POSTED AUGUST 2015

The role of mine planning in high performance

By Andrew Hall
MAusIMM,
Director/Principal
Consultant and
Brian Hall
FAusIMM,
Principal Mining
Engineer, AMC
Consultants Pty
Ltd

A holistic approach to mine planning can create value and present opportunities for both new and
existing projects

Mine planning plays an often understated but nonetheless essential role in the achievement of high
performance. By identifying the potential value in the given mineral resources, and providing a practical
and realistic optimal strategy for extraction that considers all the material options and scenarios, a good
mine planning process provides the foundation for high performance. In this strategic context, high
performance is not synonymous with having a low cost per tonne or high equipment productivity, but
rather it is defined by creating the most value for a mine’s stakeholders. A high-performance mine is one
that has an optimized strategy and aligns its operations with strategic intent.
The reduction in mining productivity both on a volume and cost basis during the mining boom, coupled
with the lower commodity prices and reduced investor confidence that has prevailed in recent years, has
resulted in an industry-wide focus on increasing productivity and reducing costs. Such measures were
necessary to address the rapid decline in commodity prices and investor confidence, and also the
inefficiencies that had become the norm during a sustained period of high minerals prices. But it is a
focus on value creation that potentially offers miners the most opportunity to improve overall
performance and maintain their competitiveness.

The link between mine planning and high performance

There is a clear link between mine planning and high performance. Mining projects are unique due to
their finite project life and the inherent uncertainty associated with technical factors such as the natural
variability in orebody geometry and grade, ground conditions and rock properties, and the presence of
different ore types and the associated metallurgical implications, to name just a few. Economic factors
such as variable minerals prices and exchange rates also have major implications on the performance of
mining projects. These uncertainties mean that the effective management of risk requires more rigorous
economic and technical assessment than in many other industries.
Significant time is often required between the identification of a mineral resource and its conversion to
an ore reserve and eventual extraction as a saleable product. Once the key strategic decisions have been
made – that is, regarding the mining method, production rate, and cut-off grade (or ‘cut-off’) – it is often
difficult to change the strategy. So, it is important that the strategy is sound in the long-term. Further, no
amount of productivity improvement or cost reduction will maximize value if the mine plan being
implemented is suboptimal.
From an operations perspective, the root cause of low productivity ‘at the face’ is often attributable to
either inadequate consideration of the technical and operational factors during the development of the
mine plan, or poor compliance with the mine plan. For example, it is quite common to observe a
shortage of working areas at operations due to a lack of waste stripping or mine development. Measures
to reduce costs, such as reducing cut-back widths and reducing or delaying mine development, can result
in equipment not being able to operate efficiently due to the large number of sequential and interrelated
mining activities. Further, efforts to increase productivity or reduce costs, where compliance with the
mine plan is poor, can lead to the prioritization of mining low-grade material that is readily available
rather than higher-grade material that will add value.
Good mine planning leads to high productivity by both maximizing the ability to work and, when work
is being undertaken, by providing an environment that is conducive to high productivity. This is
achieved through a combination of discipline in adhering to the mine plan, providing adequate buffering
in the form of technical knowledge, ore stocks, and mining capacity in upstream and downstream
activities to effectively manage uncertainty and normal variability, and enabling high productivity.
High performance is primarily achieved by ensuring that an optimized mine plan, which is both practical
and achievable, is being implemented as efficiently as possible. Ultimately, the major focus of the mine
should be to deliver the physical targets (such as ore tonnes and grade, waste development, and backfill)
in accordance with the mine plan and within the cost and other constraints set out in the business plan. In
addition, the mine’s ability to deliver its future key performance targets should not be compromised.

Developing the optimal mine plan

To develop the optimal mine plan, first it is necessary to define the measures of value that represent the
corporate goals. Net Present Value (NPV) is the most common parameter considered when undertaking
project evaluation and determining strategy. Most companies, however, have multiple, and often
conflicting, corporate goals, so other measures are frequently evaluated.
It is noted that most feasibility studies and life-of-mine or expansion plans merely demonstrate that a
particular option for project development is technically and economically viable. If the project as
defined by the study is apparently healthy and robust, there will typically not be any attempt to find a set
of options that provides a significantly better outcome. Although it is common to hear that a project
being developed after a favourable feasibility study is being ‘optimized’, this typically takes the form of
finding better or cheaper ways of implementing the strategy identified by study. It rarely seeks to find a
different and better strategy, or one that creates the most long-term value over the range of likely
economic and technical scenarios. Most mine plans are therefore based on a strategy that has been (at
some time, but not necessarily recently) demonstrated to generate an acceptable positive NPV, but not
on a strategy which has been demonstrated to maximize NPV or any other measure of ‘value’.
Minimization of risk may be considered qualitatively, but it is rarely quantified and included in the
formal determination of the ‘best’ option. This is unfortunate given the uncertainties surrounding mining
projects, particularly if evaluation is conducted at the peak of the mineral price cycle. It may help to
explain the rapid expansion at any cost which invariably occurs during such peak periods.

