Consultants Have to Earn a Living Too

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

GLG – Give me an hour

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

Digbee – What’s wrong now?

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

Conclusion

If you’re becoming an independent consultant, check out these two revenue channels.   They are tailor made for our growing numbers.
Follow me on twitter (@KJKLtd) or LinkedIn at https://www.linkedin.com/in/kenkuchling/)

Benchmarking – Let’s See More Of It

Date: February 18, 2020 Author: Ken Kuchling Comments: Leave a reply
Benchmarking companies is the process of measuring performance of a company’s attributes against those of another. Ideally the benchmarking comparison is made against what are considered to be the best in the industry.  Sometimes however the comparison is simply made between industry peers.
We often see junior mining companies benchmarking themselves against others. Sometimes corporate presentations provide graphs of enterprise value per gold ounce to demonstrate that a company is always undervalued.
We also see cash cost charts (an example to the right) benchmarking where a company’s production cost will rank among its competitors.
Benchmarking is a great thing. The information derived from it can be very insightful, but there is the caveat that it takes effort to ensure the comparative data is accurate.

Can we see more benchmarking?

Given the benefits of benchmarking, an area that might warrant more effort is related to capital cost estimation.
When a mining project moves into the construction phase, the first two observable metrics are the construction progress and the capital cost expenditures to date and expected. The capital cost trendline is given very close scrutiny since it is a key indicator where a project is heading.
Lenders may have observers at site monitoring both construction progress and cash outlays. Shareholders and analysts are watching for news releases that update the capital spending. Their concerns are well founded due to numerous cases of significant cost over-runs.
Some of these over-runs have been fatal, whereby the company has been unable to secure additional financing to cover the additional costs. There are others instances where a financing white knight has come in to the rescue, and essentially wrestled company ownership away from current shareholders.
Some industry people also feel that capital cost performance during construction can foreshadow a project’s performance once it goes into commercial production. If construction consumes the available working capital, commissioning and early production will have increase risks if they need to fix things.
Capital cost over-runs may be caused by poor execution and/or unforeseen events, or due to inaccurate cost estimation to begin with.  Many investors still have apprehension with capital cost estimates from advanced studies. This is where benchmarking may play a role. Mining company shareholders should want (or demand) to see a comparison of their project capital cost with other similar projects.

Project databases

It would be a positive thing if the mining industry (or other concerned parties) could work together to create open source project databases. These databases would incorporate summary information and cost information for global mining projects.  The information is already out there, it just needs to be compiled.
One nice thing is that younger workers coming into the mining industry exhibit an interest in collaboration and information sharing. Hence maintaining the databases could be done by interested parties, industry experts, and/or crowd sourcing.
The databases could be public domain accessible to everyone and  could be used to benchmark a project against other similar projects.  The Global Tailings Portal (tailing.grida.no/about) is working to build a freely accessible database for the thousands of tailings dam globally. Its the same idea.
I realize that many mining projects are unique with site specific features and conditions. However many projects are also very similar to one another. For example West African gold projects in many cases can be replicates of one another with similar capital costs.
Published 43-101 technical reports could then include a chapter on benchmarking, whereby a project is compared with other similar projects. A company could provide rationale why their project will be costlier (or less expensive) than the others.

Conclusion

Benchmarking can be a great tool when done correctly. Benchmarking  capital costs might bring more transparency to the project development process. It may help convince nervous investors that the proposed costs are reasonable.
We already see corporate presentations using benchmarking to explain why they are undervalued.  Why stop there?
One could expand the reach to include operating costs but internal confidentiality may be an issue.  Furthermore operating costs are longer in duration and subject to change with global influences.
Capital cost accuracy is one of the primary concerns in the development of new projects. Possibly that availability of more benchmarking data is part of the solution.

 

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For some free mining calculator apps, including project timelines and a simplified cashflow modeller, check out this website https://sites.google.com/view/drillingdown

Consulting and Stock Compensation

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

Would you work for company shares only?

