mining costs

Reducing Costs without Compromising Ore Body Value – Part 2: Production

By: Erik Ronald, PG
Mining Geology HQ

8 October 2016

(Modified from original publication in Australasian Institute of Mining & Metallurgy (AusIMM) Bulletin – June 2016)


Geoscientists have an important role to play in improving the bottom line while adding value to mining projects

Productivity in mining is a major concern as the industry is starting to emerge from a significant commodity low. Explorers have shifted their focus from high growth to capital preservation while producers have changed their focus from “volume at all costs” to competing for bragging rights as to which are lowest tier on the cost curve. At the moment, cash is king for explorers, and “C1 costs” are the main topic of discussion at Board Rooms around the globe. The industry as a whole is struggling with the transition from a volume business into one of high productivity, reduced costs, and optimizing assets from haul trucks to ore bodies.

Part 1 of this article examined how geologists can ensure exploration projects are progressing while minimizing expenses in a capital-intensive industry. This second half of the article will examine the role Mine and Resource Geologists play in saving costs and improving a company’s bottom-line while ensuring quality and fundamental understanding of ore bodies are not compromised. All too often during times of price drops, geoscientists are made redundant as many companies view their roles as expendable or only required during project start-up or in times of growth. The result tends to be underutilized ore bodies, poorly executed M&A, and high-grading of deposits to meet the short-term wants of analysts. Mine and Resource Geologists can significantly contribute to value-add projects at low costs by stepping away from a short-term mindset that unfortunately plagues many in the market and operations management.

Mining Operations

For mining operations, one of the key metrics is the C1 cost. C1 cost is defined as the net direct cash cost, or simply the cost of production including the costs of mining, milling, concentrating, transportation, marketing, royalties and onsite administration. Commonly excluded from this calculation are exploration, research, depreciation, interest charges, amortization, and all other costs generally thought of as “overhead” or indirect costs. Given the overall softening of commodity prices in 2016 with the notable exception of gold, it is understandable that preserving capital expenditure (capex) and C1 costs are now critical as companies aim to maintain positive margins and show the markets that they are running efficient operations.

Operational mines can realize significant improvements and efficiencies through the collaborative work of mine geology with geometallurgy, geotechnical engineering/structural geology, resource geology, mine planning, operations, and processing. Mine Geologists have the accountability of determining ore types and delineating ore from waste. They represent the final decision on material movement which means it is their job to determine what becomes revenue (ore), working capital (stockpiles), or direct costs (waste).

Mine Geologists greatly influence metrics such as the strip ratio (SR), short-term planning, available mill feed, and stockpiling options. The in-pit data collected from mapping and close-spaced blastholes are invaluable to mining operations to maximize ore recovery while ensuring dilution and misclassifications don’t destroy value which drives up C1 costs. Additional value may be gained by recovering ore not recognized in the model, delineating localized high-grade zones, and optimizing dig directions to maximize recoveries. The following quote by G. Matthews (2016) should be stamped on every mine geologist’s desk: “If the amount of recovered product for a patch of ground at a given cut-off grade or product specification can be increased, then the operation can become more efficient and the unit cost will fall.”

Another quote all Mine Geologists should thoroughly understand is “today’s waste (or low grade) is tomorrow’s ore”. Many geologists tend to focus on the geological reasons for different ore types which is fine, but it is only a part of the equation. Enriched, highly altered, and mineralized are all good descriptors for high-grade zones but what differentiates ore from waste is simple economics. As times change, so do cut-off grades. With that important piece of information, it is important to remember those low-grade or marginal stock piles aren’t a place for overburden and truck tyres. If your ore body is lucky enough to have a long life, those low-grade or even waste stockpiles will likely be mined at profit at some point in the future. Treat them with respect; account for the grade and tonnage of them as you don’t want to be the poor geologist tasked with a stockpile drilling program in 10-20 years.

