Articles tagged with: Mining

Miners – Why Have Your Own Independent Consultant?

Date: May 12, 2015 Author: Ken Kuchling Comments: 1 Reply
PEA consultants
Over the years I have worked in different consulting roles; as an independent; as a member of a large consulting team; and as owner’s representative managing consultants.   I have learned that there is an industry role for both the independent consultant and larger consulting firms.  Read on for more in this self-serving article.

Independents have a role

A previous blog (“9. Large Consulting Firms or Small Firms – Any Difference?”) discusses where I feel the large and small consultants fit into the overall picture.   Large technical teams are required where there are broader scopes of work, significant effort levels, and multiple skills sets are needed.
Independent consultants are a different option.  They are best suited for assisting the owner directly, either independently or as part of an overall advisory team.  On occasion the engineer could be part of the Board of Directors.  Non-technical management must always have access to in-house engineering capability for brainstorming or technical direction.  The question is whether the engineer should be a cheerleader or a true independent observer.
Independent consultants can differentiate themselves from large firms in several ways.
  • They don’t bring a lot of extra personnel onto the job.  They focus only on what is needed and can usually draw in other expertise when needed.
  • They can provide unbiased advice.  Larger firm sometimes have business development conflicts. The independent consultant does not have the motivation to win a feasibility study or EPCM contract.
  • One can develop a long term working relationship with independent consultants.  Everyone gets familiar with each other’s objectives and goals.  Large engineering firms can be revolving doors.
  • Independents can work efficiently at a pace of their own choosing.  This possibly results in lower costs and faster deliveries.  I know of many independent consultants that will work evenings and weekends to meet deliverable targets.
  • Independents can provide long term stability since they won’t have any employee turnover.  Personally I was involved for over 15 years with a mining operating in Suriname.  The expat staff at the mine site had significant turnover.  This was partly due to them being promised personal development relocations.  I ended up being the only constant.  I knew the history, why things were done they way they were.  I even had copies of study reports they could no longer find in their files.  I knew what was done previously, thereby avoiding re-inventing the wheel each time there was a new technical manager.

Stocks options to consultants

A point of discussion is whether the independent consultants should receive stock option compensation.  I have worked under both situations.
Awarding stock options could eliminate the “independent” nature of the relationship and hence negated the ability to sign off as an independent QP.  In some circumstances, the company may not require the independent consultant to be a QP since they mainly fulfill an advisory role.
One advantage of awarding stock options is the consultant may become more beholden to the project.  They feel it is their project too, rather than simply acting as an adviser.
Conversely the company may prefer the consultant doesn’t have any direct ownership so that their advice can be viewed as being unbiased.
I feel that awarding stock options is a good way to foster long term commitment from the consultant. It can be easier for them to walk away without any such inducement.

Conclusion

The bottom line is that independent consultants have a role to play and should be part of all owner’s teams, whether be on the Board or on an Advisory Panel.   The independent consultants can be selected based on their technical specialization (i.e. exploration, resource modelling, mining, metallurgy, environmental) and provide valuable part time guidance to the company.
The caveat is to ensure that the consultant is technically capable.  I have seen instances where certain members of the advisory panel gave poor advice.  Others on the panel would see it, but not say anything out of professional courtesy.
Lastly, decide whether the engineer should be an honest advisor or a cheerleader.  Companies should want to hear the truth.  If a 3rd party due diligence teams comes in they will be looking for flaws in the project.  It would be in a company’s self interest to know what those flaws are before the due diligence teams finds them.
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Pit Wall Angles and Bench Width – How Do They Relate?

Date: May 10, 2015 Author: Ken Kuchling Comments: 1 Reply
open pit slopes
The wall of an open pit wall will consist of a series of stacked benches.  Geotechnical engineers will normally provide the pit slope design criteria based on the inter-ramp angle (“IRA”) for various sectors around the pit.  The IRA represents the toe-to-toe slope angle, as shown in the diagram below.

Pit Slope Image for post

The inter-ramp angle can be created in many ways, depending on the bench height (“BH”), bench face angle, and the catch bench or berm width.  Different combinations of these can be used to develop the same inter-ramp angle.
Typically the bench face angle (“BFA”) will be dictated by the rock strength, the structural fabric, and whether controlled blasting is used (minimizing damage to the walls).   The BFA may vary around the pit or in different rock types, but it typically is in the range of 60° to 75°.