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

Pro’s and Con’s

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

Conclusion

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

Date: January 6, 2020 Author: Ken Kuchling Comments: 2 Replies
I recently wrote a blog about the term “sustainable mining” and the different perspectives to it. Does sustainable mining mean having a long term sustainable mining industry or does it mean providing sustainable benefits to local communities? There are two ways you can look at it. If interested, the link to that blog is here.
It’s no surprise that the mining industry wants to promote more sustainable mining practices. It’s the right thing to do. However, in my experience, sometimes NPV analysis can be at conflict with sustainable mining practices. That opinion is from my engineering perspective.  Those working in the CSR field may have a different view on it.

Majors, mid-tiers, juniors see things differently

There are essentially three different types of mining companies; majors; mid-tiers, and junior miners. They have different financial constraints imposed upon them and these constraints will impact on their decision making.
In general to get financing and investor interest, development projects must demonstrate a high NPV, high IRR, and short payback period. This requirement tends to apply more to the small and mid tiered companies than to the major companies.  The majors normally have different access to financing.
A characteristic of NPV analysis and cashflow discounting is the penalizing of higher upfront costs whilst reducing the economic impacts of longer term deferred costs. This feature, combined with the need to manage NPV, will influence design decisions and operating philosophies.  Ultimately this will impact on the rate of adopting of sustainable mining practices.
Mining companies often have two masters they must try to satisfy. One master is the project investor(s) that wants their investment returns quickly and with limited risk. The second master is the local stakeholder that wants a safe project with long lasting benefits to the community.  NPV analysis often requires trading-off the needs of one master over that of the other. This trade-off is neither right nor wrong; it is simply a reality.
Major miners now seem to have a third master; i.e large pension funds. These funds are now demanding for more sustainable mining practices (mainly tailings related) and mining companies are trying to comply. Smaller mining companies thus far don’t have this third master to satisfy, although that may come soon. Hence smaller miners are apt to follow a somewhat different path with regards to sustainable mining implementation. NPV plays a significant role in their decision making.

NPV…friend or foe

executive meetingThere are several scenarios where NPV analysis decision making may conflict with the objectives of sustainable mining. Here are a few examples.
1. Minimizing capital expenditures at the expense of operating costs. The likelihood of success in creating a long life sustainable mine will improve by having low metal cash costs. Naturally there will be a benefit in having low operating costs. However sometimes achieving low operating costs will require higher capital investments. For example, this could involve using large capacity material handling mining systems (IPCC) to lower unit costs.
NPV analysis will tend penalize these large investments by discounting the future operating cost savings. Being in the lowest cost quartile is good thing; being in the highest cost quartile isn’t.  Higher operating costs can hurt the long term sustainability of an operation, especially during downturns in commodity prices.
2. Tailings disposal method trade-offs are affected by NPV analysis. Currently there is an industry push towards safer and sustainable tailings storage methods, like paste or dry stack. However the upfront processing and materials handling capex can be significant. Hence less desirable conventional style tailings disposal may often be the winners in tailings trade-off studies due to NPV.
3. Closure considerations incorporated in the early mine design stage are affected by NPV analysis. A large cost component of mine closure is related to waste rock and tailings reclamation. However since final closure costs are  deferred, they might be given less consideration in the initial design. In many studies, high closure costs can be deemed insignificant in the project NPV due to discounting. Eventually these high costs will need to be incurred.  Unfortunately they might have been mitigated by wise decision making earlier in the project life.
4. Low grade ore stockpiling can help to increase early revenue and profit, thereby improving the project NPV and payback. Stockpiling of low grade and prioritization of high grade means that lower grade ore will be processed in the later stages of the project life.  Who hasn’t been happy to develop a mine schedule with the grade profile shown on the right?
If low grade years are coupled with a dip in metal price cycles, the mine could become economically unsustainable.  Shutting down a mine and putting it on “care and maintenance” is short term in intention but often long term in duration (over 30 years in some cases).
Mark Bristow of Barrick briefly discussed the issue of high grading in this interview.
5. Low strip ratios in the early stages of a project are often a feature of the ore body itself. However mine plans can also be designed to defer high strip ratios into the future via the use of proper pit phasing. This is another way to defer operating costs into the future. The NPV will see the benefit, long term sustainability may not.
6. Project life selection based on NPV analysis may not show significant economic difference between a 15 year project and one with a life of 25 years. Project decisions could then favor a short life project. This could relate to smaller pit pushbacks, smaller tailings ponds, smaller waste dumps, and easier permitting.  Possibly the local community would prefer a long life project that provides more sustainable jobs and business opportunities. NPV may see it differently.
7. Accelerated depreciation, tax and royalty holidays are types of economic factors that will improve NPV and early payback. They are one tool governments use to promote economic activity. These tax holidays will greatly enhance the NPV when combined with high grading and waste stripping deferral.
Unfortunately reality hits once the tax holiday is over and suddenly taxes or royalties become payable. At the same time head grades may be decreasing and strip ratios increasing. Future cashflows may carry an additional economic burden, which may conflict with the goal of a sustainable mine.

