CHANGE OF SUPPORT AND USE OF ECONOMIC PARAMETERS FOR BLOCK SELECTION

IAN M GLACKEN Department of Geological and Environmental Sciences Stanford University, Stanford, CA 94305-2115, USAy

Some traditional change of support approaches are limited by strict assumptions and severe limitations, and provide only global correction. Local change of support and full characterization of uncertainty is provided by conditional simulation at the point level and linear averaging for block values. The LU formalism provides exibility and speed for grade control applications. Loss function theory is developed to embrace maximization of pro ts associated with block selection. The ensuing pro t function incorporates cost, recovery, and revenue parameters and is further adaptable to varying risk pro les. A case study compares block selection based on simulation and pro t functions to deterministic selection based on kriged block grades.

Abstract

1. Introduction
The change of support, whereby samples de ned on one supportvolume are used to estimate blocks de ned on a di erent, usually larger, support, is still a critical issue, particularly in the mining industry. Ignoring the change of support typically results in poor prediction of actual recovered reserves, with overestimation of high block grades and underestimation of low block grades by point grades. This problem was identi ed early and received much attention from the geostatistical community in the 1970s and early 1980s. A number of change of support algorithms were devised;
y Current address: WMC Resources Ltd, 250 St. Georges Terrace, Perth 6000, Australia.

these include the a ne correction, permanence of distribution methods, the indirect lognormal correction, and the discrete Gaussian model Journel and Huijbregts, 1978; Isaaks and Srivastava, 1989. Many of these methods have strict assumptions and limitations, such as the adoption of the same distribution shape for points and blocks, excessive reduction of skewness, non-preservation of secondary modes, or lack of robustness. In addition, many of the early approaches were global, in that there was no consideration of local data speci c to each block, and only a single estimated block value is returned - a value subject to smoothing and conditional bias. In the eld of non-linear geostatistics, local change of support has been achieved using disjunctive kriging with the discrete Gaussian or isofactorial models Matheron, 1976.Verly 1984 examined the change of support under the multiGaussian model. If a distribution of values modeling the uncertainty speci c to each block were available it would be possible to specify an estimate based upon any optimization criteria appropriate to the particular situation, not just the speci c least-squared error criterion characteristic of kriging. One way of achieving this is by conditional simulation.

2. Change of support by conditional simulation

Stochastic simulation has the property of returning a probability distribution of values a conditional cdf or ccdf modeling the uncertainty at unsampled locations. Furthermore, this distribution may be made conditional to data Journel, 1974. Generated over the entire deposit or area of interest any single realization approximates both the single-point histogram and two-point variogram statistics of input values. The use of conditional simulation for change of support was proposed by Deutsch and Journel 1992 and by Journel 1993. The principle is to simulate point values at the sub-block discretization scale and then average these to yield a block value so long as the variable averages linearly. Over many realizations a block ccdf may be derived. G mez-Hern ndez o a 1991 explored the change of support upscaling of non-linear averaging variables. While almost any conditional simulation technique may be adapted to this purpose, the LU formalism is particularly appropriate Davis, 1987; Alabert, 1987. This algorithm relies on the decomposition of a single covariance matrix relating data and nodal values. Since additional realizations are obtained merely by drawing a vector of standard normal random numbers, the method is fast, and is suited to situations calling for many realizations of small size with relatively few conditioning data. The algorithm is implemented sequentially for each block with its speci c conditioning data.

While preserving the covariance between point values discretizing any one block, the technique does not reproduce the covariance between independently simulated blocks. It is therefore ideally suited to grade control under free selection, considering one block at a time.

3. Pro t and loss functions

Point averaging over many realizations results in a ccdf for each block. However, most applications call for a single value to be retained. One way to obtain this value is by use of loss functions. The principle is that any value selected other than the unknown true value will incur a loss, which may be expressed as a function of any number of known parameters in addition to the unknown true value z u and the retained estimate z u. For any given ccdf it is possible to determine the value which minimizes the expected loss. This is often termed the L-optimal value Journel, 1989. In a grade control context there are two operations of interest - block selection, and grade determination for those blocks selected.
BLOCK SELECTION INCORPORATING ECONOMIC PARAMETERS Block selection is typically carried out by comparing a deterministic cut-o grade zc  against an estimated block grade. De ne the marginal cut-o grade, zc , as that grade where the cost of mining and treating material is equivalent to the revenue from the metal recovered, that is:

