MINING AFRICA LONDON 30 NOVEMBER 2009 WHY MINING INVESTORS NEED ENGINEERS.
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Transcript of MINING AFRICA LONDON 30 NOVEMBER 2009 WHY MINING INVESTORS NEED ENGINEERS.
The objective of this presentation is not, within 20 minutes, to examine in detail the reasons why projects fail to meet the targets promised in the feasibility study.......
.....but to leave you with an appreciation of the role engineers play in the early analysis of a mining project, and the impact this has on its successful development
I will first discuss a the life-cycle of a project and the importance of minimising risk through a phased development of a mine.
I will then present two examples of projects that failed to meet their promised targets, and one that looks as though it may do so. I will then relate these to a phased development flow sheet
All project pass through five distinct phases
ConceptualPre-feasibilityFeasibilityConstructionOperation
Of these the most important is the pre-feasibility stage, because this is where we do all the trade-offs, separate the wheat from the chaff and select one option to take into the expensive feasibility study.
TOTAL PROJECT LIFE CYCLETOTAL PROJECT LIFE CYCLE
PLANPLAN OPERATIONALOPERATIONALPHASE 1ConceptPHASE 1Concept
PHASE 2 Pre Feasibility
PHASE 2 Pre Feasibility
PHASE 4ConstructPHASE 4Construct
PHASE 5Operate
PHASE 5Operate
TIMETIME
PHASE 3FeasibilityPHASE 3
Feasibility
If we look at the first four in more detail we find that the outputs of each phase are increasingly accurate capital estimates and the cost of moving to the next phase
PHASE 1PHASE 1
Conceptual studyConceptual study
Concept study output:
Order of Magnitude Estimate (OME) +/-30%
Cost of Pre-feasibility study +/-90%
Concept study output:
Order of Magnitude Estimate (OME) +/-30%
Cost of Pre-feasibility study +/-90%
Pre-feasibility study output
Preliminary Cost Estimate (PCE) +/-15% - 25%
Cost of Feasibility study +/-90%
Pre-feasibility study output
Preliminary Cost Estimate (PCE) +/-15% - 25%
Cost of Feasibility study +/-90%
Feasibility study output
Control Budget Cost Estimate (CBE)
+/- 5% to 10% accuracy
This is the final pre-decision cost estimate
Feasibility study output
Control Budget Cost Estimate (CBE)
+/- 5% to 10% accuracy
This is the final pre-decision cost estimate
Pre -feasibility study and Trade –off studies
40% Engineering
Pre -feasibility study and Trade –off studies
40% Engineering
PHASE 2PHASE 2
Feasibility study
80% Engineering
Feasibility study
80% Engineering
PHASE 3PHASE 3
PHASE 4PHASE 4
Construction
Budget control
Design Changes; Scope Changes
Construction
Budget control
Design Changes; Scope Changes
PHASE 1PHASE 1Conceptual studyConceptual study
Concept study output:
Order of Magnitude Estimate (OME) +/-30%
Cost of Pre-feasibility study +/-90%
Concept study output:
Order of Magnitude Estimate (OME) +/-30%
Cost of Pre-feasibility study +/-90%
Pre -feasibility study and Trade –off studies
40% Engineering
Pre -feasibility study and Trade –off studies
40% Engineering
Pre-feasibility study output
Preliminary Cost Estimate (PCE) +/-15% - 25%
Cost of Feasibility study +/-90%
Pre-feasibility study output
Preliminary Cost Estimate (PCE) +/-15% - 25%
Cost of Feasibility study +/-90%
Feasibility study
80% Engineering
Feasibility study
80% Engineering
Feasibility study output
Control Budget Cost Estimate (CBE)
+/- 5% to 10% accuracy
This is the final pre-decision cost estimate
Feasibility study output
Control Budget Cost Estimate (CBE)
+/- 5% to 10% accuracy
This is the final pre-decision cost estimate
PHASE 2PHASE 2
PHASE 3PHASE 3
PHASE 4PHASE 4
Construction
Budget control
Design Changes; Scope Changes
Construction
Budget control
Design Changes; Scope Changes
RISK 2 Cost of StudiesRISK 2 Cost of Studies
RISK 3 Cost of CBERISK 3 Cost of CBE
RISK 4 constructionRISK 4 construction
RISK 1 KICK OFFRISK 1 KICK OFF
The first risk is obviously the decision to initiate the project.........Followed by the cost of the various studies.....And finally the cost of construction, and it is here that things can go horribly wrong.
