It is an interesting fact that many strategic mining decisions are made without properly assessing the consequences of those decisions. Below are some examples of the experiences of ASEAMCO staff in assisting mining operations to overcome the problems which resulted from poor strategic decisions.
The common thread throughout was a failure, at least initially, to adequately assess the consequences of the decisions.
Below are some specific examples from projects involving ASEAMCO staff.
A – Coal Projects
- A coal mine in Australia
Scenario
A long term mine plan had been prepared for each of two open cuts. Open Cut 1, which was currently being operated, had a strip ratio of 8 bank cubic metres per tonne of coal (bcm/t). Open Cut 2, which was planned to be developed with the next 2 years, had an initial strip ratio of 2 bcm/t. The economic limit was 10bcm/t.
The available equipment could meet the increased production requirements at the average strip ratio of 5 bcm/t.
However mining in Open Cut 2 was not yet approved but because the average production rate over the next 4 years called for a strip ratio of 5 bcm/t it was assumed that the existing equipment would be adequate.
Unfortunately when a mine has sufficient equipment to mine at a strip ratio of 5 bcm/t but is faced with a block that has a strip ratio of 8 bcm/t, it is immediately apparent that production targets will not be met.
Fortunately in this case the dragline had excess stripping capacity, while the shovel used to mine coal had a very low utilisation.
Main Issue
Using average values assumed that a large waste volume could be pushed back in time.
Advice
A new mine plan was created in which the shovel used to mine coal was fitted with a rock bucket and deployed to augment the other equipment mining prestrip waste . The waste haulage trucks, instead of hauling waste around the pit into the dragline spoil dump, dumped the prestrip waste into the dragline strip. This ensured that there were enough trucks to handle the increased prestrip waste loading capacity. The dragline rehandled the additional material on its second pass. This strategy increased prestrip capacity while maintaining the same coal output.
Management Decision
Implement the new mine plan.
Result
The mine was able to deliver product at the contracted rate without having to engage external contractors.
- A coal mine in Indonesia
Scenario
Two open cuts were operating both with similar “reserves”. Pit 1 was being mined at a strip ratio which produced a margin of $10/tonne over the life of the mine. Pit 2 was being mined at a strip ratio which produced a margin of -$5/tonne over the life of the mine.
Main Issue
Using average values.
Advice
Only mine Pit 1 as long as coal prices prevent coal from Pit 2 from making a profit.
Management Decision
Mine both pits because “on average” we still make money. As the saying goes: “you can lead a horse to water, but you can’t make it drink”.
Result
The company made about half as much profit as it could have done, had it followed the advice.
- A coal mine in Indonesia
Scenario
Coal prices fell to an extent which made the mining of several pits uneconomic. A management directive was made to reduce the average strip ratio but to dump waste so that future potentially recoverable resources would not be sterilized. This was interpreted by both the in-house technical services department and an external consultant as “do not dump against the highwall in the pits which are not currently being mined”. Consequently the waste haulage distance for the remaining operating pits increased from 1000m to 2900m which increased costs by more than $3 per tonne.
Main Issue
Assuming that waste dumped against the highwall in the currently uneconomic pits would sterilize future potentially recoverable resources.
Advice
Reconsider the decision to not dump against the highwall in the currently uneconomic pits. This was because if waste were to be dumped against the highwall in the currently uneconomic pits the rehandling of this waste would only cost about $1 per tonne. This would save more than $2 per tonne if sale prices did improve and $3 per tonne if sale prices did not improve.
Management Decision
Continued with the advice given by the external consultant.
Result
The mine was sold at a fire sale price.
- A coal mine in Australia
Scenario
A mine was being offered for sale. A member of ASEAMCO’s staff had been engaged to provide technical advice to one of the parties interested in making a bid for the mine. During the site visit it was observed that the pit was being accessed by a central ramp; the basal seam was dipping and the topography ahead of mining was rising; and the pit was becoming wider.
Questioning of a member of the technical services staff revealed that the waste balance had only been scheduled for two years out and that the dumps were already at environmental limits in terms of height and lateral extents.
Main Issue
It appeared to ASEAMCO’s staff member that the mine would run out of waste dumping space in a little over two years.
Advice
After consultation with the due diligence team the question regarding dump space was asked at the bidders’ forum. The suggestion was rejected by the vendor.
Management Decision
A lower price was offered by the client after taking into account the looming problem with waste dump space.
Result
The mine was subsequently sold to a different bidder. Almost two years to the day later, ASEAMCO received a call from the successful bidder for the mine requesting assistance with solving the problem of lack of dump space. ASEAMCO provided assistance with solving the problem.
- A coal mine in Australia
Scenario
ASEAMCO was commissioned to undertake a dragline study for a project to determine the most efficient means of mining through a substantial hill which existed at one end of the current strip layout. Initial analysis by ASEAMCO showed that it was not economically viable to mine through the hill. When ASEAMCO reported this, mine management stated that they believed that it would cost less to mine through the hill than to extend the strip by opening a new boxcut on the other side of the hill and that “on average” the mine would be more profitable by mining through the hill.