zc = pc
tr where ct is the unit treatment cost, p is the metal price per concentration unit per gram, ounce, etc., and r is the fractional recovery associated with

mining and treatment. Note that this particular de nition assumes that all material must be removed, whether as ore or waste, and thus ore and waste mining costs do not enter into the expression; alternatively, they may be assumed equal, and cancel out. De ne two indicators associated with block selection: i u, such that: iu = 1 if the block is selected, 1 0 otherwise and iu; zc, as: 1 if the true block grade z u 0 otherwise There are then four scenarios for block selection:

iu; zc =

than zc ;

2

1. Correct acceptance: Accept the block iu = 1 and the true grade is greater than the cut-o grade, that is z u zc and iu; zc = 1. 2. False acceptance: Accept the block iu = 1 and the true grade is lower than the cut-o grade, that is z u  zc and iu; zc = 0. 3. Correct rejection: The block is rejected iu = 0 and the true grade is lower than the cut-o grade, that is z u  zc and iu; zc = 0. 4. False rejection: Reject the block iu = 0 and the true grade is greater than the cut-o grade, that is z u zc and iu; zc = 1. Scenario 1 will generate a pro t or positive cash ow, scenarios 2 and 4 will involve a loss, and scenario 3 neither pro t or loss. De ning a pro t function, Pj z u, j = 1; : : :; 4, and noting that negative pro t equals loss, leads to: , Correct acceptance: P1zu = p
rzu , ct, P1zu 0 , False acceptance: P2zu = !p
rzu , ct, P2zu 0, and ! 0. ! is a positive coe cient quantifying the impact of loss, and is directly related to the risk-aversion pro le of the mining company. , Correct rejection: P3zu = 0 , False rejection: P4zu = !0ct , p
rzu = ,!0p
rzu,ct  0, ! 0  0. This expression involves the opportunity cost of lost revenue for rejected ore blocks. ! 0 is proportional to the willingness of a company or government to accept wasting resources through false rejection of ore blocks. De ning the pro t function for block selection, P = P iu; z u; zc, the four scenarios may be combined as:

P iu; z u; zc = iuiu; zcp
rz u , ct 3 +i u 1 , iu; zc ! p
rz u , ct , 1 , iu iu; zc! 0 p
rz u , ct
Replacing the true grade z u with the random variable Z u, the indicator iu; zc with I u; zc, and de ning the expected value of the function P : as 'iu; zc = E fP iu; Z u; zcjng, with n representing conditional data in the neighborhood of location u:

'iu; zc = iuE fI u; zcg p
rE fZ ujZ u zc; ng , ct 4 uE f1 , I u; zcg! p
rE fZ ujZ u  zc ; ng , ct + i , 1 , iu E fI u; zcg!0 p
rE fZ ujZ u zc; ng , ct
Introducing the two truncated means, m+ and m, , de ned as:

m+zc = E fZ ujZ u zc; ng m,zc = E fZ ujZ u  zc; ng

and the cdf value  zc  = ProbfZ u zc jng, expression 4 may be rewritten as:

'iu; zc = i uzc p
rm+ zc  , ct + i u 1 ,  zc  !p
rm, zc  , !ct , 1 , iu zc !0p
rm+zc , !0ct

5

The expected pro t de ned in 5 has two expressions, corresponding to the two values iu = 1 acceptance and iu = 0 rejection:

'1; zc = zc p
rm+ zc , ct + 1 , zc !p
rm, zc  , !ct '0; zc = , zc  !0p
rm+ zc  , ! 0 ct Blocks are selected if the expected pro t for acceptance '1; zc is no less than the expected pro t for rejection '0; zc. In other words: Select iu = 1 if '1; zc  '0; zc 6
expanding 6 and rearranging terms leads to the following result: Select iu = 1 if !
rm,  zc   p
r 1 + ! 0m+ zct, p!m, zzc , c 1 , ! + ! 0 2 0; 1 c , c t

7

The right-hand side of 7 is a probability threshold; blocks are selected if  zc, the probability of exceeding the cut-o grade, is greater than this threshold. De ning now expected pro t P + and expected loss P , as: P + = p
rm+zc  , ct : pro t if Z u zc P , = ct , p
rm, zc : loss if Z u  zc expression 7 simpli es to:
, zc  !P , +!P + ! 0 P + 2 0; 1 1

