ECSI White Paper

29th October 1999

The Mine Planning Process Jon Barber Managing Director ECS International Pty Ltd
A mine is like a factory, which produces a product. For a mine, the product could be copper, gold or coal. Consider a factory producing light bulbs, the factory must produce light bulbs at the lowest possible cost to be competitive. This low cost is achieved by optimising the mix of the factors of production, labour and capital. This correct mix must be achieved on a long-term and a short-term basis. If in the long term, the right manufacturing equipment is not purchased, for example, the plant is under-capitalised with poor equipment, then costs may be prohibitive. Similarly, a plant could be over-capitalised using very elaborate equipment and cannot compete with production from a labour intensive, but low cost producer. In manufacturing cases, this mixture of capital and labour, once committed to, must be maintained on a daily basis. For example, equipment breakdowns which leave labour idle, must be managed by implementing regular and adequate maintenance programs. This day-to-day planning and control process is essential if the long-term goals of the factory are to be achieved. The mine is similar to a factory. The two major inputs - capital and labor - are the same. These are however, combined with a third resource; the geology and geography of the deposit. Nature provides to the mine or mining company, a deposit with certain attributes. Typically these attributes are the number of tonnes, the amount of waste and the attributes of the ore (quality or grade). In the long-term planning process, capital and labor should be optimised to the geological resource. Once the long-term plan is set, then on a daily basis planning needs to ensure the goal is achieved. Like a factory this involves daily planning, maintenance and resource allocation. Unfortunately however the geology and geography make this daily work complex. As Runge (1) points out: "Production from large manufacturing plants, as well as from most capital-intensive enterprises, is quite consistent from day to day, but all mines change from one day to the next. It is very difficult to establish enough consistency for new personnel to understand the operation well enough to operate efficiently." In the mine planning process three main stages of work are involved. These are geology, long-term planning and short term planning

Geology
The basis of all mine planning, whether short term or long term, is the geology. The geological resource differs of course depending on the type of mineral. Many metals deposits result from volcanic or hot fluid activities. This forms large bodies such as porphyry coppers or thin bodies such a vein gold and nickel. Coal, which this paper primarily concentrates on, is formed in swamps depositing woody material, which is subsequently buried and compacted into a high carbon content coal. Generally coal deposits are relatively flat lying and extend over substantial distances. This is true of most economic deposits in Australia and the USA. On occasions however, due to tectonic activity, particularly related to mountain building, the coal is deformed by faulting or folding. Examples include the Rocky Mountains of Canada and the United States. Small deposits in Australia are similarly deformed, but these are unusual. Two Australian mines, Leigh Creek and the CIM Stratford mine take advantage of these economic structures.

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The sequence of developing the geological understanding for use in mine planning is three phased, as shown in Figure 1. The result of this process is a geological model for use by the planners. Generally, the first phase involves collection of data; frequently referred to as exploration. Exploration involves surface mapping, chip sampling, drilling and remote sensing such as magnetics or non penetrative techniques such as seismic. In the exploration phase, the amount of data required and acquired is a function of the project stage and the budget appropriate to that stage. Early on in a project life a small number of holes will be drilled and the process of Figure 1 followed. These results and economics may, justify more data. The looping of this geological process is a common thread in this paper for mine planning. All exploration data is collated in the second stage - interpretation. This is one of the most important facets of geology. In a coal deposit, this requires the correlation of information from one drillhole to another. This is done by a process of connecting the dots or the signatures at each drillhole. Methods are available to automate this using signature or pattern recognition based on neural network and other artificial intelligence techniques. Downhole geophysical tools such as density, gamma and sonic logs are used to provide these signatures.
Figure 1: Geological Process

Data Collection

Correlation & Interpretation

Modelling

Model

A correlation is an interpretation of a deposit. Compared to exploration, correlation is quite cheap. Value can be added to a project by a good geological interpretation. In correlating coal seams, the geologist is implying that the coal exists in a hole between one depth and the next depth, and exists in adjacent holes. By joining these intervals or picks together, the correlation is turned into a model. The correlation or interpretation also implies, something about subsequent mining. Correlation can, for example, be based on bulk mining, or selective mining. This is illustrated in Figure 2. Mixing mining and correlation has some pitfalls. As a general rule, it is better to correlate at the lowest or thinnest unit possible. Subsequently, thin units can be combined into thicker seams or working sections. The geologist or engineer can then consider issues such as minimum mining height, inter-seam dilution and out of seam dilution. Where an interpretation uses a bulk seam scenario, such as illustrated in Figure 2b, these decisions are precluded. This comment is particularly true with changing technologies. For example, thin seam mining technology and practice is continually developing, and today's wasted thin seams may be mined tomorrow with future