Conclusion

NPV is one of the standard metrics used to make project decisions. The deferral of upfront costs in lieu of future costs is favorable for cashflow and investor returns. Similarly, increasing early revenue at the expense of future revenue does the same.   Both approaches will help satisfy the financing concerns. However they may not be advantageous for creating long term sustainable projects.
Riskier projects will warrant higher discount rates.  This can magnify the importance of early cashflows even more and future cashflows become even less important.
It will be interesting to see how we (the mining industry) respond as industry leaders make greater commitments to sustainable mining. Both majors and juniors will equally need to work on keeping those commitments.  Will NPV analysis help or hurt?

 

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Sustainable Mining – What Is It Really?

Date: December 6, 2019 Author: Ken Kuchling Comments: 4 Replies
We hear a lot about the need for the mining industry to adopt sustainable mining practices. Is everyone certain what that actually means? Ask a group of people for their opinions on this and you’ll probably get a range of answers.   It appears to me that there are two general perspectives on the issue.
Perspective 1 tends to be more general in nature. It’s about how the mining industry as a whole must become sustainable to remain viable. In other words, can the mining industry continue to meet the current commodity demands and the needs of future generations?
Perspective 2 tends to be a bit more stakeholder focused. It relates to whether a mining project will provide long-term sustainable benefits to local stakeholders. Will the mining project be here and gone leaving little behind, or will it make a real (positive) difference? In other words, “what’s in it for us”?
There are still some other perspectives on what is sustainable mining. For example there are some suggestions that sustainable mining should have a wider scope. It should consider the entire life cycle of a commodity, including manufacturing and recycling. That’s a very broad vision for the industry to try to satisfy.

How might mining be sustainable?

The solutions proposed to foster sustainable mining depend on which perspective is considered.
With respect to the first perspective, the solutions are board brush. They generally revolve around using best practices in socially and environmentally sound ways. A sustainable mining framework is typically focused on reducing the environmental impacts of mining.
Strategies include measuring, monitoring, and continually improving environmental metrics. These metrics can include  minimizing land disturbance, pollution reduction, automation, electrification, renewable energy usage, as well as proper closure and reclamation of mined lands.
Unfortunately if the public hates the concept of mining, the drive towards sustainability will struggle. Trying to fight this, the industry is currently promoting itself by highlighting the ongoing need for its products. Unfortunately some have interpreted this to mean “We make a mess because everyone wants the output from that mess”. I’m not sure how effective and convincing that approach will be in the long run.