This depicts the right-hand side of the inequality 7 as a relative expected loss factored by the two loss coe cients, ! and ! 0 . Increasing ! increasing risk-aversion makes block selection more di cult, while increasing ! 0 increasing tolerance for false rejection makes block selection easier. Thus the traditional process of block selection using a deterministic cuto grade and a single estimate has been replaced by a probabilistic approach involving the comparison of the probability for the block to exceed the cut-o grade to a threshold probability accounting for both the economic

parameters and the uncertainty about the block grade. Note that at no stage does this approach call for a grade estimate.
OPTIMAL GRADE DETERMINATION Once selected using the pro t loss function described above, blocks are allocated an L-optimal grade through the application of a second, more conventional, loss function:

Leu =
given

!1
eu for eu  0 Overestimation !2
jeuj for eu 0 Underestimation

and !1 ; !2 0 This quanti es the loss associated with over- and underestimation of the true grade, and then returns a grade such that the expected loss is minimized. This loss function does not rely on a cut-o grade; blocks have already been selected as ore.

eu = z u , z u

4. A case study - Walker Lake

In order to illustrate the block selection pro t loss function approach, a case study based on the public domain Walker Lake data Isaaks and Srivastava, 1989 was developed. The 78000 U data were aggregated into 780 blocks through a 10x10 discrete average. The original point data was then sampled to reproduce mining or exploration practice using a two-stage approach. 72 initial samples were obtained by random strati ed sampling, and a further 84 samples were selected as clusters around the highest-grade rst-phase data, making a total sample size of 156 0.2 of the total. The reference block data and the sample, together with summary statistics, are shown in Figure 1. To provide a comparison with simulation, ordinary block kriging was carried out using the sample data and a 10x10 discretization factor. The following variogram model standardized to sill 1 was used:

0s  1 h = 0:6 Sph 15 + 0:4 Sph @ hx + hy A 70 25  jhj

2 2

where

Sphh = a spherical variogram model of unit range and sill hx = the 105 direction N75W hy = the 15 direction N15E

Reference block values

300.000

Parameter Number of data Mean Standard deviation

Northing

Value 780 266.0 316.8 161.2 1.19 0.0 42.4 357.8 2062.4

Median Coefficient of variation Minimum First Quartile Third Quartile

0.0 0.0

Maximum
Easting
260.000

Sample Data
300.

Parameter
250.

Value 156 271.8 478.5 80.7 1.76 0.0 14.8 311.7 3769.5

Number of data Mean

200.

Standard deviation
150.

Median Coefficient of variation

100.

Minimum First Quartile Third Quartile

50.

0. 0. 50. 100. 150. 200. 250.

Maximum

Figure 1. Reference block data and the sample of 156 point values together with summary statistics. Declustered statistics are presented for the sample data.

Block simulation using the LU formalism was then executed using the point sample and the following normal score variogram model:

0s  1 h = 0:7 Sph + 0:3 Sph @ hx + hy A 15 70 25  jhj

2 2

The simulation used the same 10 by 10 discretization for each block and the same search parameters as the kriging. Back transformation of simulated values before linear averaging was carried out using for upper tail extrapolation a hyperbolic distribution with values limited to a maximum of 9000, and linear extrapolation for the lower tail. 100 independent realizations of each block were drawn. A block is selected as ore if the proportion of its simulated values above a cut-o grade exceeds the threshold probability de ned on the right hand side of 7.

TABLE 1. Comparison of simulation, kriging, and perfect selection.

