Articles tagged with: Study Management

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.
Note: You can sign up for the KJK mailing list to get notified when new blogs are posted. Follow me on Twitter at @KJKLtd for updates and other mining posts. The entire blog post library can be found at https://kuchling.com/library/

 

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NPV One – Cashflow Modelling Without Excel

NPV One mining software
From time to time, I encounter interesting software applications related to the mining industry.  I recently became aware of NPV One, an Australian based, cloud hosted application used to calculate mineral project economics. Their website is https://npvone.com/npvone/
NPV One is targeting to replace the typical Excel based cashflow model with an online cloud model. It reminds me of personal income tax software, where one simply inputs the income and expense information, and then the software takes over doing all the calculations and outputting the result.
NPV One may be well suited for those not comfortable with Excel modelling, or not comfortable building Excel logic for depreciation, income tax, or financing calculations. These calculations are already built in the NPV One application.
I had a quick review of NPV One, being given free access to test it out. I spent a bit of time looking at the input menus and outputs, but by no means am I proficient in the software after this short review.
Like everything, I saw some very good aspects and some possible limitations. However, my observations may be a bit skewed since I do a lot of Excel modelling and have a strong comfort level with it. Nevertheless, Excel cashflow modelling has its own pro’s and con’s, some of which have been irritants for years.

NPV One – Pros and Cons

NPV One mining softwarePros

  1. NPV One develops financial models that are in a standardized format. Models will be very similar to one another regardless of who creates it. We are familiar with Excel “artists” that have their own modelling style that can make sharing working models difficult. NPV One might be a good standard solution for large collaborative teams looking at multiple projects while working in multiple offices.
  2. NPV One, I have been assured, is error free. A drawback with Excel modelling is the possibility of formula errors in a model, either during the initial model build or by a collaborator overwriting a cell on purpose (or inadvertently).
  3. With NPV One, a user doesn’t need to be an Excel or tax modelling expert to run an economic analysis since it handles all the calculations internally.
  4. NPV One allows the uploading of large input data sets; for example life-of-mine production schedules with multiple ore grades per year. This means technical teams can still generate their output (production schedules, annual cost summaries, etc.) in Excel. They can then simply import the relevant rows of data into NPV One using user-created templates in CSV format.
  5. As NPV One evolves over time with more client input, functionality and usability may improve as new features are added or modified.

Cons

Like anything, nothing is perfect and NPV may have a few issues for me.
  1. Since I live and breathe with Excel, working with an input-based model can be uncomfortable and take time to get accustomed to. Unlike Excel, in NPV One, one cannot see the entire model at once and scroll down a specific year to see production, processing, revenue, costs, and cashflow. With NPV jump to. If you’re not an avid Excel user, this issue may not be a big deal.
  2. In Excel one can see the individual formulas as to how a value is being calculated.  Excel allows one to follow a mathematical trail if one is uncertain which parameters are being used. With NPV One the calculations are built in. I have been assured there are no errors in NPV One, so accuracy is not the issue for me. It’s more the lack of ability to dissect a calculation to learn how it is done.
  3. With NPV One, a team of people may be involved in using it. That’s the benefit of collaborative cloud software. However that means there will be a learning curve or training sessions that would be required before giving anyone access to the NPV One model.  Although much of NPV One is intuitive, one still needs to be shown how to input and adjust certain parameters.
  4. Currently NPV One does not have the functionality to run Monte Carlo simulations, like Excel does with @Risk. I understand NPV One can introduce this functionality if there is user demand for it. There will likely be ongoing conflict to try to keep the software simple to use versus accommodating the requests of customers to tailor the software to their specific needs.