Focusing on localized benefits

If one views sustainable mining from the second perspective, i.e. “What’s in it for us”, then one will propose different solutions. Maximizing benefits for the local community requires specific and direct actions. Generalizations won’t work.  Stakeholder communities likely don’t care about the sustainability of the mining industry as a whole.
They want to know what this project can do for them. Will the local community thrive with development or will they be harmed? Are the economic benefits be short lived or generational in duration? Can the project lead to socio-economic growth opportunities that extend beyond the project lifetime? Will the economic benefits be realized locally or will the benefits be distributed regionally?
One suggestion made to me is that all mining operations be required to have long operating lives. This will develop more regional infrastructure and create longer business relationships. A mine life of ten years or less may be insufficient to teach local entrepreneurship.  It maybe too short to ensure the long term continuation of economic impacts. Mine life requirement is an interesting thought but likely difficult to enforce.
Nevertheless the industry needs to convince local communities about the benefits they will see from a well executed mining project. Ideally the fear of a mining project would be replaced by a desire for a mining project. Preferably your stakeholders should become your biggest promoters. Working to make individual mining projects less scary may eventually help sustain the entire industry.

What can the industry do?

We have all heard about the actions the industry is considering when working with local communities. Some of these actions might include:
  • Being transparent and cooperative through the entire development process.
  • Using best practices and not necessarily doing things the “cheapest” way.
  • Focusing on long life projects.
  • Helping communities with more local infrastructure improvements.
  • Promoting business entrepreneurship that will extend beyond the mine life.
  • Transferring of post-closure assets to local communities.
There are teams of smart people representing mining companies  working with the local communities. These sustainability teams will ultimately be the key players in making or breaking the sustainability of mining industry.  They will build and maintain the perception of the industry.
While geologists or engineers can develop new technology and operating practices, it will be the sustainability teams that will need to sell the concepts and build the community bridges.
The sustainability effort extends well beyond just developing new technical solutions. It also involves politics, socio-economics, personal relationships, global influences, hidden agendas. It can be a minefield to navigate.

Conclusion

As a first step, the mining industry needs to focus more on local stakeholders and communities. Remove the fear of a mining project and replace it with a desire for a mining project. Mining companies must avoid doing things in the least expensive ways. They must do things in ways that inspire confidence in the company and in the project.
The ultimate goal of sustainable mining will require changing the public’s attitude about mining. Perhaps this starts with the local grass roots communities rather than with global initiatives. As a speaker said at the recent Progressive Mine Forum in Toronto, the mining industry has lost trust with everyone. It is now up to the mining companies, ALL OF THEM, to re-establish it. Unfortunately just one bad apple can undo the positive work done by others.  The industry is not a monolith, so all you can do is at least make sure your own company inspires confidence in the way you are doing things.
As an aside, I have recently seen suggestions that discounted cashflow analysis (i.e. NPV analysis) and sustainable mining practices may be contradictory. There may be some truth to those comments, but I will leave that discussion for a future blog.  You can read that blog at this link.
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Green Energy Storage Using Abandoned Mines

Date: November 11, 2019 Author: Ken Kuchling Comments: 3 Replies
The mining industry is always looking for ways to rehabilitate their abandoned operations so that there may be a public use for them. This could entail leaving behind recreational lakes, building golf courses, creating nature parks or using empty pits as public landfills. Another rehabilitation idea being studied is using old underground mines as a means of green energy storage.  If successful, we do have a lot of abandoned mines in all regions of the country.

Compressed air can store energy

I was at the 2019 Progressive Mine Forum in Toronto and a presentation was given on underground compressed air storage. The company was Hydrostor (https://www.hydrostor.ca/).  They were promoting their Advanced Compressed Air Energy Storage (A-CAES) system.
It is a technology that addresses the power grid need for power transmission deferral services. The A-CAES system can theoretically provide low-cost, long duration bulk energy storage (i.e. hundreds of MWs, 4-24+ hour duration).
The idea is to store off-peak or excess power from solar, wind, or other generating source.  Then the system can release this power back into the system during peaks or low generation capacity. Solar and wind power normally don’t work as well at night.

