Webinar: Economical Assessments in Mine Planning with K-MINE

Welcome to the K-MINE webinar - a special Christmas edition dedicated to mine planners, economists, business analysts, and C-level managers. In this session, we cover key mine planning aspects such as optimization, design, scheduling, and financial analysis. We also explore economic indicators like IRR, NPV, margins, and more.

K-MINE has been around since 1994, initially based in Ukraine. Over time, the company has grown with offices in Europe, Asia, the United States, and Canada, working through resellers in Chile, Brazil, Australia, South Africa, and other countries. The team includes developers, surveyors, geologists, and mining engineers, some of whom serve as Qualified Persons for CRIRSCO-compliant reports, whether NI 43-101 or JORC.

K-MINE works with everyone from small exploration teams and independent consultants to large corporations. The software covers the entire mining workflow from exploration through production with 12 flexible modules for open-pit and underground operations. All modules run in one interface and can be mixed and matched to fit specific project requirements.

Beyond software, K-MINE provides consulting services. Engineers are ready to create 3D models, develop mine plans, and produce resource and reserve estimates. The software was born from real challenges faced in consultancy work, which is how the team identifies features to add and improve.

Today's demonstration uses the example of a zircon deposit. Zircon is a mineral found in acidic and alkaline igneous rocks, pegmatites, and nepheline syenites. It typically appears near other minerals like apatite, titanite, and magnetite.

Significant deposits exist in Southern Norway, Brazil, the United States, Sri Lanka, Madagascar, and Ukraine, which holds the third-largest deposit in the world. Zircon is used for producing zirconium oxide and hafnium, as well as in jewelry making, refractory materials for glass and steel melting furnaces, foundries, and radiometric dating using the U-Pb method. All data used in this stream was created specifically for the demo and does not represent any actual deposit or real economic indicators.

The main goal of strategic planning is figuring out the best direction for company growth - understanding what to do, how to do it, and when - to maximize profitability. The focus is usually on the option that brings the most profit in the least amount of time. Key initial data includes target productivity for the plant, capital expenditure (CAPEX), and various costs tied to concentrate production.

The demonstration begins with searching for the optimal pit contour using K-MINE's Pit Optimizer module.

Key parameters: - Final product price adjustment factors between 0.1 and 1.2 with 5% increments - Final product price set at $2,200 per tonne of concentrate - Processing cost fixed at $20 per tonne of processed ore - Mining operation cost at $2 per tonne for both ore and overburden - Losses and dilution at 2% - Rock transportation cost at $2 per tonne - Discount rate of 8% for NPV calculations - Ore productivity of 1 million tonnes annually - Marginal profitability indicator of 20% as a key metric for optimal contour selection

The model uses the automated pseudo-flow block evaluation method employing the Lerchs-Grossmann algorithm. Results at a coefficient of 0.2 suggest high project profitability. Block sets can be visualized progressively as prices rise, showing pit expansion traces.

Graphical representations in different modes provide essential information for decision-making. The option highlighted in yellow signifies 20% marginal profitability in incremental mode and serves as a project evaluation metric. The accepted contour shows ore weight around 10 million tonnes, overburden at 45 million tonnes (a reasonable stripping ratio), and an NPV of $700 million in optimization, excluding CAPEX.

To determine which indicators significantly affect the project, a sensitivity analysis identifies key influencers using a plugin that separates general and unique indicators focused on NPV or profit. The analysis shows that the recovery factor is a key player. Raising the lower limit of the cutoff grade leads to an inevitable loss of profitability. These evaluations provide a more comprehensive understanding of the project.

To build a long-term calendar plan, the deposit is divided into pushbacks. Three minable pushbacks were created using manual construction with guide polylines, designed to illustrate pit expansion as the price coefficient increases. This approach enhances the theoretical NPV indicators for each pushback.

A relatively new feature allows the estimation of a specified boundary. This feature enables assessment of an externally defined contour based on the economic parameters set in a given scenario. The results show nearly all ore was extracted, though with slightly more overburden than expected. This is inevitable since the optimization loop does not account for roads. Using this method, engineers can assess various contours and compare outcomes from multiple optimization efforts.

The Pit Optimizer model can also create a calendar plan based on specific search parameters, useful for getting a big-picture view of the project economics. Calculations produce three scenarios, with the maximum profit option being customizable.

After identifying the optimal contour, the next step is creating the final pit design for all pushbacks. K-MINE's Dynamic Design tool, part of the open pit design module, enables rapid and efficient shaping of final pit outlines and major pit elements.

The workflow includes: - Generating isolines along the frame height using the Create Iso Objects command - Removing unnecessary geometry and smoothing lines - Setting up parameters for the list of horizons - Matching each line to its respective horizon - Building the initial pit shell without roads - Adding road parameters with a defined starting point - Incorporating switchbacks and flat road sections between ramps - Widening switchbacks for sufficient turning radius - Adding limiters and adjusting ledge parameters - Constructing wireframes and calculating volumes

All changes happen in real time - moving the road starting point updates the entire project instantly. The tool also enables quick dump design by marking out construction areas, adjusting slope angles, tier heights, and adding roads with different parameters.

The production scheduling process adds mining areas formed during the optimization stage and sets conditions using the Solution Finder. Target search parameters are established for each interval, determining the sequence of rock excavation. Activated intervals are visually represented in the workspace, with flexible diagrams for analysis.

The plan maintains even extraction volumes with no significant fluctuations. In the initial stages, the deposit needs to be opened up, while in the final stages waste volumes are minimal - the quarry attenuation period.

The schedule incorporates excavation machinery with specified efficiency for different rock types and defines the order of mining area operations. Specific sites are designated for depositing both overburden and extracted minerals, with ore of lower quality routed to one storage facility and higher-quality ore directed to a separate location.