Conclusion

The NPV One software is an option for those wishing to standardize or simplify their financial modelling.
Whether using Excel or NPV One, I would recommend that a single person is still responsible for the initial development and maintenance of a financial model. The evaluation of alternate scenarios must be managed to avoid it becoming a modelling team free for all.
Regarding the cost for NPV One, I understand they are moving away from a fixed purchase price arrangement to a subscription based model. I don’t have the details for their new pricing strategy as of May 2023. Contact Christian Kunze (ck@npvone.com) who can explain more, give you a demo, and maybe even provide a trial access period to test drive the software.
To clarify I received no compensation for writing this blog post, it is solely my personal opinion.
Regarding Excel model complexity mentioned earlier, I have written a previous blog about the desire to keep cashflow models simple and not works of art. You can read that blog at Mine Financial Modelling – Please Think of Others”.
As with any new mining software, I had also posted some concerns with QP responsibilities as pertaining to new software and 43-101. You can read that post at the appropriately titled “New Mining Software and 43-101 Legal Issues”.

 

Note: You can sign up for the KJK mailing list to get notified when new blogs are posted. Follow me on Twitter at @KJKLtd for updates and other mining posts. The entire blog post library can be found at https://kuchling.com/library/

 

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Life as an Engineer – Read All About It

One of the interesting aspects of being an engineer in the mining industry is travelling around the globe (or even) around your own country. I have been to over a dozen countries as part of my career and this only makes me a small-time traveller compared to other engineers I know. Travelling and experiencing the world is often part of the job, whether working for a junior miner, a major, a financial house, a consulting firm, or an equipment vendor. It is actually quite difficult to avoid travel if you work in mining.

Diavik Project

Recently a former colleague of mine on the Diavik Diamond Diavik project has published book that describes his life as an engineer. The book is titled Roseway: a Life of Adventure and is available on Amazon.
Its the story of John Wonnacott, a Canadian professional engineer who was involved in the construction of several projects, including the Diavik Diamond mine in Canada, a nickel smelter in China, a gold mine in Brazil, and a titanium mine in Madagascar to list a few.
John has a broad background, having conducted engineering studies in the jungles of Indonesia, the cold of Greenland, the sands of the desert, the heat of Australia, the altitude of the Andes. He has documented his engineering career in his new book.
Disclaimer: I have not yet read the book since it has only recently been published. However John has kindly sent me some excerpts that I have reprinted below to provide everyone with a sense for the content and style.

Some Excerpts

Introduction

At one time or another, I have been a professional paper-boy, forest worker, tree planter, market gardener, food processing equipment operator, lobster fisherman’s helper, commercial dragger deckhand, short-order cook, military engineering officer, computer system installer, greenhouse worker, permafrost researcher, marine oil spill cleanup specialist, pyrometallurgy researcher, garbage landfill operator, project manager, construction company general manager, regional director, open pit diamond miner, underground gold miner, corporate vice-president, design consultant, company owner, private corporation president and for 50 years, a damn good engineer. I have also been happily married to my wonderful wife Carole Anne for more than 52 years and we have 2 outstanding children. So I can add “husband”, “father” and “grandfather” to the list – but making lists like this is boring. Let me tell you my story.

Newfoundland

I remember in the late fall of that year, the company had a chance to bid on a larger project in Gros Morne National Park, Newfoundland. So our President, Frank Nolan (he was a brother to Fred Nolan, the infamous land-owner at Oak Island, by the way), decided he wanted to see the site and he chartered a Bell 106 helicopter to fly us there from Deer Lake. It was December (they say “December month” in that province) and when we got close to the Park, we ran into a sudden snow squall.
From bright sunny weather we were suddenly flying in heavy wet snow. I was sitting in the back of the chopper, with Frank sitting in the left front passenger seat. We were chatting with the pilot, via the radio headsets, when suddenly there was a loud “BEEP BEEP BEEP” sound coming from the front of the aircraft, and a number of the instrument lights started flashing. The engine had cut out – we learned later that wet snow had blocked the air intake and the engine had stalled – and we started descending pretty fast. Most people don’t realize that a helicopter will glide (quite steeply, at a glide angle of about 10 to 1) provided the pilot gets the torque off the rotor and he makes the correct feathering adjustments.
Our pilot did that instinctively and when we passed through the squall he calmly explained to us what was happening as he looked around for an open, flat spot to land. We didn’t have many options as we were flying over a densely wooded forest, with the mountains of Gros Morne and a deep fiord up ahead. But the pilot spotted a snow-covered frozen bog that was not a lot bigger than the helicopter and he put us down there as smoothly as if the engine hadn’t stopped. Maybe the deep snow cushioned our impact, because I felt nothing. But the instant we landed, Frank Nolan wrenched his door open, and he bolted out of the machine, straight ahead, in front of us.
The rotor was still spinning rapidly, and just as Frank ran ahead, the chopper settled further into the snow, tilting the machine forward in the process. With the chopper blades almost skimming the top of the snow, both the pilot and I expected Frank to be cut into pieces by the rotor, but he was just past their reach and he ran on, unaware of his narrow escape. When the spinning parts stopped, the pilot and I climbed out of the chopper to catch up with Frank. Examination of the machine showed us how the snow had plugged the air intake. The pilot cleared away the snow, and walked around the chopper once and then we took off again. We continued our aerial inspection of the National Park project and later that afternoon we flew back to Deer Lake.

