letting investors feel they are sitting around a table will give them a better understanding of how management thinks and how decisions are being made.  It will also help them get to know the personality of the management team.
I’m not an IR person but I admire the job they have to do, especially in today’s business environment.  I have recently sat in on several junior mining online webinars.  When listening to the Q&A’s afterwards, it is apparent that many attendees enjoyed understanding the technical aspects of a project.  However they will only get that understanding by asking questions.  Trade show booths gave them that opportunity.

Technology gives some options.  Like what?

Set up regularly scheduled Zoom meetings, enabling investors to have interactive back and forth conversations with management.  Try to avoid long presentations with questions only at the end. Have a moderator review and ask questions as they come in.
Management teams should introduce more than just the CEO or COO.  Include VP’s of geology, engineering, corporate development, from time to time.    Don’t hesitate to let the public meet more of your team.  Trade show booths are often manned by different team members.
Pick different topics for discussion on each conference call to avoid repeating the same PowerPoint over and over again.
Avoid being too scripted.
For example one call could be a fly-around of the property using Google Earth.  Another call could focus on the ore body and resource model.  Another call might discuss metallurgy and the thought process behind the flow sheet. Perhaps discuss the development options you have considered.
None of this information is likely confidential if it has been presented in your 43-101 report.
Companies file highly technical 43-101 reports on SEDAR, but then let the investors fend for themselves.   One could take some online time for high level walk through of the report.  Clearly explain technical issues and how they have been addressed or will be addressed in the future.  This is an opportunity to explain things in plain English, and field questions.
One downside to such calls is if there are significant flaws with a project.  Open discussions may help expose them.   One needs to know your own project well, be aware of all the issues, and have them under control in one way or another.

Conclusion

Better communication with investors can increase confidence in a management team.   Although some investors may not enjoy technical discussions, I think there is a subset that will find them very helpful and interesting.  There will likely be an audience out there.
Mining projects are complex with many moving parts and many uncertainties. Trust and confidence will come if a company is transparent in what they are doing and explain why they are doing it.
The mining industry is looking for new ways to reach out, so it shouldn’t be afraid to try new things. Some management teams will be great at it, others not so much.  Figure out where you fit in.
Unfortunately one of the aspects of trade shows that cannot be replicated is the ability for investors to wander around aimlessly, take a quick glance at a lot of companies, and then decide which ones they want to learn more about.

Warning: zoom bombing

As an aside, if you are using Zoom make sure the host has configured the right settings.  There are instances where anonymous participants can suddenly share their own computer screen, i.e. with questionable videos, to the group.  It’s been referred to as “zoom bombing”.
Read more about how to prevent zoom bombing at the following two links.
https://www.forbes.com/sites/leemathews/2020/03/21/troll-terrifies-zoom-meeting-zoombombing/#2765abfc3e70
https://www.businessinsider.com/zoom-settings-change-avoids-trolls-porn-2020-3
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Consultants Have to Earn a Living Too

Date: March 12, 2020 Author: Ken Kuchling Comments: Leave a reply
The number of independent mining consultants is increasing daily as more people reach retirement age or are made redundant.
Nowadays it seems everyone is gradually becoming a self-employed consultant. Possibly that is because retirees need the money.  Maybe they need something post-career to keep them occupied.
Here are a couple of lesser known ways to generate income for those of you choosing this new career path.
One of these has been around for awhile while the other is relatively new.  I only have personal experience with one of them.