 

Flood the mine

The system uses excess electricity to run a compressor, producing heated compressed air. Initially heat is extracted from the air and retained inside a thermal store.  This preserves the heat energy for later use. Next the compressed air is stored in the underground mine, keeping a constant pressure.
While charging, the compressed air displaces water out of the mine, up a water column to a surface reservoir.
On discharge, water flows back down forcing air to the surface where it is re-heated using the stored heat and expanded to generate electricity.
Imagine an underground mine beneath an open pit, and seeing the open pit water level rise and fall daily as the compressed air is recharged underground and then released.
Hydrostor is currently building a $33 million 5-MW project in Australia at the Angas Zinc Mine site. I asked Hydrostor if they had any white papers describing the economics for a typical abandoned mine we might see here in Canada. Unfortunately they don’t have such a case study available.
Update: A Canadian example recnetly came to light; “How an old Goderich salt mine could one day save you money on your hydro bill“.
No doubt there would be capex and opex costs to build and operate the plant, but these would hopefully be offset by the power generation. It just not clear over what time horizon this payback would occur. Many abandoned underground mines are already in place; they are just waiting to be exploited.

Permitting is still an issue

Converting an abandoned mine into a power storage facility will still have its challenges. Cost and economic uncertainty are part of that.  In addition, permitting such a facility will still require some environmental study.
At Hydrostor’s proposed Australian operation, a fairly extensive environmental impacts assessment still had to be completed (see the link here).
Noise, vibration, air quality, ecology, traffic, surface water, groundwater impacts, visual impacts, employment, and indigenous consultations are aspects that would need to be addressed. However, given that this would be a green energy application, one might be able to get all stakeholders on board quickly.

Conclusion

We hear about sustainable mining and the desire to extend the positive social and economic impacts of a mining project. Energy storage is one way to extend the mine life into perpetuity by creating a localized power grid. Simply use wind or solar to recharge the system and then generate power over night.
If anyone is aware of a situation where something similar has been done, let me know and I will share it. Perhaps one day Hydrostor will provide a detailed economic study for a typical Canadian mine so that mining companies can see the economic potential.
Update:  In 2021 Hydrostor announced that it is developing two 500MW/5GWh energy storage projects in California, each of which would be the world’s largest non-hydro energy storage system ever built.  Read more at this link “Gigawatt-scale compressed air“
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43-101 Reports – What Sections Are Missing?

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

Who is the audience

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

Everyone likes geology

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

Suggestions

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

Conclusion

Improving the quality of information presented to investors is one key way of maintaining trust with investors. Accordingly we should look to improve the description of the mineable ore body for everyone. In many cases it is the key to the entire project.
I am not suggesting that one needs to remove the statistical plots since they do have their purpose and audience. I am simply suggesting that we should not forget about everyone else try to figured out the viability of the project.
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Mineral Processing – Can We Keep It Dry?

Date: September 30, 2019 Author: Ken Kuchling Comments: 3 Replies
It’s common to see mining conferences present their moderated panels discussing “disruption” and Mining 2.0.   The mining industry is always looking for new technologies to improve the way it operates. Disruptive technologies however require making big changes, not tweaks.  True disruption is more than just automating haulage equipment or having new ways to visualize ore bodies in 3D.
Insitu leaching is a game changing technology that will eventually make a big difference.  Read a previous blog at “Is Insitu Leaching the “Green Mining” Future”.  Development of this technology will negate the need to physically mine, process, and dispose of rock.  Now that’s disruptive.
However, if we must continue to mine and process rock, then what else might be a disruptive technology ?

Is dry processing a green technique

Process water supply, water storage and treatment, and safe disposal of fine solids (i.e. tailings) are major concerns at most mining projects.
Recently I read an article titled “Water in Mining: Every Drop Counts”.
That discussion revolved around water use efficiency, minimizing water losses, and closed loop processing.   However another area for consideration is whether a future technology solution might be dry processing.