The visualization tab demonstrates work sites on specific days of the plan, with a calendar date navigation feature for pinpointing daily mining activities.

Based on mining model data, the economic model spans the life of mine through 2041. The analysis proceeds line by line through the following components:

Revenue calculation: Ore is categorized into two streams - warehouse (low-grade) and factory. This strategy enhances overall yield by improving average ore quality. Later, when there is a shortfall from the pit, warehouse stock compensates. However, re-excavation incurs additional costs, and storage may trigger mineral resource taxes.

Stockpile balance: Calculated as the previous period's balance plus ore from the pit minus what is sent to the factory. The balance is kept minimal, with reserves maintained for boosting average ore quality.

Stripping ratio: Determined by dividing overburden by ore (tonne-to-tonne). The average stripping ratio stands at 4.18 - a positive indicator for operations.

Recovery rate: Based on a simple principle - the richer the ore, the higher the recovery rate.

Concentrate production: Calculated by multiplying ore quantity by the recovery rate. Revenue is determined by multiplying concentrate quantity by the selling price.

Operating expenses (OPEX): Includes mining costs, processing costs, general and administrative costs, loading costs, and transportation charges. Mining and processing costs are per tonne of ore; administrative, loading, and transport costs are per tonne of concentrate.

Royalties: Taxes calculated in line with the legislative standards of the production country.

Operating income: Revenue minus total costs (OPEX plus royalties), with cumulative sum over the entire development period.

Capital expenditure (CAPEX): Estimated based on past experience, with storage costs calculated specifically for the project.

Depreciation: Using the formula - (starting balance + additions) / cumulative production till end, multiplied by period production.

Net income calculation: - EBITDA equals operating income in this model - Net income before tax = EBITDA minus depreciation - Income tax applied at the relevant rate - Net income = EBITDA minus depreciation minus income tax

Free cash flow before taxes: Operating income minus total CAPEX, with pre-tax NPV calculated.

Cash flow after taxes: EBITDA minus total CAPEX minus income tax. Post-tax NPV stands at $312 million, meeting the initial target exceeding $300 million.

Marginality per tonne: Price of final product minus production costs at average stripping ratio equals $1,773 - translating to 79% margin. This high figure suggests the project could be highly profitable.

Internal Rate of Return (IRR): Calculated using Excel's built-in formula, with a promising result.

Discounted Payback Period: Based on total months operating at a loss, factoring in discounting. From 2029, the project begins yielding net present profit.

Charts show key figures for pit extraction and concentrate production. The goal is ensuring a consistent and even flow of ore to the plant. Ore volumes sent to the factory align with requirements, with plant productivity achieved by the sixth period and maintained through the seventeenth period.

Planned versus actual profit figures show cash flow likely to exceed projections in most periods, driven by higher-than-anticipated average ore content.

Material flow from the pit shows stable volumes with no significant fluctuations. Overburden stabilizes at approximately 2.5-2.8 million tonnes, and ore levels out at about 660,000 tonnes - sufficient for production needs.

The approach starts by selecting a range of excavators with unique features suitable for the required rock mass removal. Three models with smaller buckets were chosen, as high output is not required.

Excavator calculations: - Load rate = bucket volume / cycle time - Hourly direct productivity = load rate x 3,600 - Calculated load rate = direct productivity x bulk density - Effective utilization = availability rate x utilization rate - Effective working time = shift length x effective utilization rate - Shift productivity = direct productivity x effective working time - Annual production = shift productivity x number of shifts x working days

Dump truck selection: Loading requires no more than five bucket loads per truck. Three dump truck models with varying body capacities were compared.

Results: Four excavators with 1.5 cubic metre buckets, with the number of trucks varying by model. Other equipment followed the "no less than" principle with an additional 10% added, rounded up.

Haul distance increases gradually as mining progresses, with a notable peak early on that could be smoothed with more detailed planning. The tonne-kilometres chart reflects both the volume of rock mass and transport distance.

The strategy minimizes stockpiling, storing only low-grade ore to boost average grade over the course of development. Stockpiled ore was used in just one period - the final one. Until that point, ore accumulated to around 230,000 tonnes. Consistent extraction from the pit avoids having to handle excess rock mass, enabling effective balance management.

Various strategies can be adopted, such as using all extracted ore in mining operations or distributing ore across multiple stockpiles for mixing and blending. The choice depends on processing plant needs and development conditions. Ideally, sending ore to the warehouse should be minimized to avoid re-excavation costs and potential degradation of ore properties during extended storage.

In practice, several different scenarios should be considered: - Hiring contractors versus purchasing own equipment - Increasing factory capacity for higher finished product output - Additional investments to reduce mining and processing costs - Comparing economics of different mining sizes and contours - Evaluating different rates of pit development - generally, faster operations yield higher earnings - Financial implications of various equipment and system combinations

Should capital costs go in the optimization model or the economic model? If the goal is to compare a couple of results and choose the preferred direction, all CAPEX can be included in the optimization scenario for direct comparison of NPV and profit. However, for deeper understanding of how indicators interact, only CAPEX that directly influences the scenario should be included in the optimization module - for example, costs associated with replacing specific infrastructure.

Which economic indicators should be emphasized? The discounted payback period answers the key question of when investments start generating profit. NPV (Net Present Value) shows total discounted profit. Life of mine indicates how long the operation can sustain profits. All indicators are important, but these three provide the essential investment picture.

Is there a way to improve economic indicators through mining operations? It is critical to obtain maximum profits in early periods, since future profits are reduced by the discount rate. Faster extraction of higher-value material increases NPV.

Do you consider reclamation in the NPV calculation? Yes, reclamation costs are included in the final years of the model, typically spanning the last two to three years of the project timeline.