Open Pit Slope

The catch bench (“CB”) or berm is used to catch spalling rock and prevent it from rolling down the pit wall,  creating a safety hazard.  A rule of thumb is that the catch bench width should be according to the formula 4.5m + 0.2H, where H is the height of the bench.   This means the recommended catch bench width for a 5m high bench should be about 5.5m; for a 10m high bench it should be 6.5m; and for 15m high bench it should be 7.5 metres.
Double benching (or triple benching) is used where the inter-ramp slopes angles are steep enough that single benching would result in an overly flatten slope.   For example if the inter-ramp slope is 50° and the BFA is 70°, then the corresponding calculated catch bench width would be 2.4 metres to achieve the 50° IRA.  However such a small catch bench would be ineffective in catching ravelling rock.
If one double benched (i.e. left a catch bench every 10m instead of every 5m), then the calculated catch bench width would be 4.8 metres.  If one triple benched (i.e. left a catch bench every 15m), then the recommended width would be 7.1 metres.  Hence triple benching would be suggested in this case, assuming the rock mass is of sufficient strength to sustain a 15m high face.
A simple interactive calculator (Bench Slope Calculator) has been prepared to show the relationship between all of these factors.  A screenshot of the calculator is shown below.  It allows one either to calculate the IRA given a set of bench height, BFA, and catch bench criteria; or calculate the catch bench width given the height, BFA, and IRA criteria.  The yellow shaded cells represent input cells.

Bench Slope Calculator Pic

Single Bench Height (BH):  this is the input height of a single operating bench.
No. of Benches between catch benches:   this is the input for single, double, or triple benching.
Total Height (TH):  this is the calculated total height (# of benches X single bench height)
Bench Face Angle (BFA):  this is the input bench face angle, in degrees
Catch bench (CB):  this is the width of the catch bench, either as an input or a calculated value.
Inter-Ramp Angle (IRA): this is the slope angle in degrees, either as a calculated value or an input.
When double or triple benching, sometimes a small 1-2m berm may be left between benches due to the inability of the blasthole drill to get right against the pit wall when drllling off the next bench.  The width of the drill berm can possibly be eliminated by drilling the entire double bench or using smaller drills.
Sometimes one may see the term “geotechnical berm”.   In some pit designs a large bench is introduced periodically, e.g. every 120m-180m in height, which acts as another means with which to catch ravelling rock.

Conclusion

The bottom line is that the inter-ramp angle can be achieved in different ways depending on various components of the slope profile.  Safety is of the utmost importance and therefore the adequate sizing of the catch bench is important, as is the ability to access the benches and clean up the rubble buildup.  Double and triple benching maybe required in some circumstances to achieve the design wall angles yet maintain safety catch bench widths.
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Financings – It Helps to Have a Credible Path Forward

Date: May 9, 2015 Author: Ken Kuchling Comments: 1 Reply
mine economics
Update: This blog was initially written in May 2015, however not much as changed to the end of 2018.
Let me say the obvious; the state of the junior mining market is not great these days.  The number of financings is down and it seems there are a lot of companies struggling to get their piece of the financing pie.   People mention to me that there actually is a fair bit of private equity funding available but only for the right projects.
I have heard from geologist colleagues that financing grass-roots exploration is still extremely difficult.  That is unless company management has had past successes or is well connected to the money scene.
I’m told that 43-101 resource estimates alone no longer generate much excitement.  For projects to be “on the radar” they need to be advanced to at least the PEA stage.  It seems that investors want some vision of what the project might eventually look like.
I have be made aware of more junior mining companies that are struggling for cash while others seemed to have no problem in getting at least some funding to continue their operations.  To me, the biggest differences between these two situations are;
  • If there is top notch management in place,
  • The type of project they had,
  • If their path forward and development plan made sense.

You don’t want to always change management

Management is what it is.  Companies attempt to bring on experienced people to the executive level or to the Board level.   Experienced management can hopefully establish if their project will have a high probability of success or if the project is going to be a hard sell.  This will provide guidance on whether to continue spending money on the project or look for a new project.
From my experience in undertaking due diligence, when a company is looking for financing it is important that  management have the capability to present an orderly, practical, and realistic path forward.  It is important to demonstrate where they will spend the money.
I have participated in due diligence meetings listening to management teams explain that they will have a resource estimate this year and be in production in two years.  Those around the table glance at one another, knowing that they will be lucky to have a feasibility study completed by that time and even more lucky to have their environmental permits in place.   This makes investors nervous.