Dry processing is already being used

By dry processing, I am not referring to pre-concentration ore sorting or concentrate cleanup (X-ray sorting). I’m referring to metal recovery at the mineral liberation particle size.
In Brazil Vale has stated that it will spend large sums of money over the next few years to further study dry iron ore processing. By not using water in the process, no tailings are generated and there is no need for tailings dams.
Currently about 60% of Vale’s production is dry (this was a surprise to me) and their goal is to reach 70% in the next five years.   It would be nice to eventually get to 100% dry processing at all iron ore operations.   The link to the article is here “Vale exploring dry stacking/magnetic separation to eradicate tailings dams”.

Is dry grinding possible

Wet grinding is currently the most common method for particle size reduction and mineral liberation.  However research is being done on the future application of dry grinding.
The current studies indicate that dry grinding consumes higher energy and produces wider particle size distributions than with wet grinding. However it can also significantly decrease the rate of media consumption and liner wear.
Surface roughness, particle agglomeration, and surface oxidation are higher in dry grinding than wet grinding, which can affect flotation performance.
Better understanding and further research is required on the dry grind-float process. However any breakthroughs in this technology could advance the low water consumption agenda.
You can learn more about dry grinding at this link “A comparative study on the effects of dry and wet grinding on mineral flotation separation–a review”.

Electrostatic separation

Electrostatic separation is a dry processing technique in which a mixture of minerals may be separated according to their electrical conductivity. The potash industry has studied this technology for decades.
Potash minerals, which are not naturally conductive, are conditioned to induce the minerals to carry electrostatic charges of different magnitude and different polarity.
In Germany, researchers have developed a process for dry beneficiation of complex potash ores. Particle size, conditioning agents and relative humidity are used to separate ore.
This process consumes less energy than conventional wet separation, avoiding the need to dry out the beneficiated potash and the associated tailings disposal issue.
Further research is on-going.

 

Eddy current separators

The recovery of non-ferrous metals is the economic basis of every metal recycling system. There is worldwide use of eddy separators.
The non-ferrous metal separators are used when processing shredded scrap, demolition waste, municipal solid waste, packaging waste, ashes from waste incineration, aluminium salt slags, e-waste, and wood chips.
The non-ferrous metal separator facilitates the recovery of non-ferrous metals such as aluminium, copper, zinc or brass.
This technology might warrant further research in conjunction with dry grinding research to see if an entirely dry process plant is possible for base metals or precious metals.  Learn more at the Steinert website.

Conclusion

Given the contentious nature of water supply and slurried solids at many mining operations, industry research into dry processing might be money well spent.
Real disruptive technologies require making large step changes in the industry. In my opinion, insitu leaching and dry processing are two technologies that we will see more of over the next 20 years.
Ultimately the industry may be forced to move towards them due to environmental constraints.  Therefore let’s get ahead of the curve and continue researching them.

 

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43-101 and the Shrinking Feasibility Study

Date: September 9, 2019 Author: Ken Kuchling Comments: Leave a reply
There is current sense that advanced mining studies are suffering from a lack of credibility with investors. Curiously it seems to me that many feasibility study documents are getting smaller at the same time. Might there be some link between the two?
My personal exposure to feasibility studies extends from managing them, participating in them, and undertaking due diligence reviews of them. Earlier in my career mining feasibility studies typically consisted of comprehensive documents, often contained in several binders of information. The study could generate a lot of paper. However currently it seems that often (not always) the 43-101 Technical Report can be the “final” feasibility study document.
In the past there would be binders with detailed calculations and backup for the different parts of the study. Typically there was a binder for the Executive Summary and separate sections (i.e. binders) for Geology, Mining, Processing, Infrastructure, Capital Cost, Operating Cost, Environmental, Project Execution, and Economic Analysis, etc.
The comprehensive report normally had both the report text and the details of the work done. This might include hand sketches, haul cycles, vendor price quotes, spec sheets, email correspondences, the WBS cost estimate detail, and so on.
The section appendices also included 3rd party reports like pit slope geotechnical studies, hydrogeological analysis, tailings dam designs, etc. The feasibility document might have included CD’s with the entire study in electronic format.
Generally all the supporting information for the study was in that comprehensive document. They were great. You knew you were somebody if you were given a personal copy of the entire report for your office.