Madagascar

The QMM field office In Port Dauphin, Madagascar was located near the edge of town, and I typically walked from my lodging to the office each morning when I was there, about the time when school started for the children. Typically I passed dozens and dozens of tiny bamboo huts with corrugated metal roofs, and dirt floors each about 2 meters square.
I was constantly amazed by the flocks of young boys and girls walking to school – each child aged from 6 to 15 years old, I suppose – dressed in immaculate white shirt or blouse and blue shorts or skirts. I never saw a dirty child, and how they could have kept clean clothes while living in those small crude huts was something I never could figure out. Even more amazing, were the genuine, wide smiles and frequent greeting as we passed the children: “bonjour monsieur, bonjour monsieur”.
It brings tears to my eyes even now, thinking about those children. If they were girls, they could look forward to a life expectancy of 48 years, according to the town officials we talked to. If they were boys, they could expect to live to an age of only 40 years. The perils of fishing in the ocean in dugout canoes made life even harder for the men.
The next morning, we arrived at the Astana international airport, to find that the check-in arrangements were quite different from what we were used to. Instead of checking our luggage at a desk and then walking through Security to get to our departure gate, everyone was expected to wheel their luggage and handbags through security, as the airline check-in desks were located inside.
The mechanics of rustling our luggage weren’t difficult, but as I passed through the check-point, suddenly a strange-sounding alarm went off. As the alarm rang and rang, my mind raced – what did I have in my bag that would trigger the alarm, I wondered? It didn’t help that the Security guards only spoke Russian, and they were dressed in military uniforms with ridiculously large military caps, which made them look imposing (and silly). But what began to worry me more, was that the look on the Security guards’ faces was not the usual one that happens when a piece of metal sets off an alarm. The guards looked frightened and angry, at the same time.
Fortunately for us, the commotion caught the attention of the clerks at the Turkish Airlines desk inside the terminal building, and one English-speaking fellow approached, speaking to the security guards in Russian first, then saying to us: “I speak English, may I help”? Well, he helped, but it took a while, because it turned out that a rarely used hidden nuclear radiation detector had been triggered when I came through the gate, and the guards were concerned that I had some kind of radioactive material in my suitcase.
For a moment my mind went blank, and then I remembered a card that I was carrying in my wallet. I had had a bout of prostate cancer the previous fall, and my brachytherapy treatment had involved inserting over a hundred tiny radioactive pellets in and around my prostate – designed to kill the cancer. The pellets decay naturally in a fairly short time, and by now, 9 or 10 months after my operation, I would have bet that the radioactive material had all decayed to an undetectable level. But my doctor had given me a card to carry, which explained the medical procedure, just for circumstances like this. When I pulled out the card, it was like a “Get out of Jail Free Card” from the Monopoly game. Instantly the guards’ attitudes changed from fear and suspicion, to sympathy and smiles. One of the big fellows wheeled my luggage over to the Turkish Airlines desk where the Good Samaritan clerk reverted back to his normal job of checking us in.

