Strategic project evaluation for open pit mining ventures using real options and allied econometric techniques

Open pit mine operations are complex businesses that demand a constant assessment of risk. This is because the value of a mine project is typically influenced by many underlying economic and physical uncertainties, such as metal prices, metal grades, costs, schedules, quantities, and environmental issues, among others, which are not known with much certainty at the beginning of the project. Hence, mining projects present a considerable challenge to those involved in associated investment decisions, such as the owners of the mine and other stakeholders. In general terms, when an option exists to acquire a new or operating mining project, , the owners and stock holders of the mine project need to know the value of the mining project, which is the fundamental criterion for making final decisions about going ahead with the venture capital. However, obtaining the mine project’s value is not an easy task. The reason for this is that sophisticated valuation and mine optimisation techniques, which combine advanced theories in geostatistics, statistics, engineering, economics and finance, among others, need to be used by the mine analyst or mine planner in order to assess and quantify the existing uncertainty and, consequently, the risk involved in the project investment. Furthermore, current valuation and mine optimisation techniques do not complement each other. That is valuation techniques based on real options (RO) analysis assume an expected (constant) metal grade and ore tonnage during a specified period, while mine optimisation (MO) techniques assume expected (constant) metal prices and mining costs. These assumptions are not totally correct since both sources of uncertainty—that of the orebody (metal grade and reserves of mineral), and that about the future behaviour of metal prices and mining costs—are the ones that have great impact on the value of any mining project. Consequently, the key objective of this thesis is twofold. The first objective consists of analysing and understanding the main sources of uncertainty in an open pit mining project, such as the orebody (in situ metal grade), mining costs and metal price uncertainties, and their effect on the final project value. The second objective consists of breaking down the wall of isolation between economic valuation and mine optimisation techniques in order to generate a novel open pit mine evaluation framework called the ―Integrated Valuation / Optimisation Framework (IVOF)‖. One important characteristic of this new framework is that it incorporates the RO and MO valuation techniques into a single integrated process that quantifies and describes uncertainty and risk in a mine project evaluation process, giving a more realistic estimate of the project’s value. To achieve this, novel and advanced engineering and econometric methods are used to integrate financial and geological uncertainty into dynamic risk forecasting measures. The proposed mine valuation/optimisation technique is then applied to a real gold disseminated open pit mine deposit to estimate its value in the face of orebody, mining costs and metal price uncertainties.

A short-term production scheduling methodology for open-pit mines

A multi-resource multi-stage scheduling methodology is developed to solve short-term open-pit mine production scheduling problems as a generic multi-resource multi-stage scheduling problem. It is modelled using essential characteristics of short-term mining production operations such as drilling, sampling, blasting and excavating under the capacity constraints of mining equipment at each processing stage. Based on an extended disjunctive graph model, a shifting-bottleneck-procedure algorithm is enhanced and applied to obtain feasible short-term open-pit mine production schedules and near-optimal solutions. The proposed methodology and its solution quality are verified and validated using a real mining case study.

Integrated approach to optimize open-pit mine block sequencing

Critical stage in open-pit mining is to determine the optimal extraction sequence of blocks, which has significant impacts on mining profitability. In this paper, a more comprehensive block sequencing optimisation model is developed for the open-pit mines. In the model, material characteristics of blocks, grade control, excavator and block sequencing are investigated and integrated to maximise the short-term benefit of mining. Several case studies are modeled and solved by CPLEX MIP and CP engines. Numerical investigations are presented to illustrate and validate the proposed methodology.

An open pit multistage mine production scheduling model for drilling, blasting and excavating operations

This paper proposes a new multi-resource multi-stage scheduling problem for optimising the open-pit drilling, blasting and excavating operations under equipment capacity constraints. The flow process is analysed based on the real-life data from an Australian iron ore mine site. The objective of the model is to maximise the throughput and minimise the total idle times of equipment at each stage. The following comprehensive mining attributes and constraints have been considered: types of equipment; operating capacities of equipment; ready times of equipment; speeds of equipment; block-sequence-dependent movement times of equipment; equipment-assignment-dependent operation times of blocks; distances between each pair of blocks; due windows of blocks; material properties of blocks; swell factors of blocks; and slope requirements of blocks. It is formulated by mixed integer programming and solved by ILOG-CPLEX optimiser. The proposed model is validated with extensive computational experiments to improve mine production efficiency at the operational level. The model also provides an intelligent decision support tool to account for the availability and usage of equipment units for drilling, blasting and excavating stages.

