Articles tagged with: Study Management

A Graveyard of Mining Studies: What Kills Mining Projects After the Numbers Check Out

Date: June 15, 2026 Author: Ken Kuchling Comments: Leave a reply

Every few weeks we see another feasibility study completed. Normally the numbers will look fantastic. The feasibility study shows that a project could work, but will it really work?

A positive feasibility study is the moment a mining project is supposed to come alive. It’s the point where geology, engineering, and economics merge into a real (i.e. bankable) business case. However, it is also the starting point of an entirely different and more difficult path.

The roadblocks between a feasibility study and a producing mine can be numerous, varied, and often have nothing to do with the geology itself. A government can change the tax regime, or a community can withdraw support. The commodity prices can turn, or environmental permits can be challenged in court. A company’s own board can lose conviction. Understanding this development gauntlet is the difference between allocating capital to projects with returns and those that will consume capital for a decade.

Stalled projects will experience several of the roadblocks simultaneously. A single roadblock might be surmountable, but multiple roadblocks may not be.

Many of these roadblocks will be identified during confidential third-party due diligence by potential partners, acquirers, or financiers. Hence investors may never learn the actual truth as to why the project is stalled and are left guessing why.

I have been part of due diligences on behalf of lenders and have seen the negative reasons never make it to the public eye. Sometimes the company may itself not know why a project was declined, although they can make an educated guess.

The following is a checklist of the various pitfalls leading to the study graveyard. Check off all those that you think apply to your favorite stalled project. Be honest. Typically, more than one will apply and they will tend to compound.

Geotechnical & Geological Risk

Review of the block modelling reveals concerns with grade, continuity, or metallurgical recovery.
Review of the expected geotechnical conditions reveals mining concerns associated with faulting, weak ground, karst, high water inflows.
Metallurgical complexity understated in feasibility (refractory ore, penalty elements).
Resource classification is suspect and a lot more infill drilling is required, at a high cost.
Hydrology issues, e.g. acid rock drainage severe and difficult to manage long term and becomes a corporate liability.

Technical & Engineering

Feasibility study found to be technically flawed upon review.
Project is very complex and will be difficult to build on budget and on time, as well as difficult to staff with qualified operating personnel.
Processing technology unproven at scale, ore sorting risk ,etc.
Infrastructure assumptions (power, water, road) prove more costly or difficult.
Mine plan optimistic on strip ratios, mining rates, or equipment productivity.
Tailings storage facility design issues, high risk, or siting problems.
Water rights access insufficient or contested.
Offsite infrastructure (road, rail, or port) inadequate and too costly to build.
Remoteness – labor costs and retention problems underestimated.

Permitting, Regulatory, and Social License

Environmental impact assessments likely to be rejected or endlessly delayed.
Perceived difficulties to get operating licenses, water licenses, or discharge permits.
Regulatory framework uncertain and changes mid-process (new environmental laws, mining codes).
Federal/state/provincial jurisdictions overlap creating jurisdictional gridlock.
Permits granted but successfully challenged in court by third parties.
Indigenous or First Nations consultation failures, failure to negotiate community benefit agreements acceptable to all parties.
Local community opposition leading to blockades or political pressure.
NGO campaigns attracting negative media attention that spooks investors or lenders.
Religious, cultural, or heritage site conflicts with site plan.
Mineral title disputes persist with overlapping claims or historical issues.
Land access agreements with surface rights owners difficult to acquire.

Political & Country Risks

Government instability, coup, or change of administration hostile to mining.
Retroactive tax increases, windfall profit taxes, or royalty rate changes.
Nationalization or forced renegotiation of mining agreements.
Corruption demands that the company is unwilling to meet.
Sanctions, war, or civil unrest making the region inaccessible.

Financing & Capital

Inability to secure project financing (debt or equity) due to financier risk appetite, commodity price outlook, or lender requirements.
Cost overruns discovered during reviews that make the economics unviable.
Declining commodity prices between feasibility and financing.
Owner balance sheet too weak to fund large construction; inability to attract a joint venture partner.
Royalty or streaming deals entered into that are too dilutive, making equity unattractive.

Corporate & Strategic

Management change leading to strategy pivot away from the project. The internal champion is gone.
Company acquired by a buyer with a different portfolio strategy — project shelved.
Board loses conviction or knows they cannot manage this; project deprioritized in favor of capital returns or other assets.
Key technical personnel depart, taking institutional knowledge with them.
High market cap of owner makes the acquisition cost high, when considering the capital cost to build must also be incurred by the acquiror. This will lower the return.

Market & Macro

Commodity price collapse, or forecasting an oversupply, makes the project sub-economic even with a positive study.
Input cost inflation (energy, steel, labor, reagents) erodes profit margins.
ESG-driven investor exclusions make it impossible to raise equity capital.
Offtake agreements cannot be secured on acceptable terms. This can be important in industrial and battery mineral projects. This may require focusing on downstream processing into upgraded specialty products, increasing risks and costs.

Conclusion

The list of potential production roadblocks is extensive. Moving from the study stage to production is very difficult and very few can do it successfully. A positive feasibility study is a necessary but far from sufficient condition for production.

When projects stall, it is likely due to multiple factors listed above. A ranking analysis may conclude the compounding effects of the perceived risks makes the project a no-go for financiers.

Some people will say be thankful that more projects don’t advance to production, because we would likely see more failures as the risks come to bear Ideally only the best projects are moving forward, but even there we can see mixed results.

Due to the upcoming shortages of < insert critical mineral > we need more exploration and more discoveries. Given the number of idle feasibility stage projects now, who is to say that these new discoveries won’t see the same roadblocks that the current projects are seeing. Real mining is a tough business – doing studies isn’t.

In case you missed it, the last blog post was “The Double Life of Inferred Resources: Now You See It – Now You Don’t“. The entire blog post library can be found at https://kuchling.com/library/

You can sign up for the KJK mailing list to get notified when new blogs are posted. Follow me on LinkedIn or Twitter (@KJKLtd) for updates and other mining commentary.

The Double Life of Inferred Resources: Now You See It – Now You Don’t

Date: April 18, 2026 Author: Ken Kuchling Comments: Leave a reply

There is a unique paradox sitting at the heart of how the mining industry evaluates its projects. It’s called the Inferred Resource—now you see it, now you don’t.

A company can publish a Preliminary Economic Assessment (PEA) showing a mine life, a robust internal rate of return, and a strong net present value. That study can be based on mineral resources that regulators consider too geologically uncertain to support a production decision. These are the infamous Inferred resources: tonnes, grades, and dollars in the economic model, yet with a classification that effectively flags them as educated guesses. The PEA rules permit their inclusion because early-stage projects need a way to test whether chasing more resource certainty is worth the additional cost.

The paradox occurs when that same project advances to the pre-feasibility (PFS) or feasibility (FS) stage. Suddenly the Inferred ore tonnes are gone; they are now waste rock. The mine plan must be based on more certain Measured and Indicated resources. Theoretically, the life-of-mine production profile that looked compelling in the PEA may now shrink—so the NPV and IRR might shrink too. Nothing has gone wrong in any technical sense. The project simply requires a higher standard of certainty now.

Potentially, some investors who focused on the PEA economics may feel the subsequent feasibility study is a disappointment (especially if costs have also escalated). They’ll say the PEA is garbage. In reality, the project has moved from an aspirational study (i.e., the PEA) toward a bank-financeable study. To compensate for the loss of Inferred material, companies will rely of step out drilling to grow the resource to maintain size.

What Are Inferred Resources?

Inferred resources represent the lowest confidence category of mineral resources; typically estimated in zones with limited sampling and unconfirmed geological continuity. They carry the highest geological uncertainty of the three resource categories.