Keep plans realistic and achievable

It does not help the perception of a management team (or the project itself) if the path forward is unrealistic and unattainable.  The exception being if the management team have done it before.   Similarly low-balling cost estimates and presenting great NPV’s will usually fool no one that has experience. It ultimately may do more harm to credibility than good.
The bottom line is that in order for a project (and the management team) to get serious attention from potential investors is to make sure there is a realistic view of the project itself and have a realistic path forward.
Even a good property can be tarnished by making the technical aspects look over-promotional rather than real.  Make sure the right technical people are involved in the entire process and that company management are listening to them.
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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Rock Value Calculator – What’s My Rock Worth?

Date: May 8, 2015 Author: Ken Kuchling Comments: 3 Replies
rock economic value
In my view, one of the most important things you need to understand about your orebody is the insitu rock value.  Its a key driver in shaping the project for you.
The two main nature-driven factors in the economics of a mining project are the ore grade and the ore tonnage.  In simplistic terms, the ore grade will determine how much incremental profit can be generated by each tonne processed.
The ore tonnage will determine whether the cumulative profit generated all the ore will be sufficient to pay back the project’s capital investment plus provide some reasonable financial return to the investor.

Does the Ore Grade Generate a Profit ?

In order to understand the incremental profit generated by each ore tonne one must first convert the ore grade into a revenue dollar value.   This calculation will obviously depend on metal prices and the amount of metal recovered.  For some deposits with multiple metals, the total revenue per tonne will be based on the summation of value from each metal, some of which may have different process recoveries and different net smelter payable factors.
To help calculate the value of the insitu rock, I have created a simple cloud-based spreadsheet at this link (Rock Value Calculator).  An example screenshot is shown below.  Simply enter your own data in the yellow shaded cells and the rock values are calculated on a “$ per tonne” basis. One must zero out the values for metals of no interest.

 

Rock Value Calculator Pic

Price: represents the metal prices, in US dollars for the metals of interest.
Ore Grade: represents that head grades for the metals of interest in the units as shown (g/t and %).
Process Recovery: represents the average percent recovery for each of the metals of interest.
Payable Factor: represents the net payable percentage after various treatment, smelting, refining, penalty charges.  This is simply an estimate depending on the specific products produced at site.  For example, concentrates would have an overall lower payable factor than say gold-silver dore production.
Insitu Rock Value: this output is the dollar value of the insitu rock (in US dollars), without any recovery or payable factors being applied.
NSR Rock Value: this output represents the net smelter return dollar value after applying the recovery and payable factors.  This represents the actual revenue that could be generated and used to pay back operating costs.

Profit = Revenue – Cost

The final profit margin will be determined by subtracting the operating cost from the NSR Rock Value.  These costs would include mining, processing, G&A, and offsite costs.  Typically large capacity open pit operations may have total costs in the range of $10-15/tonne while conventional underground operations would be much higher.

Conclusion

The bottom line is that very early on you should understand the net revenue that your project’s head grades may deliver.
This will give sense for whether you are a high margin project from an operating cost perspective or whether the ore grades are marginal and higher metal prices or low operating costs will be required by a project.
The earlier one understands the potential economics of your different ore types, the better you will be able to visualize, design, and advance your project.
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 – Keep it On Hand

Author: Ken Kuchling Comments: 1 Reply
Mining studies
In a previous article (3. Site Visit – What Is the Purpose?) I briefly discussed the requirements for a site visit to be completed by one or more Qualified Persons (“QP”) in a 43-101 compliant study.    Unfortunately the entire study team cannot participate in a site visit; however the next best thing may be Google Earth.

Lets fly around with Google Earth

Gather your team around their computers and fire up screen sharing software like Glance, GoToMeeting, Skype, or Cisco Webex.   Here are some of the things your group can do with Google Earth:
  • It can be used to fly-around the project site examining the topography.
  • It can be used to view regional features, regional facilities, land access routes, and existing infrastructure.
  • It  has the capability to measure distances, either in a straight line or along a zigzag path.
  • It provides the capability to view historical aerial photos (if they exist) to show how the project area might have changed over time.
  • It can import GPS tracks and survey waypoints.  If a member of the study team has visited the site with a GPS, they can illustrate their route and their observations.
My recommendation is to always have a Google Earth session with your engineering team to examine the project site and the regional infrastructure.
A group session like this ensures that everyone sees and hears the same thing. It’s like taking a helicopter tour of the site with your entire study team at once!   A “helicopter tour” would be a good agenda item at the very first kickoff meeting.
Another option is to check the aerial photos and Bird’s Eye views on the Bing Maps website (www.bing.com/maps).  Sometimes those images will be different than what you will find in Google Maps or Google Earth.
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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Large Consulting Firms or Small Firms – Any Difference?