43-101 Technical Report

The original intent of the 43-101 Technical Report was for it to be a summary document, only about 80-150 pages in length. The intent was to simplify all the technical work for the benefit of non-technical investors. Currently I have noticed that in many cases the 43-101 report is now the entire feasibility study document.
These 43-101 reports contain a fair amount of detail and they can exceed 400 pages in length. I’m not sure how many non-technical people actually read them beyond the Executive Summary or even read them at all.
Unfortunately if one is undertaking a due diligence review of a project, the 400 page Technical Report won’t contain the detail needed for a proper technical review. When more detail is requested, we are usually provided with a series of production and cost spreadsheets that need to be deciphered.  Furthermore the spreadsheets themselves don’t give the sources or basis for all the input data.
In my view the 400 page Technical Report is too confusing for the investing public and not detailed enough for technical review, thereby really satisfying no one.
Why aren’t the comprehensive feasibility study documents being completed all the time? I would suggest it is because of the effort and cost. It takes time to properly document all aspects of a study, creating legible tables, scanning files, and merging it all into a single PDF document. Preparing a 43-101 Technical Report can be a chore, as many of us have experienced in trying to meet the 45 day deadline. So who wants to take on the task of preparing an even larger document?

Recommendation

My recommendation is that, where budgets permit, mining companies return to the days of preparing the comprehensive feasibility study document. It’s the right thing to do.
One doesn’t need to print the entire report on paper since PDF files will work fine. Scanning of some sketches, vendor quotes may add an extra step, but that is hardly a momentous chore. Most 3rd party documents are already been submitted in PDF format so coordinating and merging will be the main task.
The 43-101 Technical Report could return to being a more investor friendly summary style document rater than a full study report.
This comprehensive document approach would apply to both pre-feasibility and feasibility studies that are used for advanced financing purposes.  The re-adoption of the comprehensive report format should be consistent among both large miners and juniors.

What about the PEA

The preliminary economic assessment (PEA) likely does not warrant a comprehensive report. The PEA is not definitive. I have also heard that the PEA is losing some credibility with investors, with some people referring to it as mainly a sales document. I don’t necessarily agree with that sentiment, but I understand why some see it that way.
As an aside, an interesting panel discussion might be whether the PEA has actually lost credibility, and if so, how can we restore credibility. My thoughts on PEA’s were summarized in a previous blog “Not All PEA’s Are Created Equal”.

Conclusion

If any mining industry credibility has been lost, re-establishing it should be important. One way to start doing this is to focus on creating the type of reports that best serve the needs of the industry stakeholders.
Some may say returning to comprehensive reports are a step backwards while mining needs to move forward. In my opinion, moving forward is going from less documented studies towards well documented studies.
One of the most technically detailed feasibility studies that I worked on was for the Diavik diamond project. This was a one-of-a-kind project operated by a well run risk-averse company (Rio Tinto). Every aspect of the project was documented to the upmost extent, although the company had the deep pockets to do that.  Funny thing though, as part of the internal Rio Tinto engineering team I don’t recall ever producing a final report document there (perhaps my recollections have been blurred since 20 years ago).
Once you have established the type of report you want, make sure your consultants clearly understand the expected deliverable. I recommend that someone on your team prepares an RFP document to lay out your wish list, even if sole sourcing the study. A previous blog was written on this topic at Request For Proposal (“RFP”) – Always Prepare One
As an aside, it would be interesting to know if those undertaking due diligence’s in the UK or Australia (i.e. not under 43-101 domain) have seen any changes in the quality of feasibility study documentation.
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Power Generation & Desalinization – An Idea that Floats

