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Strategic Mine Planning Through Risk-Return Portfolio Optimization Enrique Rubio, Ph. D. Executive Director, REDCO Mi PowerPoint Presentation
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Strategic Mine Planning Through Risk-Return Portfolio Optimization Enrique Rubio, Ph. D. Executive Director, REDCO Mining Consultants. Strategic Mine Planning. How, When and what is going to be produced in the future from an ore body that maximizes shareholders value

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Strategic Mine Planning Through Risk-Return Portfolio OptimizationEnrique Rubio, Ph. D. Executive Director, REDCO MiningConsultants

strategic mine planning
Strategic Mine Planning
  • How, When and what is going to be produced in the future from an ore body that maximizes shareholders value
  • It is about a vision of the future in terms of how to bit the odds
  • It is not related to material handling. It is about having a position in the production or the cost curve
  • IT IS NOT JUST ABOUT NVP OPTIMIZATION
npv driven approach
NPV Driven Approach
  • Ore body continuity
  • Resource aggregation does not fulfill operational selectivity
  • High expectations
  • It does not integrate Geological/Operational/Market variability

NPV

t*

Tpd (cog)

Cut off grade (cog)

Wrong fundamental assumptions!!!

business uncertainty
Business Uncertainty
  • Geology, geotechnical distribution across the ore body
  • Variability in the extraction process
  • Variability in the material handling system
  • Large market variability that induces tactical decision uncertainty
plan versus operation
Plan versus Operation.

Draw Point Reconciliation

Phase-Bench Reconciliation

large operational deviation
Large operational deviation.
  • Deviation
  • Life of mine
  • Mining Reserves
  • OperatingCost

Actual Production SMU (t)

Planned Production SMU (t)

Detailed Mine reconciliation facilitates further optimization of operational hedgging

operational deviation high operating cost
Operational Deviation=>High Operating Cost.
  • Unplanned longer tramming distance
  • Low active mine utilization,
  • Low productivity equipment to mine more selectively as unplanned situation
  • Across the mining system there are mining reserves that are more costly than others

80%

Cash Cost ($/mu)

20%

Production

Volatility (%)

proposed approach
Proposed Approach
  • The mine planning process must integrate operational hedging in sequence, production schedule, mine design and equipment selection to assure a certain level of reliability
  • This is not just about a valuation technique is about comprehending the uncertainty space and its effect in planning decisions

NPV

dNPV

Tpd (cog)

Cut off grade (cog)

R

the role of mining systems in t his approach
The role of MiningSystems in thisApproach

Thevariability and theoperationalhedgingshouldbean integral part of thedesign of theminingsystem

  • Operatingunits-cycle times
  • Equipmentproductivity
  • Equipmentoperationalfactors

Interactionamongunits

ProductionUnit

w

slide10

Operational Discrete Events Simulation

  • Enables to see production opportunities throughout the whole mining system
  • Supports the capacities and their variabiblity of different segments or components of the mining system
  • Foresee botleneck and congestion
  • Analyze different productive scenarios

Teniente

Chuquicamata

Antamina

slide11

Probabilistic Production Capacity

  • Itis a tooltoassesstherobustness of theminingsystem
  • Ithelpstoanalysedifferentproductionscenarios and alternativeminingsystems
the model
TheModel

Fixedcost ($)

Profitfunction

Sellingcost ($/lb)

Unitoperatingcost ($/t)

Returnojective

function

Productionrate per

productiveunit ((tpd)

Returnojective

function

<=

r

Uncertainty of the

miningsystem as a whole

MiningSystemDesign

OperationalHedging

slide14

Operational Hedging

f

f

p

p

t

t

t

i

i

  • Itisaninsurancethatallowstomitigatetheuncertainty of a givenproduction target
  • In general ittranslatesintolargerfootprint, alternativedesigns, new technologies, and some times a biggerequipmentfleet.
risk return topology space
Risk – Return Topology Space.

Increase Production Capacity

Unfeasible Scenarios

  • EconomicEnvelop
  • Miningsystem
  • Sequence
  • Production Schedule
  • Equipmentallocation
  • ProductionSimulation

Return ($)

Feasible Scenarios

Volatility (%)

redco s approach
REDCO´s Approach

Systemic Approach to Mine Planning.