Main Issue
The assumption that, being a large corporation, it was acceptable to lose money for a time because “on average” the mine would still be profitable.
Advice
ASEAMCO suggested a change to the scope of work to make the priority an assessment of the relative merits of the two approaches.
Management Decision
The change of scope was accepted.
Result
Mining did not proceed through the hill. Instead, after the pit had progressed to a point beyond the hill, the mining strip was extended by opening a new boxcut.
- A coal mine in Australia
Scenario
While undertaking other planning work at a mine, a member of ASEAMCO’s staff noticed that many thin seams were being removed in individual slices. As each slice was being removed there was unavoidable loss and dilution at each coal/rock interface. This raised the question of whether it would be more economical to bulk mine combinations of these seams in at least some locations.
A preliminary analysis was undertaken, at no cost to the client, to investigate this possibility. The analysis examined mining costs as a function of thickness, recovery, dilution, coal haulage, coal processing, waste dumping and rejects disposal. This analysis showed that in certain situations it was more economical to bulk mine rather than to mine individual seams. Many mines operate using a rule of thumb to determine the minimum separable coal and parting thicknesses. What was surprising was that the analysis showed that applying the accepted rules of thumb would so often result in substantially sub-optimal outcomes for the mine.
Main Issue
The assumption that the rules of thumb regarding the minimum separable coal and parting thicknesses were correct.
Advice
It was suggested to the mine that applying a computer software solution to the problem of minimum separable coal and parting thicknesses would likely provide a substantial improvement to the profitability of the mine.
Management Decision
Management commissioned a detailed study to determine how and where the various seams in the pit should be composited.
Result
- Total coal recovery improved from 90.5% to 95.5%
- ROM tonnes increased by 14.2% due to additional dilution
- Product yield reduced from 66.5% to 61.7%
- Product tonnes increased by 5.9% due to improved seam recovery
- Cost per product tonne reduced by 9% due to reduced mining costs and increased seam recovery
- EBITDA increased by 7.1% with no changes to mining equipment or manning
ASEAMCO now applies optimal seam compositing software techniques on client projects.
B – Metals Projects
- An underground gold project in Indonesia
Scenario
The project consisted of two underground mines. Both of these were acessed by declines. ASEAMCO was commissioned to assess the alternatives to determine the best approach to increase production.
Main Issue
Total production was reducing due to limited haulage capacity and poor equipment allocation.
Advice
Both short-term and long-term situations were considered which resulted in the assessment of five scenarios. Linear programming was applied to determine the best solution to the problem.
Management Decision
Management followed ASEAMCO’s advice and, in the short term, redeployed equipment while for the longer term additional trucks were purchased.
Result
Production output increased immediately and, following the introduction of the additional trucking capacity, record production was achieved.
- A graphite project in Indonesia
Scenario
One of ASEAMCO’s clients was approached by the owner of a tenement containing graphite with a view to selling an interest in the deposit. The client engaged ASEAMCO to assess the deposit to determine its value.
Main Issue
The main isuues were that the prefeasibility study provided by the vendor had unrealistically low operating costs and unrealistically high sale prices which led to the asking price being an order of magnitude greater than the estimated value.
Advice
Do not invest in this project.
Management Decision
Management followed ASEAMCO’s advice and decided not to invest in the project.
Result
The client avoided a poor investment.
- An open cut silica project in Australia
Scenario
An overseas investor was interested in exploring the potential for developing a vertically integrated business for the production of solar panels. ASEAMCO was commissioned to locate suitable deposits of silicon dioxide in Australia on either an acquisition or farm-in basis.
Main Issue
Finding suitable deposits of silica which met the required specifications and which where either available for pegging or for farm-in.
Advice
The major portion of value adding in the production of solar panels is between silicon metal and the finished product rather than between silica and silicon metal. Consequently, after consultation, it was recommended to buy silicon metal rather than mining silica and producing silicon metal.
Management Decision
Follow ASEAMCO’s advice and pursue the production of solar panels using purchased silicon metal.
Result
The substantial capital investment required to convert silica to silicon metal was avoided.
- A potential porphyry copper project in Indonesia
Scenario
A potential porphyry copper deposit had been identified and partially explored. ASEAMCO was commissioned to assess the mining potential for the deposit.
Main Issue
Relatively low grade and tonnage meant that the project was only viable if the bullish trends for gold and copper were maintained.
Advice
A risk analysis involving capital and operating costs vs metal prices showed that the project was only viable if the bullish trends for gold and copper were maintained.
Management Decision
Follow ASEAMCO’s advice and rank this project against other projects in the portfolio before committing to any further expenditure.
Result
Capital expenditure was allocated in the most efficient manner while minimizing risk.