In Preliminary Economic Assessments (PEAs), Inferred resources are allowed—but only under certain conditions:

They can be included in mine plans and economic models, which is the reason PEAs exist: to allow early-stage projects to test economic viability using all available resource data.
However, any PEA that includes Inferred resources cannot be used to support a production decision and must carry prominent cautionary language. Under NI 43-101, the technical report must explicitly state that the PEA is preliminary in nature, that Inferred resources are too speculative geologically to have economic considerations applied, and that there is no certainty the PEA will be realized. (It seems a PEA without Inferred resources can be used to support a production decision.)
Inferred tonnes are routinely used to extend mine life or improve project economics in PEA studies. Investors must understand this risk and should examine the proportion of mined tonnage that is classified as Inferred. This breakdown is normally presented in the Technical Report.

Conversely, in Pre-Feasibility Studies (PFS) and Feasibility Studies (FS), the rules for Inferred material are different:

Inferred resources cannot be included in mineral reserve estimates or in the economic analysis underpinning a PFS or FS. Inferred “ore” is treated as waste rock.
Only Indicated and Measured resources can be converted to Probable and Proven mineral reserves.
Including Inferred material in a PFS mine plan would typically disqualify the study from being used for project financing or a production decision.
Some companies might include Inferred material in a PFS as “upside” or as a sensitivity case, but that analysis must be clearly distinguished from the base case.

The resource upgrade requirement (from Inferred to Indicated) creates some interesting dynamics:

Companies may need additional funds to drill sufficiently to upgrade the resource before advancing to the PFS/FS stage. The cost and time for this infill drilling can be a major driver of exploration spending and can delay project timelines. Mining projects can take a long time to develop, and this is one reason why.
Companies will look at ways to compensate for the Inferred material deduction. Cutoff grade changes and step out drilling are ways to mitigate this impact.
A large Inferred resource that cannot be upgraded without great cost (due to depth, remoteness, or lack of ore-zone continuity) can permanently stall a project at the PEA stage. Hence, one may see multiple PEAs completed on the same project (i.e., the PEA loop).
In closing, the peculiarity of the Inferred resource is that it is essentially a tiered permission structure. Inferred resources are useful for early economic screening, but they must be converted to higher-confidence categories before they can support a bankable study or project debt financing.

Permitting via a PEA

Companies sometimes will commence the permitting process based on their PEA study. There are some risks to doing this, and the Inferred resource creates one of these risks.

With limited capital, a junior miner may not be able to afford the $5–20 million cost of a full feasibility study before determining whether a project is even permittable. A PEA, costing a fraction of a FS, can provide enough technical substance to engage regulators and begin the environmental baseline work that must precede any formal permit application.

Baseline studies for hydrology, ecology, and air quality typically require two to three years of data collection. So starting early makes sense, even with only a PEA-level project layout in hand.

Permitting and ongoing technical study work will run in parallel on most projects. Waiting for a completed FS before starting permitting would add years to the project timeline. Companies routinely will concurrently advance environmental impact assessments, indigenous consultation, and baseline data collection with subsequent PFS and FS work.

Jurisdiction may play a role too. Some areas are more receptive to early-stage permitting engagement. Other permitting processes may be more rigorous such that operators want at least a PFS in hand before committing to a full EIA process.

Now, with respect to the Inferred resource, the risk is that a project permitted around a PEA-scale footprint may shrink in size at the feasibility stage. Some reasons for this size reduction will be discussed in a future blog post, as well as the ways companies avoid this with ever increasing ore tonnage. Project shrinkage can result in a company acquiring permits and bonding for a proposed mine plan that no longer exists.

How Can Inferred Resources Affect Permitting

Let us examine some specific aspects of permitting that can be influenced by Inferred resources.

1. Project Footprint and Disturbance Area: Permits are issued for a defined physical footprint, consisting of pit limits, waste dumps, tailings facilities, and infrastructure corridors. If a PEA mine plan is inflated by Inferred tonnes and defines a large footprint versus the feasibility study, the company faces a choice:

(a) Permit the smaller FS footprint and risk under-permitting if Inferred is later upgraded. Requesting future permit modification for a suddenly larger project is sometimes viewed by regulators as “permitting by stealth”.

(b) Permit the larger PEA footprint to provide flexibility, which may trigger more extensive environmental review and higher bonding requirements.

2. Environmental Impact Assessment (EIA) Scope & Cost: A mine plan that includes Inferred material:

– May define a larger disturbance envelope, larger waste dumps, larger tailings facility, all of which require assessment of broader habitat, hydrology, and community impacts. Perhaps the project must advance into a new watershed. This can add permitting cost and time. If the Inferred material is later excluded, the assessment work may have been unnecessarily extensive.

3. Tailings and Waste Facility Sizing: Tailings storage facilities (TSFs) and waste rock dumps are sized to the life-of-mine tonnage. Inferred tonnes included in a PEA can drive facility sizing significantly. Permitting a TSF for a larger tonnage is:

– More difficult and time-consuming to obtain if the height and footprint increase

– Will be subject to more rigorous dam safety and closure review- However this could be potentially beneficial if the Inferred resource is later confirmed during mining

Conversely, I have seen situations where permitting was done on the pre-feasibility level design, thereby excluding Inferred ore from the plan. The operability of a planned co-disposal waste facility relied on relative ratios of clean waste rock, acid generating rock, and tailings. During production, the conversion of Inferred material from “waste” to “ore” would mean more tailings, less waste rock, and could shift the required material balance for co-disposal in a negative way. Permitting based on a PEA might make more sense here.

4. Financial Assurance and Reclamation Bonding: Regulators require bonds or financial assurances sized to the cost of full site reclamation. A larger mine footprint driven by Inferred tonnes means:

– Higher bonding requirements

– Larger financial burden on the company during the project development phase

– Potential difficulty for junior companies in securing bonds for Inferred-inflated footprints that have not been proven out yet.

5. Water Licences and Discharge Permits: Water use and discharge volumes scale with throughput and mine life. A longer mine life driven by Inferred tonnes may require expanded water licences. If those tonnes are later excluded, the licence may be oversized. Keep in mind that obtaining an amendment to increase a water licence later can be harder than acquiring a larger one initially, so there is a trade-off here.

6. Indigenous and Community Consultation: In jurisdictions with consultation requirements (Canada’s duty to consult, FPIC principles, etc.), the scope of consultation is tied to the project’s impact footprint and duration. A mine life extended by Inferred tonnes:

– Triggers consultation over a longer operational period

– May affect benefit agreement negotiations (royalties, employment commitments) tied to mine life or total tonnage

– If mine life subsequently shrinks at FS stage, it can create credibility and trust issues with communities who were counting on a longer mine life.

In closing, personally I feel that project proponents should try to permit to a footprint somewhat larger than the Pre-Feasibility base case to preserve operation flexibility. For more on the benefits of flexibility, see the blog post “Mining’s Obsession with Optimization – Good or Bad”.

Conclusion

Inferred resources present a unique paradox; they can and can’t be used in mining economic analysis. They can be used to examine project viability but can’t be used to make a production decision.

The manner in which Inferred resources are viewed can also affect permitting. Although they don’t directly enter the regulatory process, they can shape the physical parameters of the mine plan that regulators will evaluate.

Even if a company grows the resource size between the PEA and PFS, there will still be a component of Inferred material within the PFS mine design that might be considered real tonnage or not.

Getting the permitted footprint right relative to the eventual resource confidence level is an underappreciated skill in project development. Each mining project is unique, and there is no easy one-size fits all solution when considering the impact of Inferred resources on project development.