Towards the development of a low cost airborne sensing system to monitor dust particles after blasting at open-pit mine sites

Blasting is an integral part of large-scale open cut mining that often occurs in close proximity to population centers and often results in the emission of particulate material and gases potentially hazardous to health. Current air quality monitoring methods rely on limited numbers of fixed sampling locations to validate a complex fluid environment and collect sufficient data to confirm model effectiveness. This paper describes the development of a methodology to address the need of a more precise approach that is capable of characterizing blasting plumes in near-real time. The integration of the system required the modification and integration of an opto-electrical dust sensor, SHARP GP2Y10, into a small fixed-wing and multi-rotor copter, resulting in the collection of data streamed during flight. The paper also describes the calibration of the optical sensor with an industry grade dust-monitoring device, Dusttrak 8520, demonstrating a high correlation between them, with correlation coefficients (R2) greater than 0.9. The laboratory and field tests demonstrate the feasibility of coupling the sensor with the UAVs. However, further work must be done in the areas of sensor selection and calibration as well as flight planning.

Optimisation of open pit mine block sequencing

This study presents a comprehensive mathematical model for open pit mine block sequencing problem which considers technical aspects of real-life mine operations. As the open pit block sequencing problem is an NP-hard, state-of-the-art heuristics algorithms, including constructive heuristic, local search, simulated annealing, and tabu search are developed and coded using MATLAB programming language. Computational experiments show that the proposed algorithms are satisfactory to solve industrial-scale instances. Numerical investigation and sensitivity analysis based on real-world data are also conducted to provide insightful and quantitative recommendations for mine schedulers and planners.

New graph-based algorithms to efficiently solve large scale open pit mining optimisation problems

In the mining optimisation literature, most researchers focused on two strategic-level and tactical-level open-pit mine optimisation problems, which are respectively termed ultimate pit limit (UPIT) or constrained pit limit (CPIT). However, many researchers indicate that the substantial numbers of variables and constraints in real-world instances (e.g., with 50-1000 thousand blocks) make the CPIT’s mixed integer programming (MIP) model intractable for use. Thus, it becomes a considerable challenge to solve the large scale CPIT instances without relying on exact MIP optimiser as well as the complicated MIP relaxation/decomposition methods. To take this challenge, two new graph-based algorithms based on network flow graph and conjunctive graph theory are developed by taking advantage of problem properties. The performance of our proposed algorithms is validated by testing recent large scale benchmark UPIT and CPIT instances’ datasets of MineLib in 2013. In comparison to best known results from MineLib, it is shown that the proposed algorithms outperform other CPIT solution approaches existing in the literature. The proposed graph-based algorithms leads to a more competent mine scheduling optimisation expert system because the third-party MIP optimiser is no longer indispensable and random neighbourhood search is not necessary.

A new open-pit multi-stage mine production timetabling model for drilling, blasting and excavating operations

This paper proposes a new multi-resource multi-stage mine production timetabling problem for optimising the open-pit drilling, blasting and excavating operations under equipment capacity constraints. The flow process is analysed based on the real-life data from an Australian iron ore mine site. The objective of the model is to maximise the throughput and minimise the total idle times of equipment at each stage. The following comprehensive mining attributes and constraints are considered: types of equipment; operating capacities of equipment; ready times of equipment; speeds of equipment; block-sequence-dependent movement times; equipment-assignment-dependent operational times; etc. The model also provides the availability and usage of equipment units at multiple operational stages such as drilling, blasting and excavating stages. The problem is formulated by mixed integer programming and solved by ILOG-CPLEX optimiser. The proposed model is validated with extensive computational experiments to improve mine production efficiency at the operational level.

An integrated model of an open-pit coal mine: Improving energy efficiency decisions

This article contributes an original integrated model of an open-pit coal mine for supporting energy-efficient decisions. Mixed integer linear programming is used to formulate a general integrated model of the operational energy consumption of four common open-pit coal mining subsystems: excavation and haulage, stockpiles, processing plants and belt conveyors. Mines are represented as connected instances of the four subsystems, in a flow sheet manner, which are then fitted to data provided by the mine operators. Solving the integrated model ensures the subsystems’ operations are synchronised and whole-of-mine energy efficiency is encouraged. An investigation on a case study of an open-pit coal mine is conducted to validate the proposed methodology. Opportunities are presented for using the model to aid energy-efficient decision-making at various levels of a mine, and future work to improve the approach is described.