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technology. or for underground operations where thinner seams may be mined using low height equipment the interpretation should be on the thin or ply basis. The decision to interpret as thin or thick is also critical for capital. As examples, the Camberwell and Lemington mines in New South Wales, maximise coal production by thin seam mining. In both cases this allows the wash plant throughput to be maximised.

Figure 2: Different Correlations

With Domain control tonnage is lower but grade higher

Without Domain control tonnage is higher but grade lower

The coal correlation methodology is equally applicable to bedded metal deposits such as gold, nickel, zinc or other sedimentary deposits such as phosphate. In many of these cases however, the correlation may be based on the grade rather than the geology. This is common in phosphate and zinc, where the correlation is one of economics, based on the percentage of TCP or zinc (Figure 3).

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Figure 3: Correlation on TCP Content

A1

A2
TCP

Correlation or interpretation is equally important in massive deposits such as porphyry copper. In these cases, a wireframing technique is usually applied. Here the wire outlines interpret the ore body. In a porphyry copper, this interpretation may bound the barren core from the high grade material. These interpretations on sections, are linked together to form a three dimensional solid body (Figure 4). These correlations for coal and interpretations for metals are effectively a model of deposit. The geologist has implied by his correlation, how he understands the geology.
Figure 4: Wire Frame

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The volume or tonnage of the deposit is a function of this interpretation. As mentioned earlier, interpretation is one area where value is added to a deposit. In the case of coal (Figure 5) an alternative interpretation A1 and A2 rather than A, will reduce the tonnage but increase the energy. This change may move the project from uneconomic to economic. As a rule in coal or metals the interpretation should be on the finest detail possible. The knowledge or experience to do this interpretation is critical. In some case the available data is insufficient to support this detail and can be supplemented with geological experience.
Figure 5: Alternative Interpretations

A1 A A2

The final stage in the geology process is generation of a model. Given an interpretation the model is relatively straight forward or mechanical. The model is passed to the engineers for planning.

Long Term Planning

The geological model provides a starting point to evaluate economics and to carry out mine planning. The long-term planning process is often referred to as strategic planning, feasibility or pre-feasibility studies. In long-term planning, decisions will be made about the output capacity of the operation, the major equipment items, and the design and sequence of moving through the deposit. Consider a simple, single seam open cut deposit as shown in Figure 6. Economics can be determined by estimating the cost of mining the overburden, cost of mining the coal and the cost of washing the coal. It is normal, for the economic evaluation to be carried out on an FOR basis (Free on Rail at the mine mouth) or FOB basis (Free on Board at a port), so comparison with competitors can be made.

Figure 6: Simple Coal Geology

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This first stage in mine evaluation is called ranking or costing. In this stage unit costs, such as $X per cubic metre, and unit revenues, such as $ per product tonne are used. Using Figure 6 again, costs can be summed vertically at any point on the section and revenue can be determined at each point. By division, a nett revenue per tonne is available. Obviously, as the coal gets deeper, costs rise, nett revenue falls and eventually goes negative. Ranking, of various types, is the first stage of the planning process. This process is shown in Figure 7. Maximisation of nett present value is the standard method of ranking projects or justifying capital. In Figure 6, NPV is maximised by mining the shallow profitable coal prior to the deeper coal. The simplistic ranking of Figure 6 also raises the issue of capital. For an operating cost of $2.00 per cubic metre, a set of equipment is implied. If a large dragline is implied then the volume of economic coal must be adequate to fully utilise the dragline. The selection of capital and operating costs is usually circular or iterative. An initial selection is made of equipment and costs and the volumes of waste and tonnages of economic coal are determined. Based on these results the initial equipment selection is modified to a larger or smaller unit as required and the process is repeated. This equipment selection process is implied in Figure 7.