**** end of excerpt ****

Conclusion

It is one thing to briefly visit a remote project as part of a review team. It is another thing to be there as part of a design team trying to solve a problem and engineer a solution. I know of many engineers and geologists that would have similar work life experiences as part of their careers. However John has taken the initiative to write it all down.
The author is available to be contacted on LinkedIn if you have any questions or just want to say hello (at https://www.linkedin.com/in/john-wonnacott-84aa461a/).
The book can be found on Amazon at this link: Roseway: a Life of Adventure.
This is a story from the life of an experienced engineer working in the mining industry.  If you want to read the perspective from a new mining engineer graduate, check out this post “A Junior EIT Mining Story“.   There is no book deal yet here.
If you find stories about working as an engineer of interest, I have written a 2 part blog post on my adventures in the potash industry in Saskatchewan.  You can read that post at this link “Potash Stories from 3000 Feet Down – Part 1
Note: You can sign up for the KJK mailing list to get notified when new blogs are posted. Follow me on Twitter at @KJKLtd for updates and other mining posts.
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O/P to U/G Cross-Over – Two Projects into One

Over the years I have been involved in numerous mining tradeoff studies. These could involve throughput rate selection, site selection, processing options, tailings disposal methods, and equipment sizing. These are all relatively straightforward analyses. However, in my view, one of the more technically interesting tradeoffs is the optimization of the open pit to underground crossover point.
The majority of mining projects tend to consist of either open pit only or underground only operations. However there are instances where the orebody is such that eventually the mine must transition from open pit to underground. Open pit stripping ratios can reach uneconomic levels hence the need for the change in direction.
The evaluation of the cross-over point is interesting because one is essentially trying to fit two different mining projects together.

Transitioning isn’t easy

There are several reasons why open pit and underground can be considered as two different projects within the same project.
There is a tug of war between conflicting factors that can pull the cross-over point in one direction or the other. The following discussion will describe some of these factors.
The operating cut-off grade in an open pit mine (e.g. ~0.5 g/t Au) will be lower than that for the underground mine (~2-3 g/t Au). Hence the mineable ore zone configuration and continuity can be different for each. The mined head grades will be different, as well as the dilution and ore loss assumptions. The ore that the process plant will see can differ significantly between the two.
When ore tonnes are reallocated from open pit to underground, one will normally see an increased head grade, increased mining cost, and possibly a reduction in total metal recovered. How much these factors change for the reallocated ore will impact on the economics of the overall project and the decision being made.
A process plant designed for an open pit project may be too large for the subsequent underground project. For example a “small” 5,000 tpd open pit mill may have difficulty being kept at capacity by an underground mine. Ideally one would like to have some satellite open pits to help keep the plant at capacity. If these satellite deposits don’t exist, then a restricted plant throughput can occur. Perhaps there is a large ore stockpile created during the open pit phase that can be used to supplement underground ore feed. When in a restricted ore situation, it is possible to reduce plant operating hours or campaign the underground ore but that normally doesn’t help the overall economics.
Some investors (and companies) will view underground mines as having riskier tonnes from the perspective of defining mineable zones, dilution control, operating cost, and potential ore abandonment due to ground control issues. These risks must be considered when deciding whether to shift ore tonnes from the open pit to underground.
An underground mine that uses a backfilling method will be able to dispose of some tailings underground. Conversely moving towards a larger open pit will require a larger tailings pond, larger waste dumps and overall larger footprint. This helps make the case for underground mining, particularly where surface area is restricted or local communities are anti-open pit.
Another issue is whether the open pit and underground mines should operate sequentially or concurrently. There will need to be some degree of production overlap during the underground ramp up period. However the duration of this overlap is a subject of discussion. There are some safety issues in trying to mine beneath an operating open pit. Underground mine access could either be part way down the open pit or require an entirely separate access away from the pit.
Concurrent open pit and underground operations may impact upon the ability to backfill the open pit with either waste rock or tailings. Underground mining operations beneath a backfilled open pit may be a concern with respect to safety of the workers and ore lost in crown pillars used to separate the workings.
Open pit and underground operations will require different skill sets from the perspective of supervision, technical, and operations. Underground mining can be a highly specialized skill while open pit mining is similar to earthworks construction where skilled labour is more readily available globally. Do local people want to learn underground mining skills? Do management teams have the capability and desire to manage both these mining approaches at the same time?
In some instances if the open pit is pushed deep, the amount of underground resource remaining beneath the pit is limited. This could make the economics of the capital investment for underground development look unfavorable, resulting in the possible loss of that ore. Perhaps had the open pit been kept shallower, the investment in underground infrastructure may have been justifiable, leading to more total life-of-mine ore recovery.
The timing of the cross-over will also create another significant capital investment period. By selecting a smaller this underground investment is seen earlier in the project life. This would recreate some of the financing and execution risks the project just went through. Conversely increasing the open pit size would delay the underground mine and defer this investment and its mining risk.

