Articles tagged with: PEA

Mine Builders vs Mine Vendors

Normally when Major or Intermediate miners advance their projects through the study stages, they usually have the intent to build the mine at some time.  Sometimes they may decide to sell the project if it no longer fits in their corporate vision or if they desperately need some cash.   However, selling the project was likely not their initial intent.
On the other hand, Junior miners tend to follow one of two paths.  They are either on (a) the Mine Builder path, or (b) the Mine Vendor path (i.e. sell the project).  In this article, I will present some examples of companies on each path.   There will also be some discussion on whether the engineers undertaking the early stage studies (e.g., PEA’s) should be considering the path being followed.

The Mine Builder Path

The Mine Builder generally follows a systematic approach, as sketched out in the image below.  The project advances from drilling to Mineral Resource Estimate (MRE), scoping study (PEA), then through the Pre-Feasibility Study (PFS) and/or Feasibility Study (FS) stages.  Environmental permitting is normally proceeding in conjunction with the engineering. Once the FS is complete, the next hurdles for the Mine Builder are financing and construction.   The path is fairly orderly.
Mining Project Builder Path
The amount of the exploration drilling is only needed to define an economic resource to the Measured and Indicated classifications.   There is no requirement to delineate the mineral resource on the entire property since there will be time to do that during production.   Demonstrating an economic resource, with some upside potential, is often sufficient for the Mine Builder.
Three examples of companies on the Builder path are shown below; Orla Camino Rojo gold project (in operation), SilverCrest Las Chispas gold project (in operation), and Nexgen Rook uranium project (financing stage).   Although the duration of each timeline is different due to different project complexities, the development paths are consistent.  Most junior miners would not consider themselves on the Builder path.

The Mine Vendor Path

Mine Vendor type organizations have the primary goal of selling their project.  These companies may consist of management teams that don’t have the desire, comfort, or capability to put a mine into production. For example, this is often the case with companies founded by exploration geologists, whereby their plan is to explore, grow, and sell all (or part) of the project.   In other cases the Junior miner realizes their project is large with a high capital cost.  That capital cost is beyond the financial capability of the company.  Hence a deep-pocket partner is required or an outright sale is preferred.
Mining Project Vendor Path
The Mine Vendors tend to follow a different development path than the Mine Builders. They don’t have the same long term objectives.  Vendors want out at some point.
The Vendor path can be more irregular, with multiple studies undertaken at different levels of detail, sometimes stepping back to lower level of studies as more information is acquired.  Their object is to make the project look good to potential buyers, and look better than their junior miner competitors also for sale.  Often this ongoing project improvement process is termed “de-risking”.
Not only must the Vendors demonstrate an economic resource, they must demonstrate a highly valuable resource to maximize the acquisition price for the shareholders.  They will try to do this through multiple drill campaigns followed by multiple studies, each one looking better than the prior one.
Sometimes you will see a management team indicate that, if the project isn’t sold, they are going to put it into production themselves.  This may be true in some cases, or simply part of the negotiating game to try to maximize the acquisition price.
Two quick examples of companies on the Vendor path are shown below: Western Copper Casino project and Seabridge KSM project.  The durations of these development timelines are extensive and expensive, while waiting for an interested buyer.   During these periods, the companies may continue to spend money de-risk the project further.  The hope is that the company can eventually make the project attractive or that changing market conditions will make it attractive for them.   Unfortunately, there is always the possibility that no buyer will ever come along.

Engineer’s Perspective

One question is whether the independent geologists and engineers working on the advanced studies should be aware of the path the company is following. Is the company a Builder or a Vendor?
Some may feel that the technical work should be independent of the path being followed.  Based on my experience as both an owner’s representative and independent study QP, I have a somewhat different opinion.  The technical work should be tailored to the intended path.