The ‘Hill of Value’ approach to mine optimization

The ‘Hill of Value’ approach to mine optimization has been developed to enable the identification of the
optimal mine plan.
The mine optimization process using the Hill of Value approach is in principle no different from any
other life-of-mine study that a technically competent mine planning team would conduct, except for the
large number of combinations of mining options tested under a comprehensive range of input scenarios.
This approach allows a thorough and rigorous assessment of the various options under the full range of
likely scenarios to be investigated, and allows a robust ‘optimal’ solution to be identified.
To achieve this, the Hill of Value evaluation model needs to be substantially more flexible than those
typically used for a ‘single scenario’ study. As with any study of this nature, various levels of detail and
accuracy may be specified. Typically, a less accurate higher-level study may be conducted first to
identify the most likely value maximization strategies. This may be followed by a more detailed study of
a smaller number of options if deemed necessary. Figure 1 is a Hill of Value from a real study, and it
demonstrates the concepts of the technique.

The importance of cut-off grade

For a given mineral deposit in a given social and economic environment, and with the existing
infrastructure, the major parameters that a mining company can make independent decisions about are
typically the mining method(s), mining sequencing, production rate, and cut-off. Since the size and
shape of the orebody and hence possible mining methods and the range of feasible production rates may
vary significantly with cut-off, it is often the cut-off that is the key driver of value of the operation.
Once decisions regarding cut-off (and mining method and production rate) have been made, most other
factors are then to a large extent determined. Physical factors such as mining layouts and treatment plant
design, and the capacities of various stages of the production process from mine to market, will be
known. Resulting from these are financial factors such as initial or expansion capital expenditure
requirements, staffing requirements, and all the various components of the operating cost structure.
Mine optimization should be conducted as early in the mine-planning process as possible to minimize
the risk of locking in a suboptimal plan and losing an opportunity to create value.

Study components
The following discussion summarizes key aspects of various study components, with particular
reference to how they may need to be handled for an optimization and risk management study where this
differs from a typical single or limited scenario study. These matters are discussed in more detail in Hall
and Hall’s 2006 Doing the Right Things Right – Identifying and Implementing the Mine Plan that
Delivers the Corporate Goals.
Geology
A reasonably reliable model of the mineralization for the range of cut-offs to be investigated must be
created.
Mining parameters
Having acquired a suitable geological model, it is then necessary to generate orebody outlines at each
cut-off. For an underground mine, it is necessary to identify suitable potential mining methods at each
cut-off. Realistic mining shapes can be designed for each of these. For open pits, bulk or selective
mining methods may be indicated at different cut-offs. Conceptual mine designs and schedules must
then be developed for selected representative cases.
Metallurgical parameters
Recovery relationships must be specified for the range of cut-offs to be evaluated. Other parameters that
may vary with treatment plant feed quality may need to be identified. Constraints at various stages of the
metallurgical process need to be specified, along with the actions required to remove them.
Operating costs
Several different categories of costs need to be identified, together with the physical parameters, or cost
drivers, on which they depend. Fixed and variable cost components and their physical drivers over the
full range of activity levels to be investigated must be identified.
Sustaining capital costs
Several different types of ongoing or sustaining capital expenditure may need to be identified and
handled appropriately.
De-bottlenecking or project capital
This is typically proposed to increase capacity in some part of the production system, or to improve
product quality. Project capital expenditure should be justified on the basis of the difference in
maximum values obtainable with and without the expenditure, and not on the basis of the difference in
values at a fixed cut-off or production rate. Failure to recognize this principle may result in loss of
potential value or increase in financial and economic risk.
Risk analysis
Once a suitable evaluation model has been developed, it can be used to generate much more useful
information than just Hills of Value. It becomes a significant risk assessment and management tool for
project viability and profitability.

The trade-off between risk and reward

Figure 2 shows Value vs Cut-off curves for two different metal price predictions. What cut-off strategy
should the operation adopt? The temptation is to select the cut-off that maximizes the value at the higher
price, since this clearly maximizes value overall. However, the figure shows that if a higher cut-off to
maximize value at the lower price is selected, and the higher price then occurs, most of the potential
increase in value is obtained anyway. The real gain obtained by selecting the lower cut-off (to maximize
value with the higher price) is in fact quite small. But if the lower cut-off that maximizes value at the
higher price is selected, and the lower price then occurs, the loss may be substantial. Typically, the
lower the cut-off selected, the greater the risk.