GLG – Give me an hour

GLG (https://glg.it/) is one of several information services that provide short term consulting assignments.  By short term, I mean 1 to 2 hours long.
GLG has been around for many years providing a platform for connecting those seeking information with those who have it.
Typically someone, like an industry analyst, poses a question that gets sent out to relevant experts.
The question could be something like “XX Mining Company owns the Bonanza mine and our client would like to learn more about that operation including reserves and operating costs”.
Anyone who has the requisite knowledge can accept the consultation and submit their credentials for review.  If you’re selected, such consultations take place very soon.  They can be for 1 to 2 hours and pay $200 to $500 dollars.  GLG are very strict that rumors or confidential information are not disclosed during any of the consultations.  Only public information is to be used.
Since I have a background in potash, I am often issued potash industry related requests.  Questions posed might be “Can you describe the Saskatchewan potash industry, including operations, expansions, marketing plans, and operating costs”.  That’s a heck of a lot of information to provide in a 1 to 2 hour time frame for $400.   Likely very few people would possess all of that knowledge.   I assume their approach is to consult with several different experts and eventually piece together the puzzle.
Check out the GLG website. It’s free to sign up as an expert and maybe you’ll get yourself an assignment. I think there is even a reward for referrals (which I assume I will get shortly).

Digbee – What’s wrong now?

Digbee (https://thedigbee.com/) is a relatively new online venture that I’ve not yet used.  It is essentially a due diligence platform where one can hire experts to undertake targeted due diligence studies.
Furthermore any expert can prepare an independent review on a topic of their choice and then offer it up for sale.
The typical report costs $1,640 to $4,680 dollars.   As of March 2020, they have 13 reports for sale and 5 more in the pipeline.  Here’s a brief explainer video from the founder
The report list can be seen at this link.  The reports appear to be focusing on potential technical flaws in a project. Some titles are listed below.
  • “Sample recoveries at shallow depths is a concern, this is not helped by the total lack of QAQC data” an analysis of Bomboré ($4,680)
  • “Has the extensive testwork at Bomboré finally found an optimum process to proceed to development?” ($4,680)
  • “Alpala’s technical merits and compares its cost estimate to other block caving development projects.” ($3,120).
  • “Cerro Blanco’s very complicated geology in Guatemala may mean more expensive mining techniques will be required.” ($4,680)
  • “Epithermal geologist raises questions on the reliability of the low grade resource at DeLamar.” ($3,120)
  • “What impact does serpentinisation have on the confidence of recovered grade at RNC’s Dumont project?” ($4,680)
I’m not sure how many report copies each consultant will be able to sell .  However a click-bait title may help sell at least one copy.  That would be to the company the report is about.   Perhaps major investors or financial analysts will also buy a copy.
So if you have some free time, pick a project that’s on your radar and write a review.   It appears that you’ll get a 50% share of the revenue.    To learn more, read an article at this link.
I’m curious if the Digbee platform will continue to grow.  It’s unique to see independent research identifying potential issues with mining projects. Someone jokingly mentioned that these are the anti-newsletter writers.  I’m also curious to see how long before the lawyers and lawsuits begin to show up.
Given the relatively low price for these reports, I think one might make a lot more money (from TMZ) if one wrote a report titled “Famous Hollywood starlet has scandalous affair with mining company CEO”.

Conclusion

If you’re becoming an independent consultant, check out these two revenue channels.   They are tailor made for our growing numbers.
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Consulting and Stock Compensation

Date: January 23, 2020 Author: Ken Kuchling Comments: 5 Replies
The other day a press release came across my desk with the following title “First Mining Issues First Tranche Of Shares To Ausenco; Pre-Feasibility Study For Springpole Gold Project Underway”.
Reading it further, it was apparent that their study consultant, Ausenco, was being paid in company stock in lieu of cash.  The arrangement included an initial financing of $750k with a further $375k to follow once the pre-feasibility study was 75% complete.  Upon completion of the study another share payment was due.
That press release was interesting. I personally had never seen one like this before.
Some may see independence as an issue with their fiscal arrangement. Maybe… but this blog isn’t about the need for independent QP’s.  In fact I don’t recall feasibility studies having that requirement.  Some 43-101 resources estimates do require independence.
An industry discussion about where independence is required would be an interesting exercise.  However I will leave that conversation for a future post.

Would you work for company shares only?

I have never been in a situation where I was consulting with  company shares as my compensation.  Neither have I ever managed a study where outside consultants were being paid in shares.   However I can see the possibility of interesting dynamics at play.
In the past I have worked as an owner’s study manager and been awarded stock options along with salary.  In that role, my job was to look after the owner’s interests, pushing for cost efficiencies and optimizations.
Regarding share compensation, there are significant risks on the consultant’s side when they agree to be paid in shares.   I can see both positive and negative aspects with that type of a relationship.
I am not passing judgement here on what is right or wrong.  My objective is to comment on some basic issues that may arise.