Open-pit block sequencing optimization: A mathematical model and solution technique

This study presents a comprehensive mathematical formulation model for a short-term open-pit mine block sequencing problem, which considers nearly all relevant technical aspects in open-pit mining. The proposed model aims to obtain the optimum extraction sequences of the original-size (smallest) blocks over short time intervals and in the presence of real-life constraints, including precedence relationship, machine capacity, grade requirements, processing demands and stockpile management. A hybrid branch-and-bound and simulated annealing algorithm is developed to solve the problem. Computational experiments show that the proposed methodology is a promising way to provide quantitative recommendations for mine planning and scheduling engineers.

Optimising the operational energy efficiency of an open-pit coal mine system

This thesis investigates factors that impact the energy efficiency of a mining operation. An innovative mathematical framework and solution approach are developed to model, solve and analyse an open-pit coal mine. A case study in South East Queensland is investigated to validate the approach and explore the opportunities for using it to aid long, medium and short term decision makers.

Mapping surface deformation in open pit iron mines of Carajas Province (Amazon Region) using an integrated SAR analysis

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Creating Lakes from Open Pit Mines: Processes and Considerations, Emphasis on Northern Environments

Creating Lakes from Open Pit Mines: Processes and Considerations, Emphasis on Northern Environments. This document summarizes the literature of mining pit lakes (through 2007), with a particular focus on issues that are likely to be of special relevance to the creation and management of pit lakes in northern climates. Pit lakes are simply waterbodies formed by filling the open pit left upon the completion of mining operations with water. Like natural lakes, mining pit lakes display a huge diversity in each of these subject areas. However, pit lakes are young and therefore are typically in a non-equilibrium state with respect to their rate of filling, water quality, and biology. Separate sections deal with different aspects of pit lakes, including their morphometry, geology, hydrogeology, geochemistry, and biology. Depending on the type and location of the mine, there may be opportunities to enhance the recreational or ecological benefits of a given pit lake, for example, by re-landscaping and re-vegetating the shoreline, by adding engineered habitat for aquatic life, and maintaining water quality. The creation of a pit lake may be a regulatory requirement to mitigate environmental impacts from mining operations, and/or be included as part of a closure and reclamation plan. Based on published case studies of pit lakes, large-scale bio-engineering projects have had mixed success. A common consensus is that manipulation of pit lake chemistry is difficult, expensive, and takes many years to achieve remediation goals. For this reason, it is prudent to take steps throughout mine operation to reduce the likelihood of future water quality problems upon closure. Also, it makes sense to engineer the lake in such a way that it will achieve its maximal end-use potential, whether it be permanent and safe storage of mine waste, habitat for aquatic life, recreation, or water supply.

Environmental risk assessment in open pit blasting operations: compliance with ISO 31010:2010

All activities of an organization involve risks that should be managed. The risk management process aids decision making by taking account of uncertainty and the possibility of future events or circumstances (intended or unintended) and their effects on agreed objectives. With that idea, new ISO Standard has been drawn up. ISO 31010 has been recently issued which provides a structured process that identifies how objectives may be affected, and analyses the risk in term of consequences and their probabilities before deciding on whether further treatment is required. In this lecture, that ISO Standard has been adapted to Open Pit Blasting Operations, focusing in Environmental effects which can be managed properly. Technique used is Fault Tree Analysis (FTA), which is applied in all possible scenarios, providing to Blasting Professionals the tools to identify, analyze and manage environmental effects in blasting operations. Also this lecture can help to minimize each effect, studying each case. This paper also can be useful to Project Managers and Occupational Health and Safety Departments (OH&S) because blasting operations can be evaluated and compared one to each other to determine the risks that should be managed in different case studies. The environmental effects studied are: ground vibrations, flyrock and air overpressure (airblast). Sometimes, blasting operations are carried out near populated areas where environmental effects may impose several limitations on the use of explosives. In those cases, where these factors approach certain limits, National Standards and Regulations have to be applied.