Date: May 7, 2015 Author: Ken Kuchling Comments: 2 Replies
Mining feasibility pre-feasibility
Some junior mining companies have selected their engineering consultant on the assumption that they need a “big name” firm to give credibility to their feasibility study.   This creates an interesting dilemma for many smaller mining companies.  Its also a dilemma for smaller engineering firms trying to win jobs.  While large consultants may be higher cost due to their overheads; their name on a study may bring some intangible value.
In my personal experience I find that larger consultants are best suited for managing the large scale feasibility studies.  This isn’t because they necessarily provide better technical expertise.  Its because they generally have the project management and costing systems to manage the inherent complexities of such larger studies.
The larger firms are normally able to draw in more management resources; for example, project schedulers, cost estimators, and document control personnel.
Ultimately one does pay for all of these people, albeit they may be a critical part in successfully completing a study.  However there is a cost to this.

Sub-contracting

For certain aspects of a feasibility study, one may get better technical expertise from smaller specialized engineering firms.  However the overall coordination of heavily sub-contracted studies can be an onerous task.  Often the larger firms may be better positioned to do this.
In my view, likely the best result will come from a combination of a large firm managing the feasibility study but undertaking only the technical aspects for which they are deemed to be experts.
The large lead firm would be supported by smaller firms for the specialized aspects, as per a previous article “Multi-Company Engineering Studies Can Work Well..Or Not”.

What about smaller studies?

For smaller studies, like scoping studies (i.e. PEA’s), which can be based on limited amounts of technical data, I  don’t see the need to award these studies to large engineering firms.  The credibility of such early studies will be linked to the amount of data used to support the study.  For example, there may be limited metallurgical testing, or limited geotechnical investigations; or the resource is largely inferred.  Not all PEA’s are equal (see “PEA’s – Not All PEA’s Are Created Equal”).  A large firm’s application of limited data may be no more accurate or defensible than a small firm’s use of the same data.
One of the purposes of an early stage study is to see if the project has economic merit and would therefore warrant further expenditures in the future.  An early stage study is (hopefully) not used to defend a production decision.  The objective of an early stage study is not necessarily to terminate a project (unless it is obviously uneconomic).
I have seen instances where larger firms protecting themselves from  limited data, were only willing to use very conservative design assumptions. This may not be helpful to a small mining company trying to decide how to advance an earlier stage project.

Conclusion

The bottom line is that for early stage studies like a PEA, smaller engineering firms can do as good a job as larger firms.  However one must select the right firm.  Review some of their more recent 43-101 reports to gauge their quality of work.  Don’t hesitate to check with previous client references.
For the more advanced feasibility level studies, be wary if a smaller firm indicates they can do the entire study. Perhaps they can be responsible for some parts of the feasibility study as a sub-contractor to a larger firm. Managing these large study may be beyond their experience and internal capabilities.
Whether you are considering a small or large engineering firm, know their strengths and weaknesses as they will relate to the specific’s of your study.

 

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Early Stage “What-if” Economic Analysis – How Useful Is It?

Date: April 27, 2015 Author: Ken Kuchling Comments: Leave a reply
Mining study economics
Over the years I have worked with both large and small mining companies and watched how they studied potential acquisitions.
Large mining companies have their in-house evaluation teams that will jump on a potential opportunity that comes in the door and start examining it quickly.  These evaluation teams are experienced at what they do and can provide management with solid advice even if working with only limited data.  This help management decide very early on whether to pursue the opportunity or walk away.
Early stage economics are not right all of the time but more than often they save their company from wasting money on projects unlikely to fly.
If you are a small mining company, what are your options?
You don’t have an in-house technical team sitting around ready to hit the ground running.  Management needs to know if this project has a chance.  If the project is early stage, sometimes management thinks it is better to put money into the ground rather than on early studies.