Date: August 20, 2019 Author: Ken Kuchling Comments: 2 Replies
Access to a fresh water supply and a power supply are issues that must be addressed by many mining projects. Mining operations may be in competition with local water users for the available clean water resources. In addition, the greenhouse gas emissions from mine site power plants are also an industry concern. If your project has both water and power supply issues and it is close to tidewater, then there might be a new solution available.
I recently attended a presentation for an oil & gas related technology that is now being introduced to the mining industry. It is an innovative approach that addresses both water and power issues at the same time.
The technology consists of a floating LNG (liquefied natural gas) turbine power plant combined with high capacity seawater desalinization capabilities. MODEC is offering the FSRWP® (Floating Storage Regasification Water-Desalination & Power-Generation) system.
MODEC also has associated systems for power only (FSR-Power®) and water only (FSR-Water®)

FSRWP capabilities

The technology is geared towards large capacity operations that have access to tidewater. It provides many tangible and intangible operational and environmental benefits.  It can:
  • Generate fresh water supply (10,000 – 600,000 m3 /day)
  • Generate electrical power (80 to 1000 MW) using LNG
  • Can provide power inland (>100 km) from a tidewater based floating power plant
  • Can provide natural gas distribution on land via on-board re-gasification systems
  • Has LNG storage capacity of 135,000 cu.m
  • Has a refueling autonomy of 20 to 150 days
  • Allows low cost marine delivery of bulk LNG supply

Procurement & Application

The equipment can be procured in several ways. For instance it can be contracted as an IPP (Independent Power Producer), purchased as an EPCI (Engineering, Procurement, Construction and Installation), BOO (Build, Own and Operate) or BOOT (Build, Own, Operate and Transfer).
Typically it takes 18-24 months of contract award to deliver to the project site, although temporary power solutions can be provided within 60-90 days.
From a green mining perspective, the FSRWP produces clean power with the highest thermal efficiency and lowest carbon foot-print.
See the table for a comparison of different power generation efficiencies and carbon emissions per kW.
Gas turbines are not new technology to MODEC.  They currently own & operate 42 such generators, which can produce roughly 43 MW (each) in combined-cycle mode.

Mooring options

Currently there are three mooring options for the floating system that should fit most any tidewater situation.
Jetty or Dolphin mooring is suitable for protected areas or near-shore applications where the water depth is in the range of 7 to 20 meters.
Tower Yoke mooring is ideal for relatively calm waters where the water depth is between 20 to 50 meters.
External Turret mooring is similar to a Tower-Yoke and is ideal for water depths exceeding 50 meters or where the seabed drops off steeply into the ocean.

Power transmission

Twenty years ago it was impractical to transmit AC power long-distances and subsea power cable technology was not as advanced as it is today. Hence an offshore power plant like a FSRWP was not technically viable. Due to R&D efforts over the last 15 years it is now possible to economically transmit AC. For example it is possible to transmit up to 100 MW over 100 miles through a single subsea cable. In addition, it is also viable to transit 200 MW at 145 kV from a vessel to shore.

Water treatment

Modern FSRWP’s use reverse osmosis membrane technology to produce industrial or potable water.  This is similar to most conventional onshore desalination plants.
The main benefits of floating offshore desalination are increased overall thermal efficiency if both power and water production are combined on a single vessel. In addition, seawater sourced offshore and rejected brine discharged offshore minimizes risk to coastal marine life.

Conclusion

The bottom line is that if your mining project is near shore, and has both water supply and power issues, take a look at the FSRWP technology. One might say it is greener technology by using LNG (rather than coal, heavy fuel oil, or diesel) to generate power.  At the same time it avoids competition with locals for access to fresh water.
This technology won’t be suitable for all mining situations, but perhaps your mine site fits the model. Reportedly rough costs for power are in the range of $0.10-$0.14/kwh with a capital cost of $1M-$1.5M per MW.
There will be minimal closure costs associated with dismantling the power plant.  One just floats it away at the end of the mine life.
Check out the MODEC website if you wish to learn more: https://www.modec.com/fps/fsrwp/index.html
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