Conclusion

As you can see from the foregoing discussion, there are a multitude of factors playing off one another when examining the open pit to underground cross-over point. It can be like trying to mesh two different projects together.
The general consensus seems to be to push the underground mine as far off into the future as possible.  Maximize initial production based on the low risk open open pit before transitioning.
One way some groups will simplify the transition is to declare that the underground operation will be a block cave. That way they can maintain an open pit style low cutoff grade and high production rate. Unfortunately not many deposits are amenable to block caving.  Extensive geotechnical investigations are required to determine if block caving is even applicable.
Optimization studies in general are often not well documented in 43-101 Technical Reports. In most mining studies some tradeoffs will have been done (or should have been done).  There might be only brief mention of them in the 43-101 report. I don’t see a real problem with this since a Technical Report is to describe a project study, not provide all the technical data that went into it. The downside of not presenting these tradeoffs is that they cannot be scrutinized (without having data room access).
One of the features of any optimization study is that one never really knows if you got it wrong. Once the decision is made and the project moves forward, rarely will someone ever remember or question basic design decisions made years earlier. The project is now what it is.

 

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Are Engineers Too Pessimistic

Geological colleagues have often joked that engineers are a pessimistic lot; they are never technically satisfied. The engineers will fire back that geologists are an overly optimistic lot; every speck of mineralization makes them ecstatic. Together they make a great team since each cancels the other out.
In my opinion engineers are often pessimistic. This is mainly because they have been trained to be that way. Throughout my own engineering career I have been called upon many times to focus on the downsides, i.e. what can happen that we don’t want to happen.

It starts early and continues on

This pessimism training started early in my career while working as a geotechnical engineer. Geotechnical engineers were always looking at failure modes and the potential causes of failure when assessing factors of safety.
Slope failure could be due to the water table, excess pore pressures, seismic or blast vibrations, liquefaction, unknown weak layers, overly steepen slopes, or operating error. As part of our job we had to come up with our list of negatives and consider them all. The more pessimistic view you had, the better job you did.
This training continued through the other stages of a career. The focus on negatives continues in mine planning and costing.
For example, there are 8,760 hours in a year, but how many productive hours will each piece of equipment provide? There will delays due to weather conditions, planned maintenance, unplanned breakdowns, inter-equipment delays, operator efficiency, and other unforeseen events. The more pessimistic a view of equipment productivity, the larger the required fleet. Geotechnical engineers would call this the factor of safety.
In the more recent past, I have been involved in numerous due diligences. Some of these were done for major mining companies looking at acquisitions. Others were on behalf of JV partners, project financiers, and juniors looking at acquisitions.
When undertaking a due diligence, particularly for a major company or financier, we are not hired to tell them how great the project is. We are hired to look for fatal flaws, identify poorly based design assumptions or errors and omissions in the technical work. We are mainly looking for negatives or red flags.
Often we get asked to participate in a Risk Analysis or SWOT analysis (Strengths-Weaknesses-Opportunities-Threats) where we are tasked with identifying strengths and weaknesses in a project.
Typically at the end of these SWOT exercises, one will see many pages of project risks with few pages of opportunities.
The opportunities will usually consist of the following cliches (feel free to use them in your own risk session); metal prices may be higher than predicted; operating costs will be lower than estimated; dilution will be better than estimated; and grind size optimization will improve process recoveries.
The project’s risk list will be long and have a broad range. The longer the list of risks, the smarter the review team appears to be.