Figure 7: Planning Process

Model

Rank

Design

Schedule

NPV

By contouring the economics ($/tonne) the best coal can be ranked above the poorer coal. Various other methods of ranking are also used. These include strip ratio usually measured as bcm of waste per tonne of insitu coal or more usefully per tonne of product coal. Product coal allows, of course, for both mining and processing losses. Another method of ranking is "pit optimisation". Pit optimisation was developed in 1964 by Lerchs and Grossmann (2) to evaluate the economic pit limits of 3D deposits such as phorphy coppers. In these cases the waste on the walls must be carried by the profit contribution from the ore removed. In the definition of the optimum pit a number of variables are critical. Example variables are wall slope, mining cost, metal price, mill recovery and mill cost. Ceritus paribus higher metal prices will result in a larger economic pit. As with the ranking in Figure 6, the pit optimizations assist in maximisation of NPV and capital selection. The capital selection process is iterative, for a particular set of costs, a mining and mill capacity is implied.

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The final economic pit based on these decisions may be too big or too small for the preselected equipment and a refined selection is made. Similarly, NPV is maximised by mining the best or most profitable material first. Usually incremental metal prices are optimised to generate "nested pits". The smallest nested pit is the most profitable and by mining from one nested pit to the next NPV is maximised. Pit optimisation is used in some coal mines. Its use is particularly common in deep open cut mines such as those in Colombia, Indonesia and the Rocky Mountains. The combination of many seams and steep dip provide opportunities on multiple subcrops to open profitable pits. The use of pit optimisers or economic ranking techniques, thus defines two facets of the mine. Firstly, at current economics the limit of the pits defined. Secondly, at lower sale prices or higher operating costs, incremental or sequential pits are defined. The sequence of these pits is an approximation to a mining schedule. One particularly interesting aspect of the nested optimised pits is termed resistance. Because of the geology (either grade or tonnes), certain sale price increments are disappointing in terms of incremental tonnes. In Figure 6, two obvious resistance points are the hills labelled A and B. Small incremental sale price increases (say 5%) will not push the mine through these hills. Some significant price increments (say 20%), will break through and possibly double the economic tonnage. These resistance points are very important for capital and scheduling decisions. The resistance point A (Figure 6) may present the planner with two mining options; a small contractor truck operation limited to the tonnes to the left of A or a large dragline operation limited to the tonnes left of B. Obviously capital and risks vary with each case. This concept of resistance is illustrated in Figure 8, a multi seam coal deposit is used. An optimiser is used to generated a series of structured pits. Costs are simple at $2.00/bcm and $3.00.tonne of coal. Revenue is $17 and $18/tonne. Two important points are illustrated in this case. Firstly a small changes in sale price, results in a large change in the optimum pit. This point is illustrated on the development of the left hand pit. Secondly there are resistance points between the two groups where the lower seam is too deep and uneconomic to carry the extra stripping.

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$17 price

$18 price

Resistance Points
Figure 8: Illustration of Resistance Points

The significance of the resistance points depends on the economics. If the ultimate sale price is $19 a tonne then the resistance points should be considered as final walls and used to develop ramps or other access. If the ultimate sale price is $30 then practical mining may suggest they be taken in the logical mining progression. The next stage in a mine planning process is to design a rational mine from the limits provided by the optimisation or ranking process. A rational mine will straighten curves or add detailed benches to increase safety. This process will make the mine slightly sub-optimal as profitable material is trimmed off the final wall or, poor material is taken. The mine economics will change by a small factor. Strip ratio will typically increase. This adjustment is normally a factor of the pit dimensions and shape. For small mines tonnes may fall by 10%. In large mines of say, 20-30 million tonnes of coal, the adjustment may be less than 1%. Losses in deep open cuts, which are conical in shape, will incur higher design losses than flat coal despots. This is due to the final ramp forcing the pit outwards and raising the ratios and lowering tonnes. The rational design limit is normally broken up for scheduling purposes into sensible mining blocks. These blocks are dimensioned according to the selected mining equipment, for example the size of the dragline and its reach. For a truck and shovel operation, the mining panel or block must give adequate working room for the complexity of the operation. In multi-seam, Hunter Valley operations, truck shovel mining is carried out at 200-250m strip widths to provide working room for the multiple seam mining. Dragline strips vary between 30 and 100m depending on the depth and the size of the equipment. The third major phase in the mine planning process is scheduling. Scheduling differs from optimisation and ranking in that it brings to the deposit a time component. The time required to mine a particular block