.
A Point Estimate has a fixed degree of accuracy. If an estimate has an accuracy of say 15%, this means that the estimate could be E or E plus 15%
An Interval Estimate has a degree of accuracy over a given range, i.e., say +/-15% This means that it could be E, or anywhere between E + 15% and E – 15%
0
10
20
30
40
50
60
70
80
90
100
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
PERC
ENTA
GE E
RROR
LEV
EL
PERCENTAGE ENGINEERING COMPLETED
ERROR LEVELS
Anything less than 10% of the engineering will guarantee a sizable error, but completing 100% of the engineering will not produce a 100% accurate estimate, because there will always be changes. The idea, however, is to reduce these changes to a minimum.
As we move through the phases, so does the opportunity to add value decrease, and the cost of making changes increases
TOTAL PROJECT LIFE CYCLETOTAL PROJECT LIFE CYCLE
PLANPLAN OPERATIONALOPERATIONALPHASE 1ConceptPHASE 1Concept
PHASE 2 Pre Feasibility
PHASE 2 Pre Feasibility
PHASE 4ConstructPHASE 4Construct
PHASE 5Operate
PHASE 5Operate
TIMETIME
ConstructiveOpportunityConstructiveOpportunity
OPPORTUNITY
OPPORTUNITY
COST
COST
DestructiveInterventionDestructiveIntervention
PHASE 3FeasibilityPHASE 3
Feasibility
The opportunity to add value to a project by optimising the design, production profile and supporting infrastructure is a period of constructive opportunity.
Any design and or scope changes made in the late stages of a feasibility study or during the construction phase negate all previous work in terms of both time and money, and are destructive interventions.
TOTAL PROJECT LIFE CYCLETOTAL PROJECT LIFE CYCLE
PLANPLAN OPERATIONALOPERATIONALPHASE 1ConceptPHASE 1Concept
PHASE 2 Pre Feasibility
PHASE 2 Pre Feasibility
PHASE 4ConstructPHASE 4Construct
PHASE 5Operate
PHASE 5Operate
TIMETIME
ConstructiveOpportunityConstructiveOpportunity
OPPORTUNITY
OPPORTUNITY
COST
COST
DestructiveInterventionDestructiveIntervention
PHASE 3FeasibilityPHASE 3
Feasibility
FRONTEND
LOADING
YESYESGenerateAlternativeLOM Plans
GenerateAlternativeLOM Plans
YESYES
Prepare and optimiseConfirm resource/reserve conversion
Life of Mine Plan
Prepare and optimiseConfirm resource/reserve conversion
Life of Mine Plan
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
NONO
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Full Risk AnalysisFull Risk Analysis
FatalFlaws??
FatalFlaws??
Confirmation of right to mineConfirmation of right to mine
Validation of Geological Data BaseValidation of Geological Data Base Geostatistical AnalysisGeostatistical Analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
ABORTABORT
YESYES
NONO
Preliminary mine designResource/reserve conversionInitial Risk Assessment
Preliminary mine designResource/reserve conversionInitial Risk Assessment
FatalFlaws?Fatal
Flaws?
MeetCriteria?
MeetCriteria?
FINAL DELIVERABLE - Full Feasibility or StudyFINAL DELIVERABLE - Full Feasibility or Study
NONO
YESYESGenerateAlternativeLOM Plans
GenerateAlternativeLOM Plans
YESYES
Prepare and optimise Life of Mine Plan
Prepare and optimise Life of Mine Plan
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
NONO
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Full Risk AnalysisFull Risk Analysis
FatalFlaws??
