Article 1: Step 1 – Define reserves and assess strategies
Strategic mine planning concentrates on long-range production planning aimed at maximising the value derived from exploiting an ore deposit. That sounds simple but isn’t, because how can a mine be expected to sustain value throughout its lifetime, when metals prices and resource costs are not constant, and rise and fall over time?
A good strategic mine plan starts with designing an efficient mine that is capable of maximising value from its assets over the long term, despite changing circumstances – and that depends on having a foundation for your plan that accurately defines reserves and establishes the best possible start and growth strategies.
NPV as primary KPI for mine planning
The standard approach to developing a strategic mine plan is to assess a mine project – open pit or underground, but we are going to focus on open pit mining for this series of posts – based on the net present value. That means the NPV, which is calculated by applying a rate to progressively discount cash flows based both on how much profit the mine project must make and on its risks, becomes the primary KPI for the mine plan.
As the primary KPI, the goal of maximising the NPV then drives decisions about where to start the extraction and how to orient the sequence. At the same time, however, the mine planner will track other KPIs essential to assessing the feasibility of a mine plan, such as stripping ratios, processing plant utilization ratios, grades and materials balances among others.
Traditional method for defining reserves and determining the sequence
Traditionally, mine planners define reserves using the Lerchs-Grossmann (L&G) algorithm, which identifies an economic envelope (pit shell), constrained to maximum slope angles, that will maximise the total undiscounted cash flow. With that final pit identified, the planner builds a sequence to reach the final pit by creating nested pit shells using the same algorithm, but constraining the volume of the output envelopes or adjusting the block model valuation using revenue factors (RFs).
To select a subset of the nested pits to serve as pushback expansions toward the final pit, the mine planner then calculates some preliminary schedules, often using best-case, worst-case and fixed-lead scheduling. Best-case scheduling assumes a pit-by-pit extraction (usually not feasible); worst-case scheduling assumes a bench-by-bench extraction of the final pit (rarely used); fixed-lead scheduling (used most often) delays the extraction of a fixed number of benches between consecutive nested pits using a manually set scheduler.
Issue with this approach
The major issue mine planners face with this traditional approach is that, most of the time, the nested shells available for the planner to select as pushbacks are not operationally feasible, and that may in turn require:
- mining multiple satellite pits in earlier periods of the life of the mine
- having a large starter pit, even for small revenue factor increments
- following a concentric sequence, which requires multiple mining fronts, and/or
- awkward pushback shapes and sizes, which may be difficult to implement.
Most often, the planner will try to override these issues by building some feasible pushback designs loosely based on a set of nested pit shells and by splitting and merging different envelopes.
However, this labor-intensive design step, maybe unintentionally, often seals the decision to use a pushback sequence based on the RF-limited L&G algorithm instead of looking for other possible sequences towards the same final envelope. And, because the traditional approach is based on maximising undiscounted cash flow for simulated price-levels through different RFs, this means is no guarantee that the sequence obtained will maximize NPV and could be out of alignment with other feasibility-focused KPIs.
A more flexible approach to mine planning
A more flexible approach – which typically solves geometry-related issues common in the traditional approach – is to modify the L&G algorithm by first incorporating a starting point and direction for the extraction, and then building a sequence schedule that may align better with the mine project’s strategic requirements.
To test this approach, we combined GEOVIA Whittle strategic mine planning software with SIMULIA process-automation tools to see what would happen if we tried hundreds of starting points in several directions.
In each test, we aimed to generate 1600 to 2400 scenarios, which allowed us to produce a “value map” where we could easily identify the best starting region and corresponding directions, based on an assessment of preliminary strategic schedules for each combination.
We discovered that, by using this methodology, we could compare directional approaches while taking into account other vital components of a mine plan, such as spatial constraints, sinking rate and other feasibility KPIs as well as NPV. This in turn gave us the ability to decide on the highest-performing locations without being bound to the sequence defined by the nested pit shells using RF increments.
Using this more flexible approach, we have concluded that:
- at least one starting point and mining direction can account for higher NPV (usually 5% to 10%) and better alignment with feasibility-driven KPIs
- it is common to find more than one scenario that can sustain its values differently (i.e.: high initial grade vs high initial recovery vs low initial stripping ratio sequences)
- while sometimes there was no significant increase in NPV, we could often identify strategies with better feasibility that would achieve the same NPV as the traditional approach
- directional strategies are easier to follow during the design process, resulting in a decreased loss of value compared to the GEOVIA Whittle output pit shells.
strategic mine planning
In Article 2 in this series, read about how to Climb the Hill of value by determining the optimum scale of mine production.
In our next article in this series, read about how to assess reserves and define a strategic sequence for the start and growth of the mine.
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