In October, I attended the Whittle Consulting Money Mining and Sustainability seminar in Vancouver. Gerald Whittle, CEO and recovering management accountant, led us through two intense days. The focus – maximizing net present value (NPV) of mines.
Whittle Consulting’s mining optimization methodology, called Enterprise Optimisation, has been developed for over 30 years. It is built on multi-variable, non-linear algorithms to find the most economically attractive mining cases, subject to constraints that can be imposed by the user. The Whittle Consulting approach is integrated to consider mining, processing, financial and environmental factors.
The course centres on a fictitious but plausible copper-gold deposit called Marvin located in NSW, Australia. Marvin has a well-defined block model. Various capacity constraints are considered, such as for mining fleet, mill power, concentrate pipeline and stockpile size. The project is assumed to be generally constrained by mill power. Gerald demonstrates how an initial, credible mine design and plan can be improved by following a sequence of optimization steps that address cut-off grades, mining sequences, throughput and plant capacity trade-offs.
There are two main principles used to find the economic optima - activity based costing and the theory of constraints. Activity based costing is a method of understanding fixed and variable cost drivers, thereby relating production levels with operating costs. This is important for optimizing a mine plan, as the operating costs should be appropriately scaled for a given production level. The theory of constraints is a management philosophy developed by Eliyahu M. Goldratt and Jeff Cox in their book “The Goal”. I read it about 20 years ago and found it compelling and thought-provoking. The philosophy identifies bottlenecks, and manages the production process around them.
Enterprise Optimization can also be used to assess metrics of sustainability, including parameters such as water and energy consumption, and GHG, diesel particulate, and dust emissions. In one case, Gerald demonstrated that an optimized mining plan was also 25% more energy efficient on a per metal unit basis than a base case plan. This was primarily due to less ore tonnage treated due to higher mill feed grades, and less waste haulage due to a smaller, higher grade pit. These factors result in lower power and diesel consumptions respectively, in turn reducing GHG emissions.
More profitable mines mean there is more money for stakeholders to invest in societal improvements, and companies to invest in further exploration. There are other consequences of using the Whittle Consulting optimization approach. Increasing cut-off grade, and sending near-marginal ore to waste dumps will reduce the overall life-of-mine ore tonnes treated, resulting in shorter mine life and lower total metal production. Shorter mine life may impact on long-term employment opportunities, and lower total metal production means lower overall metal resource recovery from the deposit. These concerns can be partially alleviated by stockpiling near-marginal ore for treatment during lulls in mine production, or at the end of mine life.
Other thoughts came to mind for me. One way for a mine to improve NPV is to lower its discount rate, which can be achieved by lowering the risk profile of the project. Choosing more eco-efficient practices, and managing social license to operate are two sustainability related strategies that lower project risk, and may improve the attractiveness of the project to certain investors. This in turn may reduce the borrowing interest rate for the project.
The Whittle optimization algorithms will typically tend towards higher mill throughputs to maximize metal production, despite some recovery losses from coarser grinds, as this will maximize NPV early in the mine life. Grind will get finer and throughput lower later in the mine life as the opportunity cost diminishes. It is important to have realistic estimates of the throughput-grind size-recovery trade-offs to ensure that recovery losses are correctly accounted for. Process engineers should work to make the separation circuit as robust as possible for coarse particle sizes and high throughput rates. Practical metallurgical improvements such as close attention to the classification circuit, and good flotation cell and reagent addition control may limit any recovery losses from higher throughput. Selection of flotation equipment that gives robust performance across a range of particle size ranges will also help. Such initiatives will improve resource recovery and further enhance financial returns.
Gerald says, “it’s not a metal mine, it’s a money mine”. Typically, the focus is on maximizing metal flow through the bottleneck to maximize profit. However, in a period of low metal prices, it may make more sense to leave ore in the ground until prices improve to improve future cash flows. Recently, Cameco took such action by placing some of its uranium operations on care and maintenance. Such actions must consider the shutdown and startup costs, and should include sensitivity analysis of future prices.
Overall, the Money Mining and Sustainability seminar was thought-provoking and informative. Case studies suggest Whittle software is a powerful, quantitative tool that can rapidly consider a wide range of mine plans and schedules within a range of physical, economic, financial, social and environmental constraints. Such a tool seems essential, in an increasingly complex world with rising stakeholder expectations despite declining metal grades and harder to process ores. I’d recommend the course to anyone interested in integrated strategic optimization of mining projects.