Pro’s and Con’s

The positive aspects one might experience include;
  • It’s easier for the company to pay for the study since there are no cash outlays from the treasury.
  • The consultants might have the company’s best interests at heart since they will now be part owners of the company.
  • Possibly there will be greater technical effort to produce optimal designs and cost estimating efficiencies in the drive for great economics.
The potential pitfalls of this approach might include;
  • A public perception that the study is not impartial.
  • There is an overhang of shares that may be dumped onto the market in the near future.
  • Possibly the consultant will charge a premium for their services due to the financial risks they are taking.
  • The company may be more tolerable of study cost overruns since there is no hard cash outlay.
Regarding the first item “impartiality”, in the past there have been questions raised about the impartiality of engineering firms. I first recall reading this claim many years ago in a public response to a mining EIA application. Unfortunately I cannot find the exact source now.
The concern was whether the consultant’s work would be overly optimistic, seeing that they would eventually gain as a project moved from PEA through to the PFS and FS stages. They didn’t want to kill the golden goose. The project’s opponents were making the argument to the regulators “don’t believe what the engineering company is telling you”.
I’m curious how many times this argument has been used, seeing that it’s been around for some time.

Conclusion

It would be interesting to know how many consulting firms would be willing to accept compensation solely in shares.  Stock prices move up and down and the outcome of the study itself can have an impact on  share performance.
Unlike being paid in bitcoin, which also fluctuates in value, shares will generally have a hold period before they can be sold off.  This further increases the consultant’s risk.
I am curious to see whether the First Mining + Ausenco financial arrangement will create a precedent. Possibly it happens more than I am aware of.  Realistically I don’t see anything wrong with the approach, although one needs to understand the perceptions that it can create.   See where you sit if you were on the owner’s or consultant’s side and this idea was being discussed.  What would you do?
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43-101 Reports – What Sections Are Missing?

Date: October 21, 2019 Author: Ken Kuchling Comments: 4 Replies
Recently as part of a due diligence I was reviewing a couple of 43-101 technical reports and something jumped out at me. There were pages and pages of statistical plots. The plots included QA/QC and check assay diagrams, variograms, box plots, swath plots, and contact plots. There was no lack of statistical information. However, as a mining engineer, there was something missing that was of interest to me. Good geological sections were missing.
Its seems that most technical reports focus heavily on describing the mathematical aspects of the resource, but spend less time describing the physical aspects of the geology and the mineability.

Who is the audience

It’s always open to debate who these 43-101 technical reports are intended for. Generally we can assume correctly that they are not being written mainly for geologists. However if they are intended for a wider audience of future investors, shareholders, engineers, and C-suite management, then (in my view) greater focus needs to be put on the physical orebody description.
Understanding the nature of the orebody brings greater understanding of the entire project.

Everyone likes geology

Whenever I listen to investor conference calls, many of the analyst’s questions relate to the resource and the mining operation. Essentially the participants want to know if this will be an “easy” mine or a “hard” mine.
One simple way to explain this is with good geological sections. They help everyone understand any potential issues; i.e. a picture is worth a thousand words. Good cross-sections will describe the following aspects.
  • The complexity (or simplicity) of the ore zones,
  • The width of the ore zones,
  • The vertical extent of geological information,
  • The drill spacing and drilling density,
  • The spatial distribution of assay information,
  • The grade distribution laterally and vertically,
  • The waste distribution throughout the mine,
  • The mining block size in relation of the ore zone dimensions
One can learn a lot just by looking at well presented cross-sections.  The nice thing is that they are generally understood by non-technical people.