The Engineer on the Mine Builder Path: 

If an engineer understands that a Mine Builder’s project will move from PEA to PFS to FS in rapid succession, then there is more incentive to ensure each study is somewhat integrated.
For example, a PEA will use Inferred resources in the economics.  However, if the project will advance to the PFS stage, where Inferred cannot be used, then it is important for the PEA to understand the role that Inferred plays in the economics.    How much drilling will be needed to upgrade Inferred resource to Indicated for the PFS, if needed at all?
Typically, capital costs tend to increase as advancing studies get more accurate due to greater levels of engineering.   A Builder wants to avoid large cost increases when moving from PEA to PFS to FS.  Therefore, when costing at the PEA stage, one may wish to increase contingency or use conservative design assumptions.  After all, one is not trying to sell or promote the project internally, but rather move it towards production.
There is no value to the Mine Builder by fooling themselves with low-balled cost estimates.  (Although some may argue there is still a desire to low ball costs to get management to approve the project).    Conversely Mine Vendors do have some incentive to low ball the costs.
Perhaps some of the recent project capital cost over-runs we have seen is that the Vendor mentality was used at the PEA stage to optimistically set the capital cost baseline.  Subsequent studies were then forced to conform to that initial baseline. Ultimately construction will be the arbiter on the true project cost.  Hence there is no real value in underestimating costs, ultimately making management appear incompetent if costs do over-run.
The Mine Builder will also be advancing environmental permitting simultaneously with their advanced studies.  Hence at the early stage (PEA) it is important to properly define the site layout, processing method, production rate, facility locations, etc. since they all feed into the permitting documents.
Changing significant design details in the future will set back the permitting and construction timelines.  Hence, for the Mine Builder, the engineers should focus on getting the design criteria mostly correct at the PEA stage.  For the Mine Vendor, this is not as important since multiple studies are being planned for in the future anyway.

The Engineer on the Mine Vendor Path: 

The objective of the Mine Vendor is to make the project attractive to potential buyers.  There is less urgency in fast tracking detailed engineering and permitting.
It is not uncommon to see multiple drilling programs, followed my multiple studies of scenarios with different size, production rate, and layout.   The degree of engineering conservativeness in design and costing is less critical since future studies may be on substantially different sized projects.
The role that the Inferred resource plays in the economics is also less important at this time, since a lot more drilling may be coming. The Vendor’s objective tends to be on maximizing resource size not necessarily optimizing resource classification.
While the Mine Vendor may also be advancing environmental permitting as another way to de-risk the project, the project design may still be in flux as the resource size changes.  Major modifications to the plan may cause permitting to stop and re-start, leading to an extended project timeline and wasted money.
There is also risk in starting the permitting with a project definition that isn’t of economic interest to future buyers.  Sometimes the Vendor may be making regulatory commitments that constrain the operating flexibility of future mine operators. Its easy to commit to things when you aren’t the one having to live up to them.
The Mine Vendor will also de-risk the project by moving from PEA to PFS and even to FS.   The caution with completing a FS is that it is a costly study and essentially brings one to the end of the study line.  What does the company do next if there is still no buyer?
Feasibility studies also have a shelf life, with the cost estimates and economics becoming inaccurate after a few years.  Some companies may re-examine the project, re-frame it, and jump back to the PEA or PFS stages.  There can be an on-going study loop, requiring continued funding with no guarantee of a sale in sight.  Often feasibility studies have the dual role of trying to boost the share price and market cap, as well as frame the project for potential buyers.

Conclusion

As an engineer, it is helpful to understand the objectives of the project owner and then tailor the technical studies to meet those objectives.  This does not mean low balling costs to make the study a promotional tool.  It means focusing on what is important.  It means recognizing the path, and what doesn’t need to be engineered in detail at this time.  This may save the client time, money, and improve credibility in the long run.
In many cases, the precise size of the deposit is less important than understanding the site, access, water supply, local community issues, the environmentally acceptable location for dumps and tailings, etc..   It can be more important to focus on these issues rather than having a detailed mine plan with multiple pit phases that immediately becomes obsolete in a few months after the next drilling campaign.
Potential buyers will have their own technical team that will develop their own opinions on what the project should be and what it should cost.   Just because a Mine Vendor has a feasibility study in hand, doesn’t mean a potential buyer will believe it.
This post is just a brief discussion of mining project timelines.   For those interested, there a few additional project timelines for curiosity purposes.   Each path is unique because no two mining projects are the same.  You can find these examples at this link “Mining Project Timelines”.
Let me know about other interesting projects that have interesting paths to learn from.  I can add them to the list.
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Pit Optimization – More Than Just a “NPV vs RF” Graph