In case you missed it, the last blog post was ” Mining’s Obsession with Optimization – Good or Bad“. https://kuchling.com/minings-obsession-with-optimization/ The entire blog post library can be found at https://kuchling.com/library/

You can sign up for the KJK mailing list to get notified when new blogs are posted. Follow me on LinkedIn or Twitter (@KJKLtd) for updates and other mining commentary.

Mining’s Obsession with Optimization – Good or Bad?

Date: March 31, 2026 Author: Ken Kuchling Comments: Leave a reply

You read a lot these days about the push for more optimization in mining. Ore grades are declining and high-grade, easy-to-process deposits are becoming scarcer, forcing new projects to face greater risk. To compensate for this, miners are told to optimize and innovate more. They are doing both; including making technological gains.

Mining has gotten better at squeezing more value from each tonne of ore. So why do see mining projects still stumbling and everyone being pushed to do even more optimization?

The answer may be that the industry is confusing optimization with resilience. A mine tuned to perform perfectly under one set of conditions may become fragile when those conditions shift. And in mining, things are always shifting. Maybe the head grades don’t meet expectations or metal prices collapse. Maybe there is a shift in community sentiment or a geotechnical surprise in the mine.

The pursuit of a single “optimal” outcome might leave projects well engineered, yet poorly equipped for reality. Flexibility (or resiliency) aren’t the enemy of efficiency; they may be the only way to make efficiency sustainable.

Which Aspects Should Be Optimized

Is the concept of optimization the most important factor in a project’s design? If so, which aspect is the most important to optimize? A danger is optimizing for a single criteria, for example NPV, at the expense of everything else. Selecting the optimal design for one aspect will likely result in being sub-optimal in some of the others.

Once one has selected the aspect to optimize, the next issue becomes what to base the optimization on. Optimization typically is founded on a specific set of inputs. When these change, the optimized design will likely require revision. This then forces a new optimization, which can create a never-ending optimization loop because things are always changing in mining.

The design aspects that I have seen recommended for optimization range from:

optimize your drill hole locations
optimize your pit size
optimize your production schedule
optimize your throughput and/or recovery
optimize your water consumption
optimize your carbon footprint
optimize your project design
optimize your labour productivity
optimize either NPV, IRR, or payback
optimize your metal production cash cost

There are a lot of suggestions and recommendations and people will have differing opinion on which are the most important optimizations. This opinion is typically driven by their own expertise or field of work, not necessarily by what is best for the project.

Optimal vs Resilient Design

Optimization of a mining project can yield meaningful cost and efficiency gains. However mines face inherent constraints, such as ore grade variability, geological surprises, equipment life cycles, and regulatory issues.

Company success is typically driven by a broader set of variables: commodity price cycles, capital availability, asset portfolio quality, ESG and social license, M&A timing, and balance sheet strength. A perfectly optimized mine in a declining commodity or in a politically unstable jurisdiction may underperform a less-optimized mine in the right location at the right time.

Chasing optimization can sometimes lead to over-investment in a single asset, reduced flexibility, or operational fragility. The system performs well only under the ideal conditions.

Hence flexibility is important. If the mine plan is so rigid that it cannot pivot when a new high-grade zone is discovered or a pit wall becomes unstable, then one has optimized for a single scenario rather than for long-term resilience. Rather than designing for the “best case,” design for resilience.

Flexibility builds in the ability to scale production up or down, switch mining sequences, or pivot processing approaches as conditions change. Resilience has real value in mining, where geology, markets, and costs are unpredictable.

Flexibility identifies and can mitigate technical, geopolitical, regulatory, environmental, and market risks. The mines that do run into trouble rarely do so because they weren’t optimized; they fail because key risks weren’t anticipated or managed.

Workforce capability, safety culture, and leadership quality are key predictors of operational success. Optimization alone may not be able to address high turnover, poor safety records, and weak supervisory capacity. These can erode profitability far more than sub-optimal scheduling.

In my experience, the best operations have systems for ongoing learning and improvement rather than seeking a one-time optimal design. However, there is still a place for full optimization in some situations.

When does a flexible project design win?

Commodity prices are volatile up and down
Geological uncertainty is high (low proportion of Measured Resource)
Mining uncertainty (limited geotechnical investigations)
Long mine life (10–30+ years), where conditions will certainly change
Regulatory or social environments are unpredictable
Capital markets may require staged investment rather than full financing

When does an optimal project design win?

Shorter mine life where conditions are unlikely to change materially
Commodity is stable, well-hedged, or under long term offtake contract pricing
Geology and processability is well-understood (mature, well drilled-out deposit)
Capital is constrained and upfront efficiency is critical (you need to get it right)

Unfortunately some might view flexibility as a weakness. If a company has to change a plan or pivot, some will view that as a sign that the company is poor at planning and they don’t know what they are doing. In some cases, this might be true. Conversely the company may simply be reacting to unforeseeable outside influences.

The Path to Resiliency

If one decides to pursue the path of operational flexibility, what are the things that help make it happen?

Design for flexibility at the start: Build project components that can scale up or down as needed. This might include wider pit ramps, larger infrastructure, some modularization in the processing system and the mine. Building a single rigid optimal design can be a trap. Open pit mines may be inherently more flexible than underground mines.
Maintain multiple ore sources: Maintain flexibility across different mining areas and ore zones with different metallurgy or head grades means one can blend ore as needed. Multiple mining areas provide flexibility in the case of geotechnical or weather events. Multiple stockpiling is also part of flexibility in design and operation.
Be careful consuming all high grade ore: In order to boost NPV, often most of the high grade ore is consumed early in the schedule, meaning the back part of the schedule relies on low grade material. This reduces economic flexibility if prices decrease in the future and may also miss out on the benefits if prices rise.
Real-time data collection and adaptive planning: Real time control systems let operations respond to actual conditions rather than following a fixed weekly plan. The idea is to shorten the time between observation and reaction, not to automate rigidly but enable the system to adapt rapidly.
Keep a cross-trained workforce: Operational flexibility may be enhanced if people can fill multiple roles. Cross-training operators means one can redeploy people as needed when conditions change.
Maintain financial health: A company with low debt, high cash assets, and easy credit access can keep a mine on basic functionality (or care-and-maintenance) rather than being forced to sell assets or close the doors during a downturn. Financial health will help ensure operational flexibility. The major miners already know this. The junior miners learn it the hard way.
Build supplier and contractor relationships before needed: Much like access to credit, long-term supplier arrangements might mean one can find labor and materials faster than competitors scrambling during downturns or upturns.
Scenario-plan continuously: Run multiple what-if commodity price, head grade, geotechnical & water management scenarios regularly during operations, not just at the feasibility or permitting stage. Operations change over time, and teams that have already pre-planned “what if this happens” respond better when it really happens.

Flexible mining operations may sacrifice a little efficiency at peak conditions and not meet the fully optimized vision. However this flexibility is a trade-off for the ability to stay profitable over a range of scenarios.

Conclusion

Rather than focus on constant optimization in design, it may be wiser to focus on a flexible design. Adaptability, flexibility, and resilience may be more important than being fully optimized.

Modern mine planning is starting to consider Real Options Analysis and stochastic optimization (Monte Carlo simulation) to help quantify the value of flexibility. They may find that a slightly suboptimal design is actually worth more than a rigid optimized one when uncertainty is priced in.

Probabilistic analysis can provide some assistance by highlighting the impact of unforeseen events. However the key is not just to know the event’s impact, but also how will one respond even if there is only a 10% probability of it occurring.

Optimization may be great, but it isn’t everlasting. Squeezing the last dollar out of a plan may be less important than keeping a mine in business. A flexible plan may actually be the optimal plan.

end

In case you missed it, the last blog post was “The Surprising Parallels Between Junior Miners and Tech Startups“. The entire blog post library can be found at https://kuchling.com/library/

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.

