June 2015

Managing geological variability

landscape with unique rock pattern
  • By Martin Haylett, Senior Mining Geologist, Golder Associates

Strategies for improving mining investment returns

Many mining projects come into operation on time and quickly achieve target production. This is often a result of proficient technical work involving detailed mine planning based on a good understanding of the deposit geology, as well as careful consideration of the infrastructure and construction challenges at the site.

However, some mining projects fail to achieve nameplate tonnes and grade once the production phase of mining is in full swing. The outcome is that these mines fall short in delivering expectations and financial targets and contribute to the lack of assurance for investors.

The Mineral Resource and Ore Reserve is often held as the definitive guide as to what will be mined and recovered once mining commences. The expected metal production from these inputs is used to generate the forecasted cashflows and profit. But modifying factors within the conversion of resource to reserve can often be masked or hidden by other variables.

By keeping the focus on the orebody (during feasibility, start-up, or steady state operation), benefits to the economics of mining operations can be realised. This is particularly relevant as many projects are sensitive to changes in orebody grade.

During the development stage of mining projects, designing an effective grade control program that maximises resource recovery can negate the negative impact that short-term, or day-to-day, geological variability may have on project net present value (NPV).

An effective strategy to maximise the profitability of an operation is the overall minimisation of the cost per tonne of metal produced. This is achieved by reducing unit operating costs and optimising the grade of ore mined that is to be fed to the processing plant or shipped.

While it may not be feasible to reduce these too much without affecting mining functionality, there is usually some opportunity to optimise components by lowering the cost per tonne and, more fundamentally, the cost per tonne of metal produced. Accurately predicting and controlling grade during mining is vital for positive outcomes in understanding and managing the short-term geological variability of the deposit.

The significant improvements in computer technology over the past 20 years means mining companies now have the opportunity to use risk-based assessment techniques as an aid to optimise their operations. Variability analysis is typical in the oil and gas industry but has been less common to date in the minerals industry.

Geostatistical methods such as conditional simulation now allow mining companies and sites of different scale or commodity to use these risk-based techniques during both the feasibility stage and during production. While mining industry personnel are still gaining familiarity with the methods, specialist practitioners are helping clients realise notable economic benefits.

The following examples show how grade control studies, specifically aimed either at reducing cost per tonne of product, or to optimise the metal mined, have proven to be effective and have provided impressive economic outcomes. Successful mines not only reap the benefits of reconciliation reviews and audits of mining and grade control practices to assist in managing geological variability, but can also identify areas for improvement and optimisation of mined product.

Case study 1: Sample reduction

An open pit mine in Australia was increasing ex-pit production. The extra grade control sampling required to match the elevated production rate exceeded the site laboratory capacity. Cost estimates for expanding the laboratory in terms of capital expenditure and additional staff were considerably higher than the company wanted to spend. The question asked by the company management was ‘Can we reduce the number of samples, hence operating and capital costs, without affecting ore quality?’

Golder examined the potential ore loss and increased dilution if fewer samples were used for ore definition during production. Through the application of Golder’s proprietary Chain-of-Mining system – a technique for simulating the impact of operational decisions on mining operations – the mine was able to assess the impact of reducing sampling frequency on recoverable resources. The results from the study showed that the number of samples required could be reduced by 75 per cent with no significant loss in ore quality over the majority of the designed pit, due to the low geological variability of the deposit relative to the scale of mining.

Similar studies for other operations and commodities have demonstrated opportunities for cost savings, or in some cases showed that the benefits (in terms of recovered metal or plant feed grade) of changing sampling protocols have far outweighed the slight increase in grade control costs.

Case study 2: Optimisation of product quality through improving ore block design

Golder recently conducted a reconciliation review of an operation for a mid-tier mining company that indicated that the resource grade was being overstated because geological variability and complexity of the deposit was greater than anticipated. The resultant lower ore tonnes and grade caused increased costs per tonne and therefore reduced cash flow.

Changes were recommended to the ore block design to reduce the estimation error in highly variable geological domains. The implementation of the new system yielded more tonnes at the same grade over the deposit. The resultant lift in product produced by the operation due to these changes was significant. The improved reconciliation against the published Ore Reserve was so great that it negated the need for the company to write down the operation’s value.

Case study 3: Managing variability to optimise diglines

Golder audited the grade control systems and practices at an open pit gold mine which was not achieving the desired head grade through the mill. Many aspects of the existing grade control system used were well considered and appropriate for the deposit. However, the geological variability of the deposit was not being captured by the modelling estimation method used at site.

The suggestions to improve several key aspects of the grade control system, including a change in ore block estimation method to include the use of conditional simulation, were tailored to help optimise mining diglines and increase the metal sent to the mill. The recommendations were implemented and trialled over a three-month period, yielding a 25 per cent increase in metal through the mill and more accurate reconciliations. This trend continued in the following quarter with significant additional ounces recovered compared to the forecast guidance.

The methods and techniques used in the examples can be applied to various commodities or geological settings and Golder has seen significant benefits in both selective and bulk mining operations.

Maximising returns from an operation requires well considered, upfront planning of grade control systems that can manage geological variability within the deposit. This should not be a ‘set and forget’ approach. Frequent reviews of grade control procedures and modelling inputs should be part of a strategy of continuous improvement in operational economics. This will help provide some resilience against volatile or depressed commodity prices, and ensure positive cash flows and returns to investors. 

Martin Haylett can be contacted on +61 8 9213 7492 or via email at MHaylett@golder.com.au.

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