Dynamic

simulations

To Balance the Risk and the Return

of Mining Systems efficiently designing

operational Hedging

Reliability

Modeling

Optimization

toolkit
ToolKit
  • Integrated holistic optimization engines: BOS2, UDESS, T_Test, …
  • Dynamic simulation models in Arena
  • Portfolio Efficient frontier
the process scenario generation
The Process- Scenario Generation.

Dynamic Simulation

SequenceOptimizer

VMM-PPV

the platform
The Platform.

VirtualMiningMachine

(VMM)

the process scenario generation display
The Process- Scenario Generation (display).

Acceso F3

Acceso F5

Acceso F3

Acceso F5

Acceso F1

Acceso F1

Banco 1670

Banco 1655

portfolio optimization
Portfolio Optimization.

Strategic Mine

Planning Portfolio

Production Efficient

Frontier

Return ($)

Activate

Hedging

Inefficient Scenario

Re allocate

Hedging

Volatility (%)

1 muzo strategic mine design 2 chuquicamata underground review
1. Muzo Strategic Mine Design2. Chuquicamata UndergroundReview

Case Studies

case study 1 strategic planning muzo emerald mine
Case Study 1- Strategic Planning Muzo Emerald Mine
  • 3 Miningmethods
  • Price and grade uncertainty
slide28

Case Study 1.

Price and Grade Uncertainty

  • Everyproductiveareaischaracterizedbyitsowndistribution
  • Everyproduct and subproductischaracterizedbyitsownpricedistribution
slide29

Case Suty 1

Eficient Frontier for Muzo Emerald Operation

  • Thequestioniswhichmethod and whatproductionshouldbeused at eachminingareato balance the portfolio
slide30

Case Study 1.

Results

Every single point represents a different production strategy that is taken as whole portfolio

slide31

Case Suty 2- Tactical Planning

Chuquicamata Underground Mine Planning

Cross Sectionby 2018 TheEnd of Mine Life

  • By 2018 Chuquicamata open pitreachestheend of itsoperatinglife
  • A replacementundergroundprojectwasengineeredtoprolongthelife of the mine until 2058
  • Block cave miningmethod of 2710 drawpoints of 4 designedlifts
  • 340,000 t of fine copperover 2018 and 2058 periodwith a pre mininginvestment of 3,000 MUS$

Block Cave MiningSystem

mining system design
MiningSystemDesign

Variability of Geotechnical

Context

Proposed Sequence

EconomicFootprint

proposed production schedule
ProposedProduction Schedule

1. Reviewagreementproduction

versus open area

2. Reviewnumber of active blocks per panel

3. Reviewthedesign of every panel accordinglywithdifferentfragmentation

slide34

Review Production Targets and Mine Design

ProductionUnitCharacterization

Plan Volatility

EficientFrontierOptimization

volatility of the current production schedule
Volatility of theCurrentProduction Schedule

Strategy:

5 propagating blocks

6 active blocks

1 exhausting block

proposed strategy for chuquicamata underground project
ProposedStrategyFor Chuquicamata Underground Project

3 propagating blocks and 4 active blocks

ProductionEfficientFrontier

3 propagating blocks and 4 active blocks with ad hoc designfordifferentfragmentation

Return ($)

Activate Hedging

Inefficient Scenario

Volatility (%)

current applications
Current Applications
  • Justify investment on research new technologies
  • Integration of mining feasibility and pre feasibility project in a global production portfolio
  • Value different development and exploration ventures within a district or company
  • Value alternative sequencing and mine design in a strategic context
final remarks
Final Remarks.
  • Uncertainty in the mining business forces mine planners to introduce flexibility and operational hedges
  • Traditional NPV does not value flexibility
  • Adding operational hedging in mine design implies a conception of a flexible holistic mining system
  • Mining systems adding operational hedging could transform drastically geometrical, sequence and the whole production schedule either of a single mine or a district when optimizing the return and the risk of the strategic portfolio.