Suggestions

I would like to suggest that every technical report includes more focus on the operational aspects of the orebody.
My recommendation is that the following information becomes standard in all technical reports.
  1. At least three to five cross sections through the deposit. Don’t just present a best case typical cross-section.
  2. At least one or two longitudinal sections.
  3. At least three level or bench plans, showing the drill hole pierce points.
Each cross section/bench plan should consist of two parts.
Part 1 shows the drill holes with color coded grade intercepts, ore zone wireframes, and lithology or rock types.
Part 2 should be a block model cross section showing the wireframes, drill holes, and color coded block model grades using the ore/waste cutoff grade as one of the clearly defined grade bins.
It doesn’t really matter if the cross- sections are included in Section 14 or Section 16 of the Technical Report. However if they are included in Section 16 then one should overlay the pit design and/or underground stope shapes onto the sections.
I also recommend NOT incorporating these cross-sections in the appendices since they are too important to be hidden away. They should be described in the main report itself.

Conclusion

Improving the quality of information presented to investors is one key way of maintaining trust with investors. Accordingly we should look to improve the description of the mineable ore body for everyone. In many cases it is the key to the entire project.
I am not suggesting that one needs to remove the statistical plots since they do have their purpose and audience. I am simply suggesting that we should not forget about everyone else try to figured out the viability of the project.
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For those interested in reading other mining blogs, check out the Feedspot website at the link below. They have over 50 blog sites you check out. https://blog.feedspot.com/mining_blogs/
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Global Risks – Our Fears Are Evolving

Date: July 30, 2019 Author: Ken Kuchling Comments: Leave a reply
Recently I wrote a blog about how the adoption of new technology in the mining industry will increase the risk of cyber crime. However this is just one of many risks the industry faces today.  This raises the question as to what are the main risks impacting all global businesses.  Luckily for us, the World Economic Forum undertakes an annual survey on exactly this subject.
Each year business leaders are queried about what they view as their major risks. The survey results are summarized in the Global Risk Report.
The 2019 report can be downloaded at this link. http://www3.weforum.org/docs/WEF_Global_Risks_Report_2019.pdf.
The study rates risks according to the categories “likelihood” and “impact”. A risk could have a high likelihood of occurring but have a low economic impact. One might not lose sleep over these ones.
Another interesting feature in the report is seeing how the top risks change from year to year.  Some risks from 10 years ago are no longer viewed as key risks today.

2019 risk situation

In 2019 environmental related risks dominate the survey results. They account for 4 of the top 5 risks by “impact” and 3 of the top 5 by “likelihood”. Technology related concerns about data fraud and cyber-attacks were also viewed as highly likely (#4 and #5). See the image below for the top 5 risks in each category.
Although the Global Risk survey wasn’t specifically directed at the mining industry, all of the identified risks do pertain to mining.

 

10 year risk trend

It is also interesting to look at the detailed 10 year  table in the report to see how the risk perceptions have changed over the last decade.
None of the top five “Impact” risks from ten years ago are still in the top five now and only two from 2014 still exist. In the “likelihood” category, a similar situation exists.
It will be interesting to compare the 2024 list with 2019 list to see how risks will continue to evolve.

How about the mining industry

EY Global Mining & Metals also undertake a risk survey, focused on mining only. You can read their article at this link “The Top Risks Facing Mining and Metals”.  Their top 10 risks are listed below, many are different than those from the World Economic Forum ranks. You must read the EY article to fully understand the details around their risk items.
  1. License to operate (difficulty to acquire)
  2. Digital effectiveness (lack thereof)
  3. Maximizing portfolio returns (can this be done)
  4. Cyber security (increasing risk of attack)
  5. Rising costs (can costs be controlled)
  6. Energy mix (acceptable power sources)
  7. Future of workforce (lack of interest in the sector)
  8. Disruption (falling behind competitors)
  9. Fraud (increasing sophistication)
  10. New world commodities (versus reduced demand for some commodities)

Conclusion

My bottom line is that the Global Risk Report is something that we should all read. Download it and then compare with what your company sees as its greatest risks. The only way to mitigate your risks is to know what they are.  The only way to work with others is to know what their issues are.
Note: If you would like to get notified when new blogs are posted, then sign up on the KJK mailing list on the website.  Otherwise I post notices on LinkedIn, so follow me at: https://www.linkedin.com/in/kenkuchling/.
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Google Earth – Share Your Project in 3D

Date: July 10, 2019 Author: Ken Kuchling Comments: 2 Replies
Google Earth is a great tool and it’s free for everyone to use. No doubt that many of us in the mining industry already use it regularly.
Previously I had written an article about how Google Earth can be used to give your entire engineering team a virtual site visit. It’s cheaper than flying everyone to site. That blog is available at this link “Google Earth – Keep it On Hand”.

