POST PIT OPTIMISATION

STRATEGIC ALIGNMENTPresented by:

MF Breed

Mining Business Optimisation

Conference 2015

Michiel Breed Daan van Heerden

Pr.Eng (Mining),

M.Eng (Project Management),

MSAIMM

Pr.Eng (Mining),

M.Comm. (Bus. Admin.),

FSAIMM, AMMSA

Authors

• Introduction

• Pit Optimisation

• Post Pit Optimisation – Aligning your strategy

• Post Pit Optimisation Process

• Pit Selection▫ Selection of Ultimate Pit

▫ Optimisation within Ultimate Pit

• Significance of Discount Rate

• Conclusions

Agenda

• It is common to select a optimal pit shell defining the mineral reserve without much further consideration

• Other strategic opportunities are being ignored?

• Small value compromise for significant strategic gain

Introduction

• The objective is to determine the maximum inventory of open pit minable reserves

▫ One of the methods, Lerchs and Grossmann algorithm utilised in many of the commercially available software packages

▫ Run various scenarios

▫ Typically Optimise Maximum Cash Flow

Pit Optimisation

Steps of the traditional open pit mine design process (Dagdelen 2001)

Pit O

ptim

isa

tio

n

• Strategic issues that could be considered:▫ Annual cash flow

▫ Life of mine

▫ Operating risk

▫ Technical, economic and political risks

▫ Product requirements (Blending Strategies)

• Where to focus post pit optimisation process?1. Selection of ‘Ultimate Pit’

2. Optimisation within the ultimate pit

Post Pit OptimisationAligning to your Strategy

Post Pit Optimisation Process

Pit O

ptim

isa

tio

n

Post Pit Optimisation ProcessP

it O

ptim

isa

tio

n

Pit Selection

-

1

2

3

4

5

6

7

-

5

10

15

20

25

30

35

40 P

it 1

Pit

6

Pit

11

Pit

16

Pit

21

Pit

26

Pit

31

Pit

36

Pit

41

Pit

46

Pit

51

Pit

56

Pit

61

Pit

66

Pit

71

Pit

76

Pit

81

Pit

86

Pit

91

Oth

er K

ey P

erfo

rman

ce I

nd

icat

ors

Val

ue

(exc

l. C

apit

al)

NPV (USDm) Life of Mine (x10 yrs) Annual CF (USDm) Average Grade (g/t)

Optimal Pit

Range of potential pits

Value

Compromise

Increase Life of Mine

Increase Annual CF

Selection of the Ultimate Pit

-300%

-250%

-200%

-150%

-100%

-50%

0%

50%

100%

150%

Pit

1

Pit

6

Pit

11

Pit

16

Pit

21

Pit

26

Pit

31

Pit

36

Pit

41

Pit

46

Pit

51

Pit

56

Pit

61

Pit

66

Pit

71

Pit

76

Pit

81

Pit

86

Pit

91

% M

ove

men

t fr

om

Op

tim

al P

it

% Movement from Optimal - Life of Mine % Move from Optimal - Annual CF NPV Variance%

Optimal Pit NPV

Reduced

NPV

Reduced

CF

Improved

LoM

Optimise within Ultimate Pit

50,000

90,000

130,000

170,000

210,000

250,000

290,000

330,000

370,000

- 0.21 0.42 0.64 0.85 1.06 1.27

Pro

du

ctio

n V

olu

me

Cut-off Grade

Production Volumes

Cut-off grade

Combined

Volume & Grade

Pro

du

ctio

n

Vo

lum

e

Va

lue

Cut-off Grade

Optimise within Ultimate Pit

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

- 0.20 0.40 0.60 0.80 1.00 1.20 1.40

% Movement from Optimal - Life of Mine % Move from Optimal - Annual CF NPV Variance%

Optimal Pit Cut-off

Reduced

NPV

Reduced

LoM

Improved

CF

Improved

LoM

Reduced

NPV & CF

Significance of Discount Rate

0

10

20

30

40

50

60

Pit

1

Pit

6

Pit

11

Pit

16

Pit

21

Pit

26

Pit

31

Pit

36

Pit

41

Pit

46

Pit

51

Pit

56

Pit

61

Pit

66

Pit

71

Pit

76

Pit

81

Pit

86

Pit

91

Val

ue

(NP

V e

xcl.

Cap

ital

)

0% Discount Rate 5% Discount Rate 10% Discount Rate 15% Discount Rate

Significance of Discount Rate

90%

91%

92%

93%

94%

95%

96%

97%

98%

99%

100%

NPV @ 0% NPV @ 5% NPV @ 10% NPV @ 15%

Per

cen

tage

rel

ativ

e to

max

imu

m t

he

valu

e at

th

e sp

ecif

ic

dis

cou

nt

rate

Pit 15 Pit 17 Pit 20 Pit 23

NPV @

0%

NPV @

5%

NPV @

10%

NPV @

15%

Pit 15 55.05 35.41 24.69 18.38

Pit 17 58.57 36.52 24.96 18.35

Pit 20 59.35 36.61 24.85 18.21

Pit 23 59.84 36.30 24.39 17.77

• Pit optimisation is a iterative process further future analysis after the initial pit optimisations can add strategic gain

• Changes to the optimisation input parameters, specifically the discount rate, without due process may have a significant impact on the pit selection

• Understanding the sensitivities will reduce the risk of executing a sub-optimal life of mine plan

Conclusion

c/o Hendrik Potgieter & van Staden Roads

Little Falls. Roodepoort

Tel: +27 11 958 2899

reception@minxcon.co.za

www.minxcon.co.za