FatalFlaws??
Confirmation of right to mineConfirmation of right to mine
Validation of Geological Data BaseValidation of Geological Data Base Geostatistical AnalysisGeostatistical Analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
ABORTABORT
YESYES
NONO
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
FatalFlaws?Fatal
Flaws?
MeetCriteria?
MeetCriteria?
FINAL DELIVERABLE - Full Feasibility or StudyFINAL DELIVERABLE - Full Feasibility or Study
NONO
OME +/-30-40%
PCE +/-15 to 25%
CBE >10%
CRITICAL ENGINEERING ASPECTS
•Resource/Reserve conversion•Is the mine design practical?•Is the CBE based on a well-defined Scope of Work?•What is the potential for scope changes/•What percentage of the CBE is factorised?•Is the capital expenditure benchmarked?•What is the operating cost basis?
One day an announcement appeared telling us that, owing to geotechnical issues attributable to a shear zone above a decline, a mine had temporarily suspended operations
Rock engineering specialists are currently assessing the situation.
It was expected that the suspension will be for at least a week
The Annual Report subsequently attributed the subsidence to exceptionally high levels of rainfall which affected ground conditions specific to the affected area.
The same Report informed shareholders that a R250 million, two-phase project was required to resume both underground and open-pit mining
This would start in June 2009.
The first phase will last six-months
The second phase will last ten months.
During its five months of operation in 2009 the Mine produced 64,068 oz PGM and received R274 million in revenue, i.e., an average of R54.8 million per month
So, in the 21 lost months the mine stands to lose R1,634 million in revenue!
A rather expensive exercise.
YESYESGenerateAlternativeLOM Plans
GenerateAlternativeLOM Plans
YESYES
Prepare and optimise Life of Mine Plan
Prepare and optimise Life of Mine Plan
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
NONO
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Full Risk AnalysisFull Risk Analysis
FatalFlaws??
FatalFlaws??
Confirmation of right to mineConfirmation of right to mine
Validation of Geological Data BaseValidation of Geological Data Base Geostatistical AnalysisGeostatistical Analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
ABORTABORT
YESYES
NONO
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
FatalFlaws?Fatal
Flaws?
MeetCriteria?
MeetCriteria?
FINAL DELIVERABLE - Full Feasibility or StudyFINAL DELIVERABLE - Full Feasibility or Study
NONO
OME +/-30-40%
PCE +/-15 to 25%
CBE >10%
It would appear that the company failed to complete a specialised aspect of the geology, i.e., the
geotechnics
YESYESGenerateAlternativeLOM Plans
GenerateAlternativeLOM Plans
YESYES
Prepare and optimise Life of Mine Plan
Prepare and optimise Life of Mine Plan
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
NONO
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Full Risk AnalysisFull Risk Analysis
FatalFlaws??
FatalFlaws??
Confirmation of right to mineConfirmation of right to mine
Validation of Geological Data BaseValidation of Geological Data Base Geostatistical AnalysisGeostatistical Analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
ABORTABORT
YESYES
NONO
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
FatalFlaws?Fatal
Flaws?
MeetCriteria?
MeetCriteria?
FINAL DELIVERABLE - Full Feasibility or StudyFINAL DELIVERABLE - Full Feasibility or Study
NONO
OME +/-30-40%
PCE +/-15 to 25%
CBE >10%
GEOTECHNICAL MODEL
Feasibility studies:
•An NI43-101 compliant mineral resource
•Mineral resource modelling and mine planning
•Environmental studies
•Mine beneficiation plant design
•Design of common infrastructure
Risks identified in 2008 Annual Report
•Resource estimates
•Cash operating costs
•Tonnages and grades of coal
•Ground conditions
•Coal seam configuration
•Recovery rates
•Climatic conditions
A prudent engineer must ask: Why are there risk remaining if they have completed all the feasibility studies?
As a matter of passing interest; if ground and climatic conditions have the same effect on this project as in our first case study, someone is in for a big surprise!