Making Big Rocks into Small Rocks

If you’re reading this article, chances are you’re in mining. What is mining but the business of digging up rocks and crushing them into little ones? This is obviously an over-simplified statement but we as an industry often fail in our understanding of the physical properties of the rocks that must be crushed for our business to succeed. Working alongside metallurgists, Mine Geologists can improve the understanding and prediction of the physical characteristics of ore. A well-informed plant feed strategy can directly effects comminution and thus allows for optimizing the mill and processing plants for throughput and recovery or beneficiation. Crushing ore is commonly the most energy intensive activity (i.e. think very expensive) that occurs at a mine, so understanding how various rock types perform in the mill can greatly improve efficiencies. Logging blast cones for rock type and mineralogy in addition to the standard grade sampling can provide helpful geometallurgical information for metallurgists to improve comminution, handleability, and tracking of materials that negatively affect floatation or beneficiation.

When Resource Geologists work with metallurgists, they can produce a geometallurgical model to predict these characteristics for blending and optimizing the scheduling of mill feed. This can realize real cost savings, increase throughput, and improve metal recovery. Beyond the mill, many other operational teams benefit from the accurate prediction of physical rock properties including drill & blast, conveying/hoisting, heavy mobile equipment (HME), environment, and closure teams. If this data is collected, modeled, and shared across disciplines there is opportunity to improve more than just ore/waste ratios.

Most Operations Mine More Waste than Ore

A close working relationship between Mine Geologists and Geotechnical Engineers can greatly contribute to improvements in pit design, geological models, and in some cases pit designs with reduced SR. Geological pit mapping to improve the understanding of structural controls of an ore body may enhance the geotechnical design parameters in open pit mines. It is industry standard for geotechnical engineers and mine planners to use a slope angle design based on assumptions of rock type and known structures to achieve an acceptable Factor of Safety. If structural data supports a steepening of slopes by even a single degree, this can result in a significant reduction of the SR and thus reduce C1 costs associated with waste removal. Alternatively, detailed pit mapping and analyses may suggest slope angles should be reduced due to problematic geometries. In these cases, a minor cost increase may be required to reduce the risk of a major failure with the potential for loss of ore, expensive clean-up, HME loss, or the worst case scenario: loss of human life.

Geoscientists are the custodians of the ore body and therefore should be a major stakeholder in finalizing mine plans. In order for planners and managers to make well-informed decisions, they rely on geoscientists to actively communicate the geological uncertainty in the mine plan. An optimized mine plan that accounts for both grade and geological risks will realize improved performance to plan and help minimize the unnecessary costs associated with under-prediction of tonnages, ore dilution, or mining in high-risk zones. I have found that some of the best short- and long-term planners are the ones who appreciate geological complexity and have a strong working relationship with knowledgeable geologists. The key to successfully communicating geological risk to management is ensure it’s translated into business risk such as likelihood of lost revenue, reduction of Ore Reserves, or added costs.

Blasthole (and even resource drilling) sampling costs may be optimized in well-informed and low-variability areas of an ore body. For example, if an entire shot of predicted high-grade ore is supported by blasthole cone logging and historic data, it likely does not require 100% sampling coverage to confirm what the mine geologist already knows. Geoscientists should be using all available data to assess each shot as to whether a reduction in samples will change the acceptable risk to ore recovery by understanding the geological variability. Conditional simulation can provide additional support for these cases and is further described by Haylett (2015).

strip ratio

Figure 1: Illustration of the effects of “high-grading”, changes in strip ratio, and total ore recovery (image courtesy of Kitco.com)

Models

Resource Geologists accountable for modeling, estimating, classifying and reporting of Mineral Resources can add high value to models for low costs by fully utilizing existing data or focusing on inexpensive data collection such as literature reviews, mapping, and desktop studies. This effective use of data can result in high return on investment of data compared to underground drilling or other more costly means of ore body knowledge investment. First, incorporating available data from surface mapping through to production data into models can greatly improve the model reliability. Often, busy Resource Geologists forget there may be significant amounts of published data available on neighboring properties or regional work that can be easily and inexpensively incorporated into models further refining boundaries and domains. Second, modeled variables should be reviewed to ensure elements important to the business are being predicted and reconciled. I’ve seen cases where the laboratory was testing for a large suite of elements but many were not incorporated into the model resulting in lost opportunity to track penalty elements. Lastly, a close working relationship between the various geoscience disciplines in collaboration with the Competent/Qualified Person(s) should address the effectiveness of drilling, mapping, and other data collection campaigns. Challenging questions such as “are we over- or under-drilling our Mineral Resources?” should be regularly asked to ensure today’s limited budgets are being used most effectively. Commonly, different zones of ore bodies require different data spacing based on the complexity of each zone to reach Measured or Indicated Resource status. It’s also worth questioning whether the additional costs of acquiring data to increase confidence from Indicated to Measured is business critical.