The trade-off between risk and reward evident in Figure 2 and will be dependent on the shapes of the
Hills of Value, and these will obviously vary from project to project. The magnitudes of the risks and
rewards flowing from cut-off policy selection have a direct and major impact on the value and financial
strength of the company, and must be a matter for board consideration and decision-making.

Efficient implementation of the optimal mine plan

A comprehensive and integrated mine planning process is essential to the development, and efficient
implementation, of the optimal mine plan. The process should encompass strategic, business and
operational mine planning and fully integrate all stakeholders – including management, geology, mine
technical services, processing, maintenance, and production – such that the operations are aligned with
the optimal mine plan.
To achieve the desired outcome, mine planning can be considered on three sequential, but integrated,
levels:

1. Strategic planning: an overall plan to maximize the value from the exploitation of the known and
anticipated mineralization. This should identify the optimal mine plan.
2. Business planning: comprising two components – long-term and medium-term planning, both
linked to the strategic plan but more detailed. Typically business planning incorporates the
annual budget through to the five-year business plan.
3. Operational planning: detailed plans – including the rolling three-month forecast and monthly,
weekly and daily equipment plans – which guide the operation to achieve the business targets
detailed in the budget.

To ensure that the mine plan is practical and reasonable, a good mine planning process is aligned
throughout and incorporates comprehensive technical knowledge and extensive interaction with the
various technical disciplines and stakeholders. The detailed inputs and interactions will vary depending
on the level of detail of the mine plan under preparation but broadly will entail management, geology,
geotechnical, metallurgical, marketing, maintenance (fixed and mobile plant), infrastructure, production,
mine technical services, and social and environmental considerations. The primary objective of a good
mine planning process is to direct the implementation of the optimal mine plan, as efficiently as
possible.
A good mine planning process makes effective use of the rapidly developing mine planning software
that enable mineable shapes to be rapidly developed, schedules to be readily updated, and numerous
options and scenarios to be evaluated relatively quickly. The increased integration between the mine
design and scheduling software also readily allows visual inspection and interrogation of the mine plan.
However, the limitations of such software tools must also be understood. For example, all mine planning
tools have strengths and weaknesses, with some better suited to strategic applications and others more
suited to the development of detailed operational plans. The best results are achieved by selecting the
most appropriate tool for the specific requirements of the mine plan being prepared, rather than using a
one-size-fits-all approach.
Introducing a rigorous mine planning process that is aligned with the mine operations will often lead to
reduced variability, and also volatility. Thus, while productivity and efficiency improvements may be
the best way to reduce costs in the short-term, such measures should not compromise compliance with
the mine plan.
Compliance with the mine plan is critical to value creation. Reconciliation between planned and actual
performance should be regularly measured and monitored. Non-compliance should be critically
reviewed by all stakeholders and appropriate actions should be taken to minimize future deviations, and
where necessary re-calibrate the mine plan if greater knowledge results in material changes to input
parameters.
The monitoring of compliance with the mine plan should consider spatial as well quality and quantity
aspects. It is important to identify where material has been mined to facilitate thorough reconciliation
and to ensure that the progress of mine development, which enables access to future ore sources, is
adequate to meet longer-term strategic targets.
Conclusion
Value creation through the development and efficient implementation of an optimal mine plan is a major
opportunity within the mining industry today. The concepts presented above are not new or indeed
particularly innovative. However, a holistic, rigorous, disciplined and integrated approach to mine
planning, as described, can transform mining operations and create value. This is true for existing
projects as well as new projects.
The establishment of good mine planning and related technical practices is an essential component of a
high-performance mine – and it is an area that the authors believe that the minerals industry, in general,
is not exploiting to its full potential. In some cases, there are gaps in understanding the driving factors
behind developing an optimal mine plan that truly maximizes value. In other cases, there might be a
robust plan in place, but it is not implemented effectively.
Aligning mine operations with an optimized mine plan provides a substantial opportunity to create value
and achieve a sustainable competitive advantage within the minerals industry. AMC can assist in this
area, with its considerable expertise in all facets of mine planning and well-established tools for
diagnosing gaps in mine planning processes and identifying potential areas for value creation (such as
the Hill of Value approach outlined in this article).

References
Hall A and Hall B, 2006. Doing the Right Things Right – Identifying and Implementing the Mine Plan
that Delivers the Corporate Goals, in Proceedings International Mine Management Conference
2006 (The Australian Institute of Mining and Metallurgy: Melbourne).
Hall B, 2014. Cut-off Grades and Optimizing the Strategic Mine Plan, Spectrum Series 20 (The
Australian Institute of Mining and Metallurgy: Melbourne)