Risks identified in 2008 Annual Report
•Resource estimates
•Cash operating costs
•Tonnages and grades of coal
•Ground conditions
•Coal seam configuration
•Recovery rates
•Climatic conditions
Capital equipment and infrastructure costs related to the power station and the mine were estimated at approximately C$3.15 bn.
An Analysis published on SEDAR in October 2009 indicates that capital expended thus far totals C$39.7 million. This is presumably since listing in March 2006, i.e., an average of C$922,765 per month
In September 2009
Capital costs are estimated at approximately US$3 billion.
MD&A (October 2009): Capital expended is C$39.7 million.
Since March 2006, i.e., an average of C$922,765 per month
Operations are to start in early 2013. This would require a capital spending rate of US$75.8 million per month for 41 months, which, as any engineer will confirm, is a formidable task.
The start of commercial operations at the power station is planned for early 2013.
A capital spending rate of US$75.8 million per month for 41 months.
A formidable task.
Pertinent points from an MD & A
• Although the regional government has indicated its support for the Project, the Company has not secured mining licences.
• The government has not approved the revised Environmental Impact Assessments, occasioned by reducing the capacity of the power station and the re-location of the mining area
• The Company has signed a contract with an EPC contractor to construct the first power station
•The Company is currently conducting a tender process for the construction of the mine, beneficiation plant and the required infrastructure
YESYESGenerateAlternativeLOM Plans
GenerateAlternativeLOM Plans
YESYES
Prepare and optimise Life of Mine Plan
Prepare and optimise Life of Mine Plan
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
NONO
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Full Risk AnalysisFull Risk Analysis
FatalFlaws??
FatalFlaws??
Confirmation of right to mineConfirmation of right to mine
Validation of Geological Data BaseValidation of Geological Data Base Geostatistical AnalysisGeostatistical Analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
ABORTABORT
YESYES
NONO
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
FatalFlaws?Fatal
Flaws?
MeetCriteria?
MeetCriteria?
FINAL DELIVERABLE - Full Feasibility or StudyFINAL DELIVERABLE - Full Feasibility or Study
NONO
OME +/-30-40%
PCE +/-15 to 25%
CBE >10%
They do not have a confirmed right to mine, they have not cleared the environmental hurdles, they have not validated the geology nor have they completed a geostatistical analysis
YESYESGenerateAlternativeLOM Plans
GenerateAlternativeLOM Plans
YESYES
Prepare and optimise Life of Mine Plan
Prepare and optimise Life of Mine Plan
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
NONO
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Full Risk AnalysisFull Risk Analysis
FatalFlaws??
FatalFlaws??
Confirmation of right to mineConfirmation of right to mine
Validation of Geological Data BaseValidation of Geological Data Base Geostatistical AnalysisGeostatistical Analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
ABORTABORT
YESYES
NONO
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
FatalFlaws?Fatal
Flaws?
MeetCriteria?
MeetCriteria?
FINAL DELIVERABLE - Full Feasibility or StudyFINAL DELIVERABLE - Full Feasibility or Study
NONO
OME +/-30-40%
PCE +/-15 to 25%
CBE >10%
YESYESGenerateAlternativeLOM Plans
GenerateAlternativeLOM Plans
YESYES
Prepare and optimise Life of Mine Plan
Prepare and optimise Life of Mine Plan
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
NONO
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Full Risk AnalysisFull Risk Analysis
FatalFlaws??
FatalFlaws??
Confirmation of right to mineConfirmation of right to mine
Validation of Geological Data BaseValidation of Geological Data Base Geostatistical AnalysisGeostatistical Analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
ABORTABORT
YESYES
NONO
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
FatalFlaws?Fatal
Flaws?
MeetCriteria?
MeetCriteria?
OME +/-30-40%
PCE +/-15 to 25%
CBE >10%
Because the continuity of this reef horizon is a common factor, the tendency would be to accept this as fact.