It is possible to do both

I feel that you won’t know if you have arrived at your destination if you don’t know your destination.  Early stage financially modelling can help define that destination.
The exploration team and management usually have a vision of the potential project, even those projects with only an early resource estimate.   Each person may have a different opinion on the potential size and scope of what may eventually exist.  However the question is whether any of those vision have sufficient potential to warrant spending more shareholder money on the project.
Some of the junior mining management teams that I have worked with have found it beneficial early on to have a simple internal cashflow model that is simply to tweak to examine “what-if’s” scenarios for the project.  Input the potential deposit size and mine life, potential head grades, expected metallurgy, and typical costs to see what the economic outcome is.  Does this project have a chance and, if not, what tonnage, head grade, recovery, or metal price is required?

Early stage modelling adds value

The tangible benefits to early financial modelling are:
  • It helps management to think about and better understand their project.  If done honestly, it will reveal both the good and the bad aspects.
  • It helps management to understand what parameters will be most important to resolve and what technical factors can be viewed as secondary. This helps guide the on-going exploration and data collection efforts.
  • Periodically updating the economic model with new information will show the if economic trends are getting better or worse.

Its not 43-101 compliant

I must caution that this type of early stage economic analysis is not be 43-101 compliant and hence can not be shared externally, no matter how much one might wish to.
Another caution is that in some cases these early stage un-engineered projections become “cast in stone”, treating them as if they are accurate estimates.  All subsequent advanced studies somehow need to agree with the original cost guesses, thereby placing unreasonable expectations on the project.
The early stage economic models can consist of simple one-dimensional tables using life-of-mine tonnages or two-dimensional tables showing assumed annual production by year.  Building simple cashflow models may take only 2-3 days of effort.  That is not an onerous exercise compared to the overall guidance they can provide.
The bottom line is that it is useful to take a few days to develop a simple cashflow model.  “Simple” also means that management themselves can tweak the models and don’t need a modeling expert on hand at all times.  “Simple” means the model should be well written and understandable (see the article Financial Spreadsheet Modelling – Think of Others).
Most companies have a CFO that can easily undertake this modelling, with the help of some technical input.
To learn more about simple 1D financial models, read my blog “Project Economics – Simple 1D Model” .
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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#1 Financial Spreadsheet Modelling – Please Think of Others

Author: Ken Kuchling Comments: Leave a reply
Mining Cashflow modeling
In my current role as a mining consultant I am often required to review spreadsheet cost models or cashflow models built by others.  Some of these spreadsheets can be monsters, using numerous worksheets, cross-linking between worksheet cells, and having hard wired numbers inside cell formulas.
Some of the models I have reviewed will build the entire operating cost (mining, processing, G&A) in one file.  They will build in the capital cost too and finally provide the economic model… all in one!
This makes the model very complex and difficult to follow the logic.  Sometimes your gut feel says there must be formula or linkage errors in there somewhere but you just can’t find them.  In these types of models more focus is spent trying to figure out the formula logic than actually looking at the validity of the inputs and output.
It seems that only the model developer can really work with these spreadsheets and the rest of us can just hope they have  done everything correctly.

Cleverness is not a virtue

Over the years, I have learned that there is an art to creating a clear, concise, and auditable cashflow model (or cost model). Once in awhile you come across one that is well crafted and is not an example of someone saying “look how clever I am”.
In building the spreadsheet models I have learned to not try to do too much in the same model, especially if several different technical people are involved in its foundation.   Other suggestions are:
  • Color coded input cells differently than formula cells.
  • Carry over values rather than linking to other worksheets.
  • Highlight cells that are carried over from other worksheets.
  • Never hardwire numbers into a formula.
  • Use conditional formatting when possible to help identify errors.
I won’t go into detail on good spreadsheet practices, but you can check out the instructional presentations prepared by Peter Card at Economic Evaluations (http://economicevaluation.com.au).
He has some excellent practical recommendations that all financial modellers should consider.  It doesn’t take long to review his online courses and it’s worth your time to do it.  His recommendations can generally apply to any Excel modelling exercise, whether its costing, scheduling, or economic analysis.

Try to help by building in clarity.

The bottom line is that you must build your spreadsheet models compatible with the way you think.  However not everyone thinks the same way so try to keep all aspects easily identifiable and traceable.  Be consistent in the model format from worksheet to worksheet. Be consistent in methodologies on all worksheets and with all your models.   Your client, colleagues, and reviewers will thank you.
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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