In summary, geoscientists in both Mine and Resource Geology roles can greatly influence C1 costs without compromising ore body value. Empowering geoscientists to think in economic terms, be creative, and work smarter means quality data can be used to best inform decisions during times when budgets are reduced and cash is king. Our roles as geoscientists are central to ensuring mining is performed in the most economic, efficient, and effective means possible while maximizing the recovery of ore. Understanding where we can control costs while maintaining the quality of our work by incorporating historic data, working collaboratively, challenging dogma, and finding creative solutions will ultimately contribute to the company’s bottom line and lift our profile within the mining industry.

I hope you’ve enjoyed this article reviewing what geoscientists can proactively do to contribute to the bottom-line while preserving ore body knowledge. Don’t forget to leave a comment below, plus if you enjoyed this article, please share it with friends on social media.

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References:

Haylett, M., 2015, Managing geological variability, AusIMM Bulletin June 2015, https://www.ausimmbulletin.com/feature/managing-geological-variability/

Matthews, G., 2015, The other half of the cost per tonne equation, AusIMM Bulletin October 2015, https://www.ausimmbulletin.com/feature/the-other-half-of-the-cost-per-tonne-equation/

 


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Posted in Mine Geology, Resource Geology.

7 Comments

  1. Great article. Being in Mining geology for nearly 30 years, including seven as geological lead (including a significant amount of work on metallurgy and geoetechnical sections), you have identified many issues that the Geologist needs to understand. Data collection (drilling) must be done at the earliest stages to the extent possible for each area of concern. Without the data, studies cannot proceed through bankable feasibility and therefore lose sometimes years to go back and redrill the same areas once again, at significant cost and lost market opportunities (miss the high cycle).
    Old mines make great opportunities for new mines. Never toss out old mining and geological records as this info provides the basis for ore today, what was waste before. Evaluating this old data can extend existing mines for years to come.

  2. Robert mentions a very important aspect of mine geology that is frequently overlooked – data collection as early in the mine schedule as practicable. The greatest culprit here is the use of blast holes as a source of grade data for ore control models. Sampling directly from blast hole rigs or from the remnant blast cones creates a legion of issues for the mine geology team, such as the following:

    – Data typically available only days before excavation begins
    – Any delay in assay turn-around times will delay production or provide an incomplete data set for grade models
    – Sample quality is generally poor, being both biased and inaccurate
    – Vertical holes may not suit the dip and strike of the mineralisation
    – Arbitrary sample intervals at the flitch or bench height are often inappropriate

    The solution to these problems is dedicated reverse circulation (RC) ore control drilling on a campaign basis. It should be scheduled as part of the mine plan, with hole spacing, orientation and sample length tailored to the deposit. The benefits of using this approach include the following:

    – High quality sample data
    – Sample resolution befitting the mining selectivity
    – Less manual and safer sampling practices
    – High resolution ore control models available well in advance of production
    – More accurate ore designs delivering quality ore to the plant
    – Variability (read risk) is better understood sooner

    Coupled with conditional simulation and a value based material classification algorithm (rather than by geological characteristics) the highest return can be achieve from the deposit. As Erik emphasises so well, the final decision is an economic one, bringing all parties into the fold to understand how the geology can be best exploited, for both the employee and shareholder alike.

    In my experience, combining campaign RC drilling with optimised conditional simulation models, a 5% to 35% increase in metal, tonnage or grade can be realised, with results consistent across a wide range of commodities and styles of mineralisation, including laterite and sulphide nickel, gold, copper-gold, copper, PGEs and iron ore (channel, BIF and magnetite).

    Keep up the great work, Erik. Mine geology gets no where near the attention it deserves given the huge rewards awaiting operations who embrace it in full.

  3. Good stuff Geordie! You’ve taken my article to the next level for sure! It’s unfortunately that the industry isn’t focused more on the economic benefits of Mine Geology. I have to point the finger back at ourselves as geos but there’s no better time than now to buck that trend. Here’s your call to action Mine Geos! Thanks for sharing this with everyone!

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