Investing isn’t easy

After decades of the training described above, it becomes a challenge for me to invest in junior miners. My skewed view of projects carries over into my investing approach, whereby I tend to see the negatives in a project fairly quickly. These may consist of overly optimistic design assumptions or key technical aspects not understood in sufficient depth.
Most 43-101 technical reports provide a lot of technical detail; however some of them will still leave me wanting more. Most times some red flags will appear when first reviewing these reports. Some of the red flags may be relatively inconsequential or can be mitigated. However the fact that they exist can create concern. I don’t know if management knows they exists or knows how they can mitigate them.
It has been my experience that digging in a data room or speaking with the engineering consultants can reveal issues not identifiable in a 43-101 report. Possibly some of these issues were mentioned or glossed over in the report, but you won’t understand the full extent of the issues until digging deeper.
43-101 reports generally tell you what was done, but not why it was done. The fact I cannot dig into the data room or speak with the technical experts is what has me on the fence. What facts might I be missing?
Statistics show that few deposits or advanced projects become real mines. However every advanced study will say that this will be an operating mine. Many projects have positive feasibility studies but these studies are still sitting on the shelf. Is the project owner a tough bargainer or do potential acquirers / financiers see something from their due diligence review that we are not aware of?   You don’t get to see these third party reviews unless you have access to the data room.
My hesitance in investing in some companies unfortunately can be penalizing. I may end up sitting on the sidelines while watching the rising stock price. Junior mining investors tend to be a positive bunch, when combined with good promotion can result in investors piling into a stock.
Possibly I would benefit by putting my negatives aside and instead ask whether anyone else sees these negatives. If they don’t, then it might be worth taking a chance, albeit making sure to bail out at the right time.
Often newsletter writers will recommend that you “Do your own due diligence”. Undertaking a deep dive in a company takes time. In addition I’m not sure one can even do a proper due diligence without accessing a data room or the consulting team. In my opinion speaking with the engineering consultants that did the study is the best way to figure things out. That’s one reason why “hostile” due diligences can be difficult, while “friendly” DD’s allow access to a lot more information.

Conclusion

Sometimes studies that I have been involved with have undergone third party due diligence. Most times one can predict ahead of time which issues will be raised in the review. One knows how their engineers are going to think and what they are going to highlight as concerns.
Most times the issue is something we couldn’t fully address given the level of study. We might have been forced to make best guess assumptions to move forward. The review engineers will have their opinions about what assumptions they would have used. Typically the common comment is that our assumption is too optimistic and their assumption would have been more conservative or realistic (in their view).
Ultimately if the roles were reversed and I were reviewing the project I may have had the same comments. After all, the third party reviewers aren’t being hired to say everything is perfect with a project.
The odd time one hears that our assumption was too pessimistic. You usually hear this comment when the reviewing consultant wants to do the next study for the client. They would be a much more optimistic and accommodating team.
To close off this rambling blog, the next time you feel that your engineers are too negative just remember that they are trained to be that way.  If you want more positivity, hang out with a geologist (or hire a new grad).

 

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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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Mining’s Lassonde Curve – A Wild Ride

Normally I don’t write about mining stock markets, preferring instead to focus on technical matters.  However I have seen some recent discussions on Twitter about stock price trends.  For every stock there are a wide range of price expectations.  Ultimately some of the expectations and realizations can be linked back to the Lassonde Curve.
The Lassonde Curve has been touted by many as a realistic representation of the life stages of a junior mining company.  The curve can sometimes be a roller coaster ride for company management.
Pierre Lassonde, was one of the founders of Franco-Nevada, the first gold royalty company. Thirty years ago he created his curve, that has now become a foundation in the junior mining business.  The Lassonde Curve outlines the company life stages, beginning at exploration and ending at production.  It shows the perceived value (i.e. stock value) that investors may assign at each life stage.
The stock price trend illustrated by the curve can, knowingly or unknowingly, impact on a company’s decision making process.  So in effect, there are some technical ramifications from it.
People may have differing opinions on what factors are driving the curve.   Take a look at it and decide for yourself. Typically people define the curve into four life stages, but I tend to view it in five stages.