Filtered Tailings Testing Checklist

Date: June 12, 2024 Author: Ken Kuchling Comments: 1 Reply

I have always been a big proponent of filtered (or dry stack) tailings over conventional tailings disposal. Several years ago I had written a blog (Fluid Tailings – Time to Kick The Habit?) that this is the tailings disposal approach the mining industry should be moving toward.

Recently I have been seeing more mining studies proposing to use the dry stack approach. In some cases, they no longer even do the typical tailings trade-off study that look at different options. The decision is made upfront that dry stack is the preferred route due to its environmental acceptability and positive perceptions.

Recently I came across a nice document prepared by BHP and Rio Tinto titled “Filtered Stacked Tailings – A Guide for Study Managers (March 2024)”. I will refer to this document as “The Guide”. You should definitely get a copy of this Guide if your project is considering a dry stack operation. An information link is included at the end of this post.

A Guide for Study Managers

The Guide covers several topics, including tailings characterization; site closure concepts; filtered tailings stack design; material transport, stacking systems; and tailings dewatering methods. The Guide covers all the basics very well. The one area that jumped out at me is the tailings characterization and testing aspect.

Many assume that dry stack is simply filter, haul, dump, then walkaway. Its all very easy! However, in reality, the entire dry stack approach is complex.

One needs to be able to consistently dewater tailings from different ore types, then transport it under different climatic conditions, and then place and compact the tailings efficiently.

One also needs to be able to deal with plant upsets, when the filtered tailings don’t meet the optimal product specifications. So its not really that simple.

One of the chapters in the Guide details the different test work that should be done to understand the dry stack approach. The list of tests is a lot longer than I had envisioned. I previously knew some of the types of lab testing required, however the Guide outlines a very comprehensive list.

The Guide also categorizes the tests according to study stage, be it concept study, order of magnitude study, or Pre-Feasibility level. Interestingly, the concept study can rely mainly on published information. However, the more advanced mining studies require the lab testing of actual tailings material.

Testing Checklist

To help organize the complexity of testing, I have listed their suggested tests as to whether the test is related to material characterization, process characterization, or filtered product characterization. Each aspect serves a different purpose in understanding the workings of the filtered tailings approach. The engineer will decide at which study stage they wish to do each of the tests, or which of the them they actually need to do.

To keep the blog post brief, I am not describing the details for each test. Most geotechnical or process engineers will already be familiar with them, or anyone can search the web to learn more.

MATERIAL CHARACTERIZATION TESTS

Chemical composition Testing: using atomic absorption or spectroscopy, identify the elements within the tailings stream to highlight contaminants and potential flocculation issues.
Conductivity Test: increase knowledge of the tailings stream.
Mineralogy Testing: identify mineral types and clay minerals (if any) that could impact on performance.
Particle Shape Analysis: are there fibrous minerals present, as well as settling and rheology effects.
Particle Size Distribution: are the tailings coarse, or mainly fine silt and clay sized particles that can impact on filtering and product performance.
pH Test: determine the acidity of the tailings steam, can relate to flocculant selection.
Tailings Slurry Density Test: assess the pumpability and amount of thickening and filtering that will be required.
Tailings Solid Mass Concentration and Moisture content: required for process mass balances.
Specific Gravity Testing: assess the SG of the tailing particles, i.e. light or heavy minerals.
Total Dissolved Solids Test: assess the fluid composition, are minerals dissolvable.
Zero Free Water Test: relates to the solids concentration at which the sample is fully saturated and may relate to transportability.

PROCESS CHARACTERIZATION TESTS

Total Suspended Solids: assess the quality of the return water from thickening or filtration.
Drained and Undrained Settling Test: to assess the thickening aspects and stack performance.
Setting Cylinder Tests: used to assess thickener settling performance.
Raked Setting Cylinder Tests: used to assess thickener settling performance.

Dynamic Continuous Settling Tests: used to assess thickening under continuous feed situation.
Minimum Moisture Content: assess the minimum moisture content achievable in filtration.
Vacuum/Pressure Filtration Test: often done by vendors, assess the filtering performance.
Compression Rheology: design consolidation / permeability data for filtering and disposal design.
Shear Rheology: provide information for pump and pipeline design.
Shear Yield Stress: provide processing insights for slurry dispersion and flocculation.

FILTERED PRODUCT CHARACTERIZATION TESTS

Leaching Tests (long term): assess whether the tailings stack will continue to leach metals and contaminants over the long term.
Leaching Tests (short term): assess whether the tailings stack will rapidly leach metals and contaminants.
Acid Base Accounting Tests: will the stack be an ARD concern.
Net Acid Generation: relates to ARD and neutralizing potential.
Air Drying Tests: determine the rate of natural air drying and dry density.
Atterberg Limits Testing: determine the plastic limit, liquid limit with respect to moisture content and stackability.
Consolidation Tests (one-dimensional): to assess the consolidation and settlement of the stack over time.
Proctor Density Tests: assess the optimal compacted density and moisture content vs the moisture content delivered by filtration.
Critical Void Ratio Tests: assess compaction, consolidation, and liquefaction potential.
Shear Testing: determine the geotechnical strength of the filtered product for stack height design.
Permeability Testing: assess the internal drainage characteristics of the filtered product.
Soil-water characteristics Tests: assess the unsaturated behavior of the filtered product.
Flow Moisture Point Tests: assess how well the material can be transported and placed.
Conveyance Testing: assess how well the material can be conveyed (troughing, steepness).
Minimum Angle for Discharge: used in the design of hoppers and chutes.
Angle of Repose Tests: used in hopper design and dry stack design. Ground Bearing Pressure: used to assess the trafficability of the deposit.

Conclusion

A dry stack operation might be just as complex as conventional tailings disposal, although that might not be the perception. Certainly, the processing side of filtered tailings is more complex than conventional tailings. The transportation design may also be more complex, as is the tailings placement methodology. The main complexity missing from the dry stack is the need for a large sludge retaining dam, albeit that is a huge and important difference.

Some might view the suggested testing checklist as overkill and decide that not all test work is necessary. That is most likely true for some situations, especially for small mines not dealing with large quantities of tailings. However for a project with a high capital investment, one doesn’t want to see the entire mill off-line because the tailings disposal system isn’t functioning.

Major miners, such as BHP and Rio Tinto, typically spare no expense on material testing for metallurgical or geotechnical purposes. They have the funds available to test and engineer to a high level to adequately de-risk the project to meet their investment thresholds.

Junior miners often don’t have the time or funds to spend on such comprehensive testing programs. “Good enough” is often good enough.

One reason why junior miners sign 5-year JV deals with the Major is the amount of technical work required to properly evaluate a project.

The Major understands the amount of time needed for sample collection, testing, analysis of results, and follow up with more testing. It takes a fair bit of time to reach a comfort level for moving forward. Even then, there are no guarantees of success.

Each tailings disposal project is unique in size, location, type of mineralization, site layout, and throughput rate, so each company must decide what level of testing is “good enough” to address their risk tolerance.

For those that would like to get a copy of the the Guide, you can find more information at this LinkedIn link. I thank BHP and Rio Tinto for putting their heads (and wallets) together to prepare (and share) this document.

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NPV a Disappointment? A Few Ways to Fix It

Date: April 5, 2024 Author: Ken Kuchling Comments: Leave a reply

So, you just completed your initial PEA cashflow model and the resulting NPV and IRR are a little disappointing. They are not what everyone was expecting. They don’t meet the ideal targets of an IRR greater than 30% and an NPV that is more than 2x the initial capital cost. The project could now be on life support in the eyes of some.

Now what to do? Its time to jump into NPV repair mode.