Cut-o grade
100 0.87 0.87 0.96 0.95 200 0.68 0.55 0.85 0.71 1.25 1.27

Fraction of total tonnage from simulation t0  Fraction of total tonnage from OK

Tonnage fraction from perfect selection

Fraction of total metal from simulation j  Fraction of total metal from OK

0.62 0.95
1.101 1.099

0.43 0.85 1.99

Metal from perfect selection

jr jr jr

- simulation - OK

- perfect selection

1.54

Two cut-o grades 100 and 200 were chosen for the analysis. The mean of the true block values is 266. Given the strongly positively skewed reference distribution, the values 100 and 200 represent the 0.38 and the 0.57 quantiles of the true block cdf. The other parameters used for the pro t function were ct = 13$ tonne, r =0.96, and p = zcctr . The 780 blocks may be viewed as one bench of an open pit mine, with each block having a mass of 1000t. Other relevant parameters are: n , Recovered fraction of ore: t0 = 780 , where n is the number of blocks selected. , Average true grade of blocks selected: m+ zc, obtained from the reference data.
m zc , Fraction of total metal available: j = n266+780 , where 266 is the
average true grade of all blocks and 780 is the total number of blocks. j measures the actual metal obtained from mining and treating the selected blocks. , Tonnes of metal per tonne of ore: jr = tj0 , the amount of metal per tonnage unit. High jr values indicate more metal per block mined. , Risk-aversion loss coe cient: ! = 1, relatively low risk-aversion. , Opportunity cost loss coe cient: !0 = 0, no concern for falselyrejected blocks. Block simulation results were compared to selection zc  based on kriged grades and to perfect selection based on true values. The results are shown in Table 1. At zc = 100, most blocks are selected and there is little di erence between kriging and simulation. However, at the higher cut-o grade zc =

Parameter

TABLE 2. Parameters for cash ow calculations.

Cut-o grade

100 200 ct - Treatment cost $13 tonne $13 tonne co - Ore mining cost $1 tonne $1 tonne cw - Waste mining cost $1 tonne $1 tonne r - fractional recovery 0.96 0.96 p - unit metal revenue per ppm 0.13542 0.06771 c - cost of mining all 780 blocks t0
780000
co + ct + 1 , t0 
780000
cw v - revenue from mining r
266
780000
j
p cash ow v , c

TABLE 3. Results of economic modeling. Values are in $106 . Simulation Ordinary Kriging 100 16.296 16.105

Cut-o grade

Perfect selection 18.670 6.294

200 3.821 3.115

200, simulation returns signi cantly more tonnage and metal than kriging, recalling that the de nition of zc implies removal of all material, whether to ore or waste.
ECONOMIC COMPARISON OF RESULTS By de ning costs for mining of ore and waste, a simple cash ow comparison of the three approaches may be made. Cost and revenue formulae and parameters are shown in Table 2. This simple calculation takes no account of tax, depreciation, in ation, or the time value of money. Note also that ore and waste mining costs are assumed equal as per the de nition adopted for the marginal cut-o grade. Cash ow results for two cut-o grades and three methods are shown in Table 3. As predicted from Table 1, at the lower cut-o grade both simulation

and kriging perform equally well. However, at the higher cut-o , simulation and subsequent block selection using the pro t function approach gives a 23 higher cash ow than kriging. Further discussion of these results, the loss parameters, and similar economic modeling of the grade determination process is presented in Glacken 1996.

5. Conclusions
Block simulation is presented as an alternative to the traditional change of support methods. This provides the twin advantages of a support correction which is locally conditional, and a distribution of values modeling uncertainty. The use of loss functions is proposed for the two di erent tasks of block selection and optimal grade determination. Existing theory is extended to maximize the expected pro t minimize the loss associated to block selection, given an economic de nition of the cut-o grade. The speci c pro t function here proposed builds from a traditional de nition of the cut-o grade. However, the same principle can and should be applied to derive pro t functions arising from alternative cut-o grade de nitions - for example, a cut-o grade de nition incorporating di erent ore and waste mining costs. The block selection algorithm itself does not call for any prior grade estimate; similarly, the loss function utilized to de ne optimal grades for selected blocks does not refer to the cut-o grade. Economic factors associated with the mining operation are built into the algorithm via cost, revenue, and recovery factors, and, importantly, risk-aversion and resource conservation factors. Economic comparison of block selection using the proposed approach and deterministic selection based on kriged grades demonstrates the potential superiority of the method. In general, the more economic information that can be built into both the pro t function algorithm and the subsequent nancial evaluation model, the better the results will be in terms of pro tability indicators such as cash ow.

Acknowledgements
Financial support for the research underlying this paper was provided by WMC Resources and the Stanford Center for Reservoir Forecasting. Professor Andr Journel is thanked for his supervision and technical input. e

References

Alabert, F. 1987, `The practice of fast conditional simulations through the LU decomposition of the covariance matrix', Mathematical Geology 195, 369 386. Davis, M. 1987, `Production of conditional simulations via the LU decomposition of the covariance matrix', Mathematical Geology 192, 91 98.

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