What else can Google Earth do for me?

The Investor Relations (IR) department in a mining company can also take advantage of Google Earth’s capabilities. Typically the IR team are responsible for creating a myriad of PowerPoint investor presentations. Their slideshows will include graphics highlighting the project location, showing exploration drilling and planned site facilities for advanced projects. This is where Google Earth can be used to create a more interactive experience for investors.

Google Earth with 3D Buildings

Rather than relying only on PowerPoint, the technical team can create drillhole maps, 3D infrastructure layouts, open pit plans, 3D tailings dams, and import them into Google Earth.
By creating a KMZ file, one can share this information with investors, analysts, and stakeholders. This will provide an interactive opportunity to view the information themselves.
Viewers could fly around the site, zoom in and out as needed, examine things in 3D, and even measure distances. Viewers can even save the project in Google Earth and return back whenever curiosity dictates.
I have been a part of engineering teams where Google Earth has been used to share layout information. However I have not yet seen such information offered as a downloadable KMZ file to external parties. If you know of any companies that are currently doing this, please let me know (kjkltd@rogers.com) and I will share their link here.

There also is VRIFY

VRIFY is a new cloud based platform that provides 3D viewing capability. It provides a map based graphic tool to IR departments for sharing project information. VRIFY can also enhance collaboration among engineering teams by enabling a group to view a virtual project and sketch on the image in real time.

VRIFY desktop screenshot

VRIFY also allows more detailed information to be displayed in the form of hotspots within a project. Click on them to get more information on that topic (see image to the right).
Although I have only been given a demo of VRIFY, it appears to be a nice package that provides more functionality than Google Earth. Unfortunately VRIFY is not free for a company to use. The minimum subscription cost is about $10,000 (plus extras).
In June 2019 VRIFY made a deal with Kirkland Lake Gold whereby interested property vendors can submit their project to Kirkland Lake management for their review.
Here is the link (https://vrify.com/dealroom). In the proposed approach, the project information is submitted using the VRIFY platform. Essentially some of the same information presented in a PowerPoint is now provided in a more interactive fashion. Participating companies must first enter into a client service agreement with VRIFY. We will see how this idea works, since it does add a cost and new complexity for the property vendor.
There is another cloud based service called Reality Check, which offers virtual reality site visits.

Conclusion

The bottom line is that the trend in the mining industry is towards more open data sharing whether you’re connecting with the public or within your own engineering team. New and old cloud based platform tools can be used to do this. It just depends on your budget.
Note: If you would like to get notified when new blogs are posted, then sign up on the KJK mailing list on the website.  Otherwise I post notices on LinkedIn, so follow me at: https://www.linkedin.com/in/kenkuchling/.
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Cyber Security – Coming to a Mine Near You

Date: June 20, 2019 Author: Ken Kuchling Comments: Leave a reply
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.
Note: If you would like to get notified when new blogs are posted, then sign up on the KJK mailing list on the website.  Otherwise I post notices on LinkedIn, so follow me at: https://www.linkedin.com/in/kenkuchling/.
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Is Insitu Leaching the “Green Mining” Future

Date: May 7, 2019 Author: Ken Kuchling Comments: 6 Replies
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.
Update: The University of Western Australia is also looking at electric fields to extract metals from hard rock ore, the sample principle as electro-plating.  Check out more information at this link “No more digging – a new environmentally friendly way of mining“.

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.
Note: If you would like to get notified when new blogs are posted, then sign up on the KJK mailing list on the website.  Otherwise I post notices on LinkedIn, so follow me at: https://www.linkedin.com/in/kenkuchling/.

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