Hopefully this blog post isn’t too controversial but will lead to some discussion about how studies are done. Its based on observations I have made over the years as to what different studies will do to try to improve their economics.

The first thought typically is to lower (i.e. low ball) the capital and operating costs. We know that will certainly improve the economics. A risk with that is it might discredit the entire study if the costs are not in line with similar projects. Perhaps someone does a deep dive into the costing details or does some benchmarking against other projects. Also, advanced studies will develop more accurate costs, ultimately highlighting that the initial study was inaccurate and misleading. So overly optimistic, under-estimated costing is not a good approach.

What other things can help bump up the NPV? Let’s look at some of the ones I have seen, some of which I have applied in my work. I would expect (and hope) that some of these ideas will already have been adopted in the initial engineering and cashflow model.

Using the Time Value of Money

The discounting of cashflows in a cashflow model means that up-front revenues and costs have a bigger impact on the final economics than those far off in the future. This effect is amplified at higher discount rates.

Hence looking at ways to bring revenue forward or push costs backwards are typically the first options considered. Here are a few of the ways this will be done.

High Grading and Stockpiling: One can bring revenue forward by using a Low Grade Ore stockpiling strategy. Select an elevated cutoff grade to define High Grade Ore and send only that ore to the plant. The Low Grade Ore can be placed into a stockpile and processed gradually or all at once at the end of the mine life. One must mine more tonnes to undertake stockpiling and will eventually incur an ore rehandling cost. However, in my experience, the early revenue benefit from high grade normally outweighs the associated cost impacts.

Stockpiling Tramming: If using the stockpiling approach described above, many assume that all stockpile rehandling to the crusher will simply be done by tramming with a wheel loader. Having to re-load the ore into trucks will cost more than double the cost of tramming. So place the ore stockpiles close to the crusher to lower rehandling costs.

Milling Soft Ore: If the deposit has both an upper soft ore (oxide, saprolite) and a deeper hard ore, one can take advantage of the soft material and push more ore tonnage through the plant at start-up. This will increase the up-front revenue. It may also allow the cost deferral of some plant components that are only needed for processing the harder ore.

Defer Stripping Tonnages: Delaying some waste stripping costs from pre-production (Y-1) to Year 1 or Year 2 will help improve the NPV. However, care must be taken that increasing mining tonnages in Year 1 or 2 doesn’t trigger the purchase of additional loaders and trucks. The deferred tonnes need to be small enough not to trigger a fleet size increase or could negate the impact of the cost deferral.

Capitalize Waste Stripping: It may be possible to capitalize waste stripping for satellite pits and pit wall pushbacks to better align stripping costs with the timing of ore mining. Capitalizing waste stripping may result in lower short term taxable income since the entire expense is not immediately deducted. This can reduce tax liabilities and improve cash flow. Each situation may be unique.

Accelerate Depreciation: In some jurisdictions, tax laws permit accelerated depreciation rates. This will help to lower or eliminate taxable income in the early years. This boosts the after-tax cashflow in those years, bumping up the NPV. If accelerated depreciation is the case, enhancing revenue (by high grading) at the same time, gives an even bigger nudge to the NPV. Maximize the revenue during tax free periods.

Apply Tax Losses: On some projects there are historical corporate tax loss carry-overs. These losses allow one to offset future taxes payable in the early years. This help bump up the initial after-tax cashflows.

Leasing of Equipment: One can look at equipment leasing to defer some of the initial capital costs. Leasing will distribute the purchase cost over several years (typically 60 months). Although the lease interest will increase the total cost of the machine, the capital cost deferral likely results in an NPV benefit.

Use Contract Mining: To avoid the entire cost of purchasing major mining equipment, many will look to contract mining. In studies, sometimes contract mining costs are estimated or they can be derived from budgetary contractor quotes. At an early stage these contractor quotes might be quite “favorable” as the contractor tries to stay in the good books of the mining company. Contract mining will greatly reduce the mining equipment capital cost and can help the NPV, even if the unit mining costs may be slightly higher with a contractor.

Using Other Cashflow Tweaks

There are other tweaks that one can make to the cashflow model. Sometimes several of the small ones, when compounded together, will result in a significant impact. Here are some of the other cashflow model adjustments that I have seen.

Increase Metal Prices: Normally when selecting metal prices for the cashflow model one looks at; trailing averages; analyst consensus forecasts; marketing study forecasts; and prices being used in other current studies. It is usually simple to defend whatever price you wish to use. In a rising price environment, one can see what other recent studies have used and escalate those prices by 5%-10%. That likely won’t be viewed as unreasonable. After all, someone has to be the trailblazer in raising modelling metal prices.

Improve metal recoveries: At an early study stage, one may have limited number of metallurgical tests upon which to base the process recoveries. I have seen some bump up the recoveries slightly and add the statement “Further metallurgical testing, grind size optimization, and reagent optimization should improve the recovery above those shown by the current test work”. This can gain a bit of revenue at no extra cost.

Optimistic Dilution: It can be very difficult to predict ore mining dilution at an early stage. Two different engineers looking at he same mining method, may come up with different dilution assumptions. Hence one may have the opportunity to select an optimistic dilution. Lower dilution will increase the head grade to the mill and hence increase the revenue at no extra cost. Even a modest reduction in dilution will play its role in nudging up the NPV.

Reduction in Working Capital: Some cashflow models do not include the cost for working capital, while others will include it. Working capital is the money needed on hand to pay the monthly operating cost in Year 1 before payable revenue is generated. If difficulties arise in achieving commercial production, one wishes to have more working capital on hand. Working capital typical is 2-4 months of operating cost. To bump up NPV, some will use the lower range of 2 months working capital. Some will just omit working capital entirely. Take a look at the working capital needs and decide what is reasonable.

Buy the Royalty: Some projects may have the option for a company to buy out the royalty from the royalty holder. Although doing this may result in an upfront cost, the payable royalty saving may offset that up-front buy-out cost. At high metal prices, the royalty saving could be significant.

Reclamation Cost Equals Salvage Value: At the end of the mine life, the final closure and reclamation cost will be in the tens of millions of dollars. Although this cost is heavily discounted back to the start of the cashflow model, I have seen cases where it is assumed that salvage value of the mine and plant equipment is sufficient to pay the entire closure cost. I don’t know how realistic this is, but I have seen that assumption used.

Lower The Discount Rate: A few years ago, it seems the benchmark discount rate was 5% used in most studies. In 2024, the cost of capital has gone up. Hence many studies seem to be using 8%-10% as their base case. A project at the PEA stage today isn’t going to be built for a few years. Some can argue that interest rates will likely be lower in a few years, and so using 5% discount rate today is still reasonable. Conversely some will maintain that is is best to use what others are using so that current projects are all comparable.

Conclusion

Don’t let a disappointing NPV get you down. There may be a few ways to boost the NPV by applying some common practices. However, if after applying all of these adjustments, the NPV still isn’t great, something bigger may be required. That could be an entire project scope re-think.

Or go drill for more ore higher grade ore.

Or low-ball the cost estimates (just kidding).

I have heard that if the project requires fancy tax manipulation to make it work, then it isn’t a good project to begin with. If taxes are critical, the economics may be too marginal.

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The Anatomy of 43-101 Chapter 16 – Mining (Part 2)

Date: March 22, 2024 Author: Ken Kuchling Comments: Leave a reply

Part 2 of this blog post will focus on the remaining engineering work to finish Chapter 16 of the Technical Report. We only wrote about half of it in Part 1. The mining engineer can generally handle the rest of these tasks without requiring a lot of external input. You can read Part 1 at this link “The Anatomy of 43-101 Chapter 16 – Mining (Part 1)”.