In this blog I wish to discuss some personal approaches used for interpreting pit optimization data. I’m not going to detail the basics of pit optimization, assuming the reader is already familiar with it .
Often in 43-101 technical reports, when it comes to pit optimization, one is presented with the basic “NPV vs Revenue Factor (RF)” curve.  That’s it.
Revenue Factor represents the percent of the base case metal price(s) used to optimize for the pit. For example, if the base case gold price is $1600/oz (100% RF), then the 80% RF is $1280/oz.
The pit shell used for pit design is often selected based on the NPV vs RF curve, with a brief explanation of why the specific shell was selected. Typically it’s the 100% RF shell or something near the top of the NPV curve.
However the pit optimization algorithm generates more data than just shown in the NPV graph.  An example of that data is shown in the table below. For each Revenue Factor increment, the data for ore and waste tonnes is typically provided, along with strip ratio, NPV, Profit, Mining cost, Processing, and Total Cost at a minimum.
Luckily it is quick and easy to examine more of the data than just the NPV curve.

In many 43-101 reports, limited optimization analysis is presented.  Perhaps the engineers did drill down deeper into the data and only included the NPV graph in the report for simplicity purposes. I have sometimes done this to avoid creating five pages of text on pit optimization alone, which few may have interest in. However, in due diligence data rooms I have also seen many optimization summary files with very limited interpretation of the optimization data.
Pit optimization is a approximation process, as I outlined in a prior post titled “Pit Optimization–How I View It”. It is just a guide for pit design. One must not view it as a final and definitive answer to what is the best pit over the life of mine since optimization looks far into the future based on current information, .
The pit optimization analysis does yield a fair bit of information about the ore body configuration, the vertical grade distribution, and addresses how all of that impacts on the pit size. Therefore I normally examine a few other plots that help shed light on the economics of the orebody. Each orebody is different and can behave differently in optimization. While pit averages are useful, it is crucial to examine the incremental economic impacts between the Revenue Factor shells.

What Else Can We Look At?

The following charts illustrate the types of information that can be examined with the optimization data. Some of these relate to ore and waste tonnage. Some relate to mining costs. Incremental strip ratios, especially in high grade deposits, can be such that open pit mining costs (per tonne of ore) approach or exceed the costs of underground mining. Other charts relate to incremental NPV or Profit per tonne per Revenue Factor.  (Apologies if the chart layout below appears odd…responsive web pages can behave oddly on different devices).

Conclusion

It’s always a good idea to drill down deeper into the optimization output data, even if you don’t intend to present that analysis in a final report. It will help develop an understanding of the nature of the orebody.
It shows how changes in certain parameters can impact on a pit size and whether those impacts are significant or insignificant. It shows if economics are becoming very marginal at depth. You have the data, so use it.
This discussion presents my views about optimization and what things I tend to look at.   I’m always learning so feel free to share ways that you use your optimization analysis to help in your pit design decision making process.
As referred to earlier, there is a lot of uncertainty in the input parameters used in open pit optimization.  These might include costs, recoveries, slope angles and other factors.  If you would like to read more, the link to that post is here.  “Pit Optimization–How I View It”.
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Heap Leach or CIL or Maybe Both

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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Connecting With Investors – Any New Ideas?