Mining Company Stages 1 to 5

Stage 1 Climb

Stage 1 is the earliest stage, consisting of exploration.  This period generates rising anticipation from promotion and exciting press releases. The stock value climbs as the perceived value of the insitu geology increases.  Great Bear is an example of company currently in Stage 1 (as of June 2020), and appears to be in no hurry to exit from Stage 1.
Stage 2 is when the prospect moves into technical evaluation.  In other words, the engineers now climb aboard the ride.  This stage encompasses the PEA, PFS, and FS studies. Each of these can take months to complete, meantime new information releases may be lacking.
If the stock value declines, perhaps its because the engineers bring reality into the picture.  Investors may see that the project isn’t as easy or great as they anticipated during Stage 1.
Companies can also lose some presence in the market with no new news. Investors may begin looking at other companies that are still in Stage 1 and hence sell their shares.
Some companies may try to shorten Stage 2 and even skip over Stage 3 by going from a PEA directly into Stage 4 construction.
Stage 3 is the period when the studies have largely been completed and a production decision is pending.  At this time the company will be seeking strategic partners and project funding.  Permitting is also underway.  Unfortunately a lack of financing or poor permitting efforts will extend the time in Stage 3, which can extend for decades or even perpetuity. It’s easy to rattle off the names of companies sitting in Stage 3; for example Donlin Creek, Casino, KSM, and Galore Creek. It seems that once locked in a prolonged Stage 3, it can be difficult to get out of it.  Company promotion and marketing can be difficult.
Stage 4 begins when the financing is done and construction begins.  This is a sign that the project has been figured out, permits approved, and third-party due diligence found no fatal flaws.  The stock value may increase on this positive news, especially if construction is on time and on budget. Its even better news if it’s a period of rising commodity prices.
Stage 5 is the start-up and commercial production period, possibly nerve-racking for some investors. This is where the rubber hits the road. The stock price can fall if milled grades, operating costs, or production rates are not as expected.
Investors may need to decipher press releases to figure out if things are going well or not.  Some investors may now bail out at this time to companies in Stage 1 for greater upside (the 10 bagger).

Companies Staying front and center

Companies know that investors can move elsewhere at any time, so they will try to address the Stage 2 and Stage 3 doldrums in different ways.   They can:
  • Find new exploration prospects elsewhere while the engineering work is underway.
  • Undertake a series of optimization studies on the same project to keep up the news flow.
  • Continue step out drilling on the same property to expand resources and generate new excitement.
  • Have management appear regularly on podcasts, webinars, conferences, and keep promoting on LinkedIn, Twitter, and with newsletter writers.
Ideally one would like to stagger multiple prospects at different stages of the Curve. While this makes sense, it also takes a fair bit of funding to do it.   It also may bring criticism that the company is losing focus on their flagship project.  Generally if the stock price is improving, you don’t see this complaint.

Conclusion

In closing, I just wanted to present the Lassonde Curve for those who may not have seen it before. For those playing the junior stocks, it may help explain why their prices fluctuate for essentially the same project.  For some companies, the curve can be a wild ride.
Some corporate presentations will highlight the Lassonde Curve, particularly when they are rising in Stage 1.  You are less likely to see the curve presented when they are rolling along in Stages 2 or 3.
Some say the Curve relates to the de-risking of a project as it advances, with risks shifting from exploration related to development related.   That may be true, but I suggest the curve is simply based on investor perception and impatience.
The ability to promote oneself and stay relevant in the market plays a key role in defining the shape of a company’s curve.
As a final note, people looking at the Lassonde curve often focus on the rise and dip in the middle part. There is less focus on what happens on the far right side of the graph as it trends into the future. There is an often (but forgotten) dip there too.
Another interesting aspect of the junior mining industry is how the herd mentality and fear of missing out is standard operating policy.  Companies will rush into areas, acquire whatever ground they can, as long they can tout it as being a certain commodity project.   And its not only commodities that generate excitement; its also locations and technologies.  Read more at the blog post “Mining Fads and the Herd Mentality“.
The 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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Pre-Concentration – Maybe Good, Maybe Not

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

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

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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