The pit design and phases were completed at the end of Part 1, and we can move on to scheduling.

4. Production Scheduling

Once the pit design is complete, everyone will be calling for the production schedule as soon as possible. Others on the team are waiting for it. The tailings engineers need the production schedule for the tailings stage design. The process engineers need the scheduled head grades to finalize sizing the plant components. The client wants the schedule to plug into their internal cashflow model for a quick peek at the economics.

However, before the mine engineer can start scheduling, the dilution approach needs to be selected. Dilution is waste that is mixed in with ore during mining. A high amount of dilution can dramatically lower the processed head grades. There may be a desire to “low ball” the dilution to make the grades look better, but the engineer should base the dilution on what they would expect to see.

Two dilution approaches are common. One can either construct a diluted block model; or one can apply dilution afterwards in the production schedule. I have used both approaches at different times.

The production schedule must be on a diluted basis, since that represents what the processing plant will actually see.

Generally, two different production schedules must be created: (i) a Mining schedule, and (ii) a Processing schedule. In some instances, they may be one and the same schedule. However, if any ore stockpiling is done, then the Mining schedule will be separate from the Processing schedule.

The Mining schedule shows ore going directly to the plant and ore going into the stockpiles. The Processing schedule will show ore delivered directly from the mine and ore reclaimed from stockpiles. Building stockpiles and pulling ore from stockpiles are two independent activities.

Sometimes lower grade stockpiles are built up by the mine each year but only processed at the end of the mine life. Periodically the ore mining rate may exceed the processing rate and other times it may be less. This is where the stockpile provides its service, smoothing the ore delivery to the plant.

Scheduling can be done with variable time periods. Perhaps the schedule is generated using monthly time periods, or quarters, or years.

The 43-101 report will normally show the annual production schedule, but that does not mean it was generated that way. I prefer to use short time periods (monthly or quarterly) for the entire mine life, to ensure ore is always available to feed the plant. A 10 year mine life would result in 120 monthly time periods, so output spreadsheets can get large.

Scheduling can be done manually (in Excel) or by using commercial software, like Datamine’s NPVS. The commercial software is better in that it allows one to run different scenarios more quickly, and it does a lot of the thinking for the engineer. It also does a good job of stockpile tracking. It also decides when it is necessary to transition to mining in satellite pits.

Once the schedules are finalized, they are normally reviewed by the client for approval. The strip ratio and ore grade profile by date are of interest. One may then be asked to look to at different stockpiling approaches to see if an NPV (i.e. head grade) improvement is possible.

One can stockpile lower grade ore and feed the plant with better grade by mining at a higher rate with more equipment. One might need to examine iterative schedules of that type.

Sometimes one must take two steps backwards and re-design some of the initial pit phases to reduce waste stripping or improve grades. Then one would run the schedules again until getting one that satisfies everyone.

Now that the schedule is complete, we can write up the Chapter 16 text up to page 15. We’re getting closer to the end.

5. Site Layout Design

With the pit tonnages and mining sequence from the schedule, the mine engineers can start to look at the site layout (waste dumps and haul roads). Normally the tailings engineers will be responsible for the tailings layout. However, if there is no tailings engineer on the PEA team, the mining engineer may look after this too.

First there is a need for a waste balance. This defines how much mined overburden or waste rock will be needed to build haulroads, laydown pads, and tailings dams. Then the remaining waste volume must be placed into waste dumps.

Hopefully the tailings engineers have finished their tailings dam construction sequence by this time to provide their rockfill needs (although unlikely if you only gave them the production schedule two days ago).

The geotechnical engineers will provide the waste dump design criteria; for example, 3:1 overall side slope using 15m high dump lifts. Ideally it is nice to have soil and foundation information beneath the waste dump sites, but at PEA stage most often this isn’t available. The dump locations are only being defined now.

The mining engineers will size the various waste dumps to their required capacity. Then they can lay out the mine haulroads from the pit ramps exits to the ore crusher, the ore stockpiles, and to each waste dump.

That’s it for the site layout input. Add another 2 pages to Chapter 16. Now the mining engineers can look at the mining equipment fleet.

6. Fleet Sizing and Mining Manpower

The last task for the mine engineer in Chapter 16 is estimating the open pit equipment fleet and manpower needs. The capital and operating costs for the mining operation will also be calculated as part of this work, but the costs are only presented in Chapter 21.

The primary pieces of equipment are the haul trucks. They can range in size from 30 tonnes to 350 tonnes and anywhere in between.

Typically, the larger the equipment is, the lower the unit cost ($/t), especially in jurisdictions where labor costs are high. One doesn’t want a mine fleet with only 5 trucks nor one with 50 trucks. So where is the happy medium?

Once the schedule and site layout are complete, the mine engineers can run the truck haul cycles, in minutes. They need to estimate the time to drive from the pit face, up the ramp, to the waste dump, to the ore crusher, and return back into the mine. Cycle times determine the truck productivity, in tonnes per hour per truck and include the time to load the truck. Some destinations may have long cycle times (to a far off crusher) while others may be quick (to an adjacent waste dump).

The cycle time must be calculated for each material type going to each destination. As the pit deepens, the cycle times increase.

Very simplistically, if a 100 tonne truck has a 20 minute cycle time, it can do three cycles in an hour (300 tph). If one has to mine 10 million tonnes of ore per year, then that would require 33,300 truck hours. If a single truck provides 6500 operating hours per year, that activity would require a fleet of 5 trucks. The same calculation goes for waste.

The total trucking hours will vary year to year as waste stripping tonnages change or haul cycle times increase in deeper pits. The required truck fleet may vary year to year. Keeping haul distance short and haul cycles quick is the key to a lower cost mine.

The mine engineers undertake the productivity calculations for loading equipment to estimate annual operating hours, and the required shovel / loader fleet size.

The support equipment needs (dozers, graders, pickups, mechanics trucks, etc.) are typically fixed. For example, 2 graders per year regardless if the annual tonnages mined fluctuate.

The support equipment needs are normally based on the mining engineer’s experience. Hence the benefit of actually working at a mine at some point in your career.

Blasting includes both the blasthole drilling activity and hole charging. The mining engineer estimates drill productivity and specifications based on the bench height, the expected rock mass quality, and the power factor (kg/t) need to properly demolish the rock.

Finally, the mine operation manpower is estimated based on all the equipment operating hours as well as the fixed number of personnel to support and supervise the mine.

This essentially concludes the mining information presented in Chapter 16 of a typical 43-101 open pit report.

Conclusion

These two blog posts hopefully give an overview of some of the things that mining engineers do as part of their jobs. Hopefully the posts also shed light on the amount of work that goes into Chapter 16 of a 43-101 report. While that chapter may not seem that long compared to some of the others, a lot of the effort is behind the scenes.

Some will say PEA’s are not very accurate documents that should be taken with a grain of salt. One should understand that engineers are working with a limited amount of information at this early stage while forming the concept for the proposed operation.

The subsequent study stages are where more accurate costs are expected and can be demanded.

I don’t know if this overview makes one want to sign up to be a mining engineer or learn to code instead. None of this is rocket science; it just requires practical thinking.

If young people want to get into mining, but not sure into which aspect, I suggest go read through a 43-101 report. There are sections describing exploration, resource modelling, mine engineering, metallurgy, geotechnical engineering, environmental, and financial modelling. Its all in one document. See if any of these areas are of interest to you. Universities should use 43-101 reports as part of their mining engineering curriculum.

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The Anatomy of 43-101 Chapter 16 – Mining (Part 1)

Date: March 20, 2024 Author: Ken Kuchling Comments: 4 Replies

When people learn that I’m a mining engineer, I’ll normally get perplexed looks and asked what that job is about. Most never even knew the job existed.