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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Global Tax Regimes – How Do They Compare?

mining economics
Update: This blog was originally written in Feb 2016, but has been updated in Aug 2019.
As a reminder for all QP’s doing economic analysis for PEA’s, don’t forget that one needs to present the economic results on an after-tax basis.
Every once in a while I still see PEA technical reports issued with only pre-tax financials.  That report is likely to get red- flagged by the securities regulators.  The company will need to amend their press release and technical report  to provide the after tax results.    No harm done other than some red faces.

Taxes can be complicated

When doing a tax calculation in your model, where can you find international tax information?  PWC has a very useful tax-related website.  The weblink below was sent to me by one of my industry colleagues and I thought it would be good to share it.
The PWC micro-site provides a host of tax and royalty information for selected countries.  The page is located at https://www.ey.com/gl/en/services/tax/global-tax-guide-archive
On the site they have a searchable database for tax information for specific countries.
The PWC tax and financial information includes topics such as:
  • Corporate tax rates
  • Excess profits taxes
  • Mineral taxes for different commodities
  • Mineral royalties
  • Rates of permissible amortization
  • VAT and other regulated payments
  • Export taxes
  • Withholding taxes
  • Fiscal stability agreements
  • Social contribution requirements
PWC has a great web site and hopefully they will keep the information up to date since tax changes happen constantly.  The website also has a guide related to the rules for the treatment of capital expenditures.   Check it out.  https://www.ey.com/gl/en/services/tax/global-tax-guide-archive
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Measured vs. Indicated Resources – Do We Treat Them the Same?

measured and indicated
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.
CIM Resources to Mineral Reserves

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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Mining Cashflow Sensitivity Analyses – Be Careful

cashflow sensitivity
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.
DCF Sensitivity GraphI 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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Request For Proposal (“RFP”) – Always Prepare One

Mining request for proposal
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

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

 

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Google Earth – Keep it On Hand

Mining studies
In a previous blog post “Mine Site Visit – What Is the Purpose?” I briefly discussed the requirements for a mine site visit to be completed by one or more Qualified Persons (“QP”) in a 43-101 compliant study.    Unfortunately normally the entire study team cannot participate in a site visit; however the next best thing may be Google Earth.

See the Mine Site with Google Earth

Gather your team around their computers and fire up screen sharing software like Teams, GoToMeeting, Skype, or Zoom.  Give control of the mouse to someone who knows the site well.  Here are some of the things you can do on your group tour.
  • You can fly-around the project site examining the topography.
  • You can view regional features, regional facilities, land access routes, and existing infrastructure.
  • You can measure distances (or areas), either in a straight line or along a zigzag path.
  • You can view historical aerial photos (if they exist) to show how the area may have changed over time.
  • You 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, at the start of a study, is to always have a Google Earth session with your technical 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.
As mentioned above, for those still interested the  previous blog post is at “Mine Site Visit – What Is the Purpose?
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Large or Small Mining Consulting Firms – Any Difference?

Mining feasibility pre-feasibility
Some junior mining companies select their mining study consultant based on the assumption that they need a “big name” firm to give credibility to their study.   This creates an interesting dilemma for many smaller mining companies since they the larger firms can cost more.  Its also a dilemma for smaller engineering firms trying to win jobs.  While large consultants may cost more due to higher overheads; their brand name on a study may bring some 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 internal project management and costing systems to manage the 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 will pay for all of these people, albeit they may be a critical part in successfully completing the study.
A feasibility study is more rigorous than a pre-feasibility study, which in turn is more rigorous than a PEA or scoping study.

Sub-contracting Parts

For certain aspects of a feasibility study, one may get better technical expertise by subcontracting to smaller highly specialized engineering firms.  However too much subcontracting may become 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 highly uneconomic).
I have seen instances where larger firms, protecting themselves from  limited data, were only willing to use very conservative design assumptions in early stage mining studies. This may not be helpful to a small mining company trying to decide how to advance such a 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.
In another blog post I have expanded the discussion about the importance of the study manager role. You can read that post at this link “Importance of a Study Manager – That’s the Key“.
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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