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is a function of the shift pattern worked and the capacity of the equipment. Time is also incurred between various operations. For example, mining would normally be preceded by drilling a blasting or in the case of coal, drilling and blasting and ripping. A variety of methods of scheduling are available. These include: Polygonal methods where the user digitises a polygon. Volumets and tonnages are calculated and the polygon is either accepted or rejected. Polygon methods are useful in flexible mines such as metals or large open pit coal where the working shapes are not pre-defined by the equipment or the mining sequence. In these cases, the polygon advance is both the schedule and the design. Block based methods which assume development in a series of regular blocks such as strips or panels. Volumes are determined for these blocks and stored in a database. During scheduling blocks or partial blocks are mined in a variety of methods. In this method, the design to a certain extent, pre-defines the schedule. Various methods are available with the block system for scheduling. These include iterative point and shoot methods and automatic methods.

The outcome of a schedule is a series of timed (yearly) volumes, tonnes and costs (equipment hours etc). These are the input to a budget and an NPV. In project evaluation, a common method is to calculate NPV or IRR. A project which meets a corporate threshold IRR or has a high NPV may be robust and approved. Another method of approval, (in addition to corporate thresholds) is relative cost curve position. A project that, by virtue of its costs or favorable geology is positioned low on the cost curve is relatively risk free. As commodity prices fall, these low cost producers will survive relative to higher costs producers. A common project approval criteria is that the new project be positioned in the lower 25% of the cost curve. The supply curve concept ranks the mines with the lowest at the bottom of the curve followed by the next least expensive mine. A cost curve is shown in Figure 11 for copper production from the United States. A cost curve should be constructed on some equitable basis. When comparing export steaming coal production, the equitable basis could be FOB Newcastle, for a standard calorific and moisture value. Thus mines, producing slightly different quality products or delivering over different rail freight distances are normalised at the common point. For phosphate the comparison may be on TCP value landed in the agricultural market of interest (Europe, Asia, USA).
Figure11: Cost Curve or Supply Curve

Price per tonne

Cumulative Tonnes

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Short Term Planning

As mentioned earlier the short term mine planning process is equivalent to the day to day running of a factory. Short term supervision and control is required to ensure that production is attained efficiently and cleanly. The short term process in mining will involve surveying, pegging of designs of ramps etc and layout of blast areas or grade control areas. Operator training in geology, selective mining, drill and blast, dilution and losses is also critical. The assumptions made in the long-term plan must be achieved. Some of these areas of control have been automated rapidly in the past ten years with the emergence of global positioning systems for survey and drill control. Truck dispatch systems have been implemented to improve truck utilization. These innovations result in better cost and quality control.

Software
The process of mine planning relies on a good geology and planning component. While the process has been discussed, two key ingredients; software and staff, allow it to happen. As commodity prices continue to fall, software, hardware and experienced staff provide a means to effect the planning more efficiently. In the past twenty years, the mining software industry has developed rapidly in parallel with the emergence of a faster and lower cost computers. Mining software has followed this hardware evolution using mini computers (1980's), RISC machines (1990's) and Windows NT (late 1990's). Each generation of hardware has offered improved speed and reduced costs. A number of trends are however of concern in this push for lower costs. In the Hunter Valley many mines have reduced core technical groups including geology, survey and mining engineering. Technology (e.g. GPS) and hardware have assisted this process of staff reductions. Mines do however, risk loss of corporate knowledge by loss of staff. A mining companies core asset is its geology and the wealth created by this geology. Loss of core knowledge is critical, and outsourcing geology and planning is questionable. Another associated trend is one of aging. Most mine technical groups in the Hunter Valley are on average over 40 years of age. This level of experience has assisted meet the need for lower costs. The concern is however that new graduates are not entering the industry; the log jam of senior staff and the drive for cost savings has reduced these opportunities.

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References
(1) Runge, Ian, C. 1998. (Chapter Name and Page Number quoted here). Mining Economics and Strategy. (2) Lerchs, H and Grossmann, I. F 1964. Transactions, C.I.M., Volume LXVIII, 1965, pp. 17-24 Optimum Design of Open-Pit Mines, Joint C.O.R.S and O.R.S.A. Conference, Montreal, May 27-29, 1964.

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