So I thought what better way to explain the mining engineer role than by describing the anatomy of a typical Chapter 16 (MINING) in a 43-101 Technical Report. That chapter is a good example of the range of tasks typically undertaken by mining engineers.

Secondarily it also provides an opportunity to describe in detail all the steps that go into writing a Chapter 16, focusing on the PEA.

PEA’s tend to have a poor reputation for lack of accuracy, and this blog post may shed some light on why that is. To avoid running on too long, I have subdivided this into Part 1 and Part 2.

Generally, one will see a single QP sign off on Chapter 16. However, the chapter requires input from several people. Section 16 is generally prepared in the same way for a PEA or a feasibility study (FS). The main difference is related to the amount of hard supporting data in a FS versus a PEA.

The PEA will rely on many “reasonable assumptions” and it can be done in at least half the time of a FS. A FS will also build on previous study decisions, something a PEA doesn’t have access to since it is a first time snapshot of a project.

Normally preparing Chapter 16 is done under time pressure to deliver results as quickly as possible. Other study team members are waiting for its output to finalize their own engineering work.

1. Define the Mine

In a PEA, the first thing that must be conceptualized is whether this will be an open pit (OP) mine, underground (UG), or a combination of both.

There is always a mineral resource estimate available before doing a PEA. The way the resource is reported will indicate what type of mine this likely is. The geologists have already done some of the mining engineer’s work.

The mineral resource will suggest if this will be an OP or UG, a large or small operation, a long life or short life, and the likely processing method. The framework for the project is already set at the mineral resource estimate stage.

We can now write page 1 of Chapter 16.

2. Optimize the Pit Size and Shape

The first step for the mining engineer is a pit optimization analysis to define the approximate size and shape of the pit. The pit optimization step creates a series of nested economic pit shells for different metal prices. For example, the base case gold price may be $1800/oz, but we still want to see what size of pit would be economic at $1000/oz, $1200, $1300, etc. Normally one may run 50 different price scenario increments. The smaller shells may eventually be good starter pits to help improve NPV and payback time.

Before starting pit optimization, we require economic inputs from several people. The base case metal prices must be selected (normally with input from the client). The mining operating cost per tonne must be estimated (by the mining engineer). The processing engineers will provide the processing cost and recovery for each ore type.

The geotechnical engineers will provide approximate pit wall angles. All of these inputs have to be forecasted at a very early stage. We don’t yet know the size of the pit, the ore tonnage available, nor the actual plant throughput rate but one must still predict some costs. Hence these initial inputs might just be ballpark data.

In the final cashflow model you may eventually see slightly different metal prices, costs, or recoveries than used in pit optimization. That’s because that cashflow model inputs are generated by the study, while the optimization inputs are pre-study estimates.

The pit optimization step may also need to apply constraint boundaries. For example, if there is a nearby property limit or river, one may want to constrain the pit optimization to get no closer than 50 metres to the river or boundary. The pit shell optimizer may be free to expand the pit outwards in multiple directions, except that one direction.

Once the optimization is run, a series of nested pit shells are created, each with its own tonnes and grade. These shells are compared for incremental strip ratio, incremental head grade, total tonnes, and contained metal.

A decision must now be made on which shell to use for the mine design. Larger economic shells may have more tonnes, lower grade, and higher strip ratio. Smaller shells may have lower strip ratio and better grade.

For example, a smaller shell may have 10 year life containing 800,000 oz at a strip ratio of 2:1 while a larger shell may have 14 years, 1 million oz at a strip ratio of 3:1. Both are roughly the same economically. However, developing the larger shell may require more mining equipment capital yet have a lower average cost per tonne. Which shell do you choose?

There can be dozens of such shell to shell trade-offs and typically one doesn’t run schedules and cost models on all of them. The client will have input on whether they wish to move forward with 10 years 800,000 oz or the 14 years with 1 million oz. Sometimes selection is driven by investors having size expectations that need to be met.

Some people may say ‘Well… just run cashflow models for each case to see which is best”. The problem with doing too much analysis at this stage is that if you re-do the pit optimization with different recovery, operating costs, pit wall angles, you will get a different optimization result. It becomes a question of how much detail work to do on something that is based on very preliminary input parameters.

Assuming the mining engineers have now selected the preferred shell for mine design, they can move on to mine design. We can now write more of Chapter 16 to page 5.

3. Open Pit Design.

The mining engineer is now ready to undertake the pit design. The pit design step introduces a benched slope profile, smooths out the pit shape, and adds haulroads. Hence a couple of key input parameters are required at this time. The mining engineer will need to know the geotechnical pit slope criteria and the truck size & haul road widths. Let’s look at both of these.

Pit Slopes: Geotechnical engineers are responsible for providing the slope angle criteria to the mining engineers. The geotech engineers may have a lot or little information to work with. Perhaps they have geotechnical oriented core holes and they have undertaken some rock strength testing.

Perhaps the only information for the geotechnical engineers is rock quality data from exploration drilling. I have seen both situations at the PEA stage; the latter is more typical. In the feasibility study they would have geotechnical core hole data available. At the PEA stage, that is less likely, since no one yet knows the size and depth of the pit. We are only getting to that now.

Pit wall schematic

The geotechnical engineers will provide the inter-ramp slope angles, specified by catch bench widths and bench face angles. The engineers may subdivide slopes by rock type.

For example: the overburden wall is to be at 30 degrees, the underlying oxide rock at 40 degrees and the deeper fresh rock wall at 55 degrees. Additionally, the pit may be subdivided into pie shaped sectors, with differing slope criteria.

For example, the fresh rock on the west wall might have a 55 degree angle, but the east wall fresh rock may only allow 50 degrees and the south wall is 45 deg.

The more sectors and differing slope criteria, the more complex it is to do the pit design. Normally you don’t see geotechnical engineers signing off as QP’s for Chapter 16, although they had key input into the pit design.

Ramps: Next the mining engineer needs to select the truck size, even though the production schedule has not yet been created.

Trucks sizes can vary between 30t up to 350t. A double lane ramp width is approximately 4.5 times the truck width, including space for a ditch and an outer safety berm. A 90 tonne truck is 6.7 metres wide (haulroad of 30m) while a 350 tonne truck is 9.8 m wide (haulroad of 44 m wide). That’s a 14m width difference.

The haul road gradient is normally 10%, which means a 200 metre deep pit requires a ramp length of 2000 metres to get to the bottom. It can be difficult to fit a 2 kilometre ramp in a small pit without pushing the walls out to provide enough circumference to get to depth.

Ramps can spiral around the pit, or they can zigzag back and forth on one side of the pit (switchbacks). The mine engineer will decide this once they see the topography, pit size, and ore body orientation. Adding ramps in a pit design pushes the crest outwards and adds waste to be stripped.

Pit Phases: After the pit design is complete, the mine engineer will design multiple interior phases to distribute the waste and ore tonnages in the mining schedule. These phases are sometimes referred to as pushbacks, laybacks, or stages. At mine start-up, one doesn’t want to strip the entire top off of a large pit. A smaller pit within the large pit will allow faster access to ore.

This completes the open pit design and now allows one to write to page 10 of Chapter 16. However, the mining engineer is not done yet.

Conclusion

This ends Part 1. In Part 2 we will discuss the mining engineer’s next tasks; production scheduling; waste dump design; and equipment selection. The mining engineer QP will sign off and take responsibility for all the mine design work done so far. You can read Part 2 at this link “The Anatomy of 43-101 Chapter 16 – Mining (Part 2)“.

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Mine Builders vs Mine Vendors

Date: October 15, 2023 Author: Ken Kuchling Comments: Leave a reply

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.