YESYESGenerateAlternativeLOM Plans
GenerateAlternativeLOM Plans
YESYES
Prepare and optimise Life of Mine Plan
Prepare and optimise Life of Mine Plan
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
NONO
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Full Risk AnalysisFull Risk Analysis
FatalFlaws??
FatalFlaws??
Confirmation of right to mineConfirmation of right to mine
Validation of Geological Data BaseValidation of Geological Data Base Geostatistical AnalysisGeostatistical Analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
ABORTABORT
YESYES
NONO
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
FatalFlaws?Fatal
Flaws?
MeetCriteria?
MeetCriteria?
FINAL DELIVERABLE - Full Feasibility or StudyFINAL DELIVERABLE - Full Feasibility or Study
NONO
OME +/-30-40%
PCE +/-15 to 25%
CBE >10%
YESYESGenerateAlternativeLOM Plans
GenerateAlternativeLOM Plans
YESYES
Prepare and optimise Life of Mine Plan
Prepare and optimise Life of Mine Plan
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Discipline Inputs• Mine engineering• Rock Engineering• Ventilation• Refrigeration• Metallurgical engineering• Electrical engineering• Mechanical engineering• Civil engineering• Structural engineering• Environmental• Economic & Financial analysis• Marketing• Human Resources• Socio-Political aspects
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
Deliverables• Mine Design• Depletion Plan (Tonnage Profiles)• Production build-up• “Pipeline”-locked up value• Construction program• Working Costs• Tax & Royalties• Risk assessment• Cash Flows• Environmental Management Plan• Capital expenditure
NONO
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Criteria• Positive net cash flows• Discounted Cash Flow Analysis• Funding requirements• Debt/Equity Structure• Environmental• Corporate business plan• Technically feasible
Full Risk AnalysisFull Risk Analysis
FatalFlaws??
FatalFlaws??
Confirmation of right to mineConfirmation of right to mine
Validation of Geological Data BaseValidation of Geological Data Base Geostatistical AnalysisGeostatistical Analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
Geological Block ModelInitial desk-top studiesPreliminary financial analysis
ABORTABORT
YESYES
NONO
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
Preliminary mine designResource/Reserve conversionInitial Risk Assessment
FatalFlaws?Fatal
Flaws?
MeetCriteria?
MeetCriteria?
FINAL DELIVERABLE - Full Feasibility or StudyFINAL DELIVERABLE - Full Feasibility or Study
NONO
OME +/-30-40%
PCE +/-15 to 25%
CBE >10%
The financial crisis has left investors in the mining industry with an acute awareness of the dangers inherent in accepting feasibility studies at face value.
A lender would rarely accept a study prepared by a borrower or the borrower’s consultants as the basis for financing a project. At the very least, the knowledgeable lender, experienced in lending to mineral projects, will require that independent consultants and its own internal research departments review the study.
(Johnson & McCarthy. Parsons Behle & Latimer , 2001)
Feasibility Studies are formal, highly technical reports. They are compiled by specialists, and require interrogation by specialists.
Analysis of a feasibility study does not stop with confirmation of the resource, or elaborate financial models based on that resource.
It requires vigorous interrogation by engineers who have developed resources into producing mines, and who know all the pitfalls along the way.
TOTAL PROJECT LIFE CYCLETOTAL PROJECT LIFE CYCLE
PLANPLAN OPERATIONALOPERATIONALPHASE 1ConceptPHASE 1Concept
PHASE 2 Pre Feasibility
PHASE 2 Pre Feasibility
PHASE 4ConstructPHASE 4Construct
PHASE 5Operate
PHASE 5Operate
TIMETIME
ConstructiveOpportunityConstructiveOpportunity
OPPORTUNITY
OPPORTUNITY
COST
COST
DestructiveInterventionDestructiveIntervention
PHASE 3FeasibilityPHASE 3
Feasibility
FRONTEND
LOADING
“We will make the geology fit the design”.
This is an actual quote from the CEO of a JSE and AIM listed mining company, whose Board has recently, and not surprisingly, relieved him of his post.