Smart Mining Transitions: How Strategic Planning Protects Value

Strategic Economic Evaluation in Mining Transitions

Evaluating the economics of transitioning from open pit to underground mining demands an integrated approach. Financial models must account for both phases simultaneously. The standard method involves year-by-year cash flow modeling, incorporating underground infrastructure costs, varying production rates, and cost differentials between open pit and underground mining.

Maximizing Project NPV through Optimized Scheduling

The primary goal in transition planning is maximizing Net Present Value (NPV). To achieve this, project schedules must be carefully optimized. Typically, open pit operations initially maintain higher production rates, tapering off as underground mining ramps up. Steady metal production is critical, as any downtime directly reduces NPV due to discounting.

Modern optimization tools, such as mixed-integer programming models, assist in determining the most profitable mining sequences. These tools identify which ore blocks should be mined from the surface and which are more economically viable underground. Interestingly, they often yield counterintuitive results; some blocks, although profitable in a pit shell, become even more valuable when reserved for underground mining to avoid excessive waste removal costs.

In one case study, transitioning to underground mining at an optimized depth of approximately 887 meters increased NPV to $7.51 billion, significantly outperforming a purely open-pit approach at the same depth. Another study demonstrated a 2.056% improvement in NPV through optimization—translating into hundreds of millions of dollars in value for large-scale mining operations.

Impact of Mining Transition on Cutoff Grades

Transitioning underground profoundly influences cutoff grade strategies—the minimum economically viable ore grade. Open-pit mining typically operates with lower cutoff grades due to lower extraction costs. However, as pit depth increases, extraction costs rise significantly, especially with increased stripping requirements, causing cutoff grades to rise toward the pit’s end-of-life.

If an underground mining phase is planned, deeper, lower-grade ores can be strategically reserved rather than extracting them from increasingly expensive open-pit operations. Mining then transitions underground earlier, enabling selective extraction methods that significantly enhance economic efficiency.

Selectivity and Dilution Management During Transition

Underground mining generally incurs higher costs per ton, but without the expense of stripping, making underground cutoff grades higher—for instance, 1.5 g/t gold underground versus 0.5 g/t in open pits.

During the transition phase, differentiated cutoff grades are essential. High-grade ore is typically processed immediately, while lower-grade ore is stockpiled pending final assessments.

Selectivity and dilution tolerance also differ significantly between mining methods. Open pit operations generally tolerate dilution rates around 3–5%, whereas underground methods, particularly block caving, may encounter dilution of 10–20%, substantially affecting revenue projections. Properly factoring dilution is crucial to avoid overestimating underground revenues, as waste rock mixing during cave-ins can considerably lower recovered ore grades.

Ultimately, every ore block must be evaluated holistically—not just on extraction costs but also on anticipated metal recovery, dilution impacts, and the suitability of mining methods. In some scenarios, remnants from old pits or low-grade stockpiles may ultimately prove uneconomical and thus excluded from production plans altogether.