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.

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/

NPV One – Cashflow Modelling Without Excel

Date: May 21, 2023 Author: Ken Kuchling Comments: Leave a reply

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

Pros

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.
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).
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.
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.
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.

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.
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.
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.
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/

Life as an Engineer – Read All About It

Date: December 9, 2022 Author: Ken Kuchling Comments: 2 Replies

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.

Every few weeks we see another feasibility study completed. Normally the numbers will look fantastic. The feasibility study shows that a project could work, but will it really work?

A positive feasibility study is the moment a mining project is supposed to come alive. It’s the point where geology, engineering, and economics merge into a real (i.e. bankable) business case. However, it is also the starting point of an entirely different and more difficult path.

Stalled projects will experience several of the roadblocks simultaneously. A single roadblock might be surmountable, but multiple roadblocks may not be.

Many of these roadblocks will be identified during confidential third-party due diligence by potential partners, acquirers, or financiers. Hence investors may never learn the actual truth as to why the project is stalled and are left guessing why.

I have been part of due diligences on behalf of lenders and have seen the negative reasons never make it to the public eye. Sometimes the company may itself not know why a project was declined, although they can make an educated guess.

The following is a checklist of the various pitfalls leading to the study graveyard. Check off all those that you think apply to your favorite stalled project. Be honest. Typically, more than one will apply and they will tend to compound.

Geotechnical & Geological Risk

Review of the block modelling reveals concerns with grade, continuity, or metallurgical recovery.

Review of the expected geotechnical conditions reveals mining concerns associated with faulting, weak ground, karst, high water inflows.

Metallurgical complexity understated in feasibility (refractory ore, penalty elements).

Resource classification is suspect and a lot more infill drilling is required, at a high cost.

Hydrology issues, e.g. acid rock drainage severe and difficult to manage long term and becomes a corporate liability.

Technical & Engineering

Feasibility study found to be technically flawed upon review.

Project is very complex and will be difficult to build on budget and on time, as well as difficult to staff with qualified operating personnel.

Processing technology unproven at scale, ore sorting risk ,etc.

Infrastructure assumptions (power, water, road) prove more costly or difficult.

Mine plan optimistic on strip ratios, mining rates, or equipment productivity.

Tailings storage facility design issues, high risk, or siting problems.

Water rights access insufficient or contested.

Offsite infrastructure (road, rail, or port) inadequate and too costly to build.

Remoteness – labor costs and retention problems underestimated.

Permitting, Regulatory, and Social License

Environmental impact assessments likely to be rejected or endlessly delayed.

Perceived difficulties to get operating licenses, water licenses, or discharge permits.

Regulatory framework uncertain and changes mid-process (new environmental laws, mining codes).

Federal/state/provincial jurisdictions overlap creating jurisdictional gridlock.

Permits granted but successfully challenged in court by third parties.

Indigenous or First Nations consultation failures, failure to negotiate community benefit agreements acceptable to all parties.

Local community opposition leading to blockades or political pressure.

NGO campaigns attracting negative media attention that spooks investors or lenders.

Religious, cultural, or heritage site conflicts with site plan.

Mineral title disputes persist with overlapping claims or historical issues.

Land access agreements with surface rights owners difficult to acquire.

Political & Country Risks

Government instability, coup, or change of administration hostile to mining.

Retroactive tax increases, windfall profit taxes, or royalty rate changes.

Nationalization or forced renegotiation of mining agreements.

Corruption demands that the company is unwilling to meet.

Sanctions, war, or civil unrest making the region inaccessible.

Financing & Capital

Inability to secure project financing (debt or equity) due to financier risk appetite, commodity price outlook, or lender requirements.

Cost overruns discovered during reviews that make the economics unviable.

Declining commodity prices between feasibility and financing.

Owner balance sheet too weak to fund large construction; inability to attract a joint venture partner.

Royalty or streaming deals entered into that are too dilutive, making equity unattractive.

Corporate & Strategic

Management change leading to strategy pivot away from the project. The internal champion is gone.

Company acquired by a buyer with a different portfolio strategy — project shelved.

Board loses conviction or knows they cannot manage this; project deprioritized in favor of capital returns or other assets.

Key technical personnel depart, taking institutional knowledge with them.

High market cap of owner makes the acquisition cost high, when considering the capital cost to build must also be incurred by the acquiror. This will lower the return.

Market & Macro

Commodity price collapse, or forecasting an oversupply, makes the project sub-economic even with a positive study.

Input cost inflation (energy, steel, labor, reagents) erodes profit margins.

ESG-driven investor exclusions make it impossible to raise equity capital.

Offtake agreements cannot be secured on acceptable terms. This can be important in industrial and battery mineral projects. This may require focusing on downstream processing into upgraded specialty products, increasing risks and costs.

Conclusion

The list of potential production roadblocks is extensive. Moving from the study stage to production is very difficult and very few can do it successfully. A positive feasibility study is a necessary but far from sufficient condition for production.

When projects stall, it is likely due to multiple factors listed above. A ranking analysis may conclude the compounding effects of the perceived risks makes the project a no-go for financiers.

Some people will say be thankful that more projects don’t advance to production, because we would likely see more failures as the risks come to bear Ideally only the best projects are moving forward, but even there we can see mixed results.

In case you missed it, the last blog post was “The Double Life of Inferred Resources: Now You See It – Now You Don’t“. The entire blog post library can be found at https://kuchling.com/library/

You can sign up for the KJK mailing list to get notified when new blogs are posted. Follow me on LinkedIn or Twitter (@KJKLtd) for updates and other mining commentary.

There is a unique paradox sitting at the heart of how the mining industry evaluates its projects. It’s called the Inferred Resource—now you see it, now you don’t.

What Are Inferred Resources?

Inferred resources represent the lowest confidence category of mineral resources; typically estimated in zones with limited sampling and unconfirmed geological continuity. They carry the highest geological uncertainty of the three resource categories.

In Preliminary Economic Assessments (PEAs), Inferred resources are allowed—but only under certain conditions:

They can be included in mine plans and economic models, which is the reason PEAs exist: to allow early-stage projects to test economic viability using all available resource data.

Inferred tonnes are routinely used to extend mine life or improve project economics in PEA studies. Investors must understand this risk and should examine the proportion of mined tonnage that is classified as Inferred. This breakdown is normally presented in the Technical Report.

Conversely, in Pre-Feasibility Studies (PFS) and Feasibility Studies (FS), the rules for Inferred material are different:

Inferred resources cannot be included in mineral reserve estimates or in the economic analysis underpinning a PFS or FS. Inferred “ore” is treated as waste rock.

Only Indicated and Measured resources can be converted to Probable and Proven mineral reserves.

Including Inferred material in a PFS mine plan would typically disqualify the study from being used for project financing or a production decision.

Some companies might include Inferred material in a PFS as “upside” or as a sensitivity case, but that analysis must be clearly distinguished from the base case.

The resource upgrade requirement (from Inferred to Indicated) creates some interesting dynamics:

Companies will look at ways to compensate for the Inferred material deduction. Cutoff grade changes and step out drilling are ways to mitigate this impact.

A large Inferred resource that cannot be upgraded without great cost (due to depth, remoteness, or lack of ore-zone continuity) can permanently stall a project at the PEA stage. Hence, one may see multiple PEAs completed on the same project (i.e., the PEA loop).

In closing, the peculiarity of the Inferred resource is that it is essentially a tiered permission structure. Inferred resources are useful for early economic screening, but they must be converted to higher-confidence categories before they can support a bankable study or project debt financing.

Permitting via a PEA

Companies sometimes will commence the permitting process based on their PEA study. There are some risks to doing this, and the Inferred resource creates one of these risks.