MineSight VALPOptimizing Cut-Off Grades

© 2012 Dr. B. C. Paul

Note – MineSight and VALP are both trademarked names belonging to Mintec Inc. These slides suggest ways of using VALP to improve the NPV of surface

mining operations. VALP was designed for this purpose by Mintec. Thus, many of the ideas in this presentation come from Mintec. The presentation

also contains screen shots taken from the MineSight program. Credit is given to Mintec for development of the software and ideas associated with its use.

Optimizing Surface Mines

• A given body of ore may yield some total profit of a period of time, but the NPV (Net Present Value) of those profits can be increased by taking larger profits in the early years of mining where time discounting has less impact.

• One practical was of taking more profit in the early years is to sequence mining pushbacks so that richer ore is mined earlier– Your sequence planning activities in MSOPIT tries to

do exactly this.

Adjusting Cut-Off Grades Also Can Do This

• Normal Cut-Off Grades are based on Break-Even– Any rock that does not contain enough metal to pay

for processing would loose money if it were processed

• It is said to be below cut-off grade• Only rocks containing enough metal to pay for processing

would be sent for processing

• A standard design finds the ultimate pit that maximizes total profits– You do this when you get the Ultimate Pit with

MSOPIT

Apply a Standard Break-Even Cut-Off Grade

• Quite often mineral processing costs are the largest in a mining operation– With a break-even cut-off grade the total amount of

ore is known– With a plan for the mine life the mineral processing

plant is sized to process the ore in the assigned mine life

– Mining Capacity is then sized and planned to supply the amount of ore and to perform the required stripping capacity

• The Processing Plant and Mine Capacity are set in this was to be compatible.

Making Extra Profit with Unbalanced Facilities

• Suppose one has more mining capacity than the processing plant can handle– Now the mine will send more ore to processing than

processing can handle– Processing now takes only the best of the ore it has

capacity for• The low grade portion of the extra ore is now set aside

(either wasted or stockpiled for another day)

– The result is that a higher grade of ore is processed in the early in the mine life than would be possible just from adjusting the mining sequence

What VALP Does

• First VALP mines each of your Pit shells in order from the top down using the break-even cut-off grade to determine where material goes.– If it runs out of mining capacity in any year it

moves the extra material up in time and counts it a pre-stripping

– VALP calculates the NPV of the cash flow and calls it the “Base Case”

VALP’s Next Move

• Next VALP substitutes an arbitrary higher cut-off grade for the break even cut-off grade– This results in higher grade material being mined first– Lower grade is deferred or wasted– If the NPV increase from higher grade processed first

is greater than the earnings lost from low grade that is wasted or saved till the end for processing then total NPV will increase

– VALP tries a set of arbitrary cut-off grades and reports the one with the highest NPV at a constant cut-off grade

Last Move

• VALP applies the theory of economic rent– For any time period there is an NPV of all the remaining material

to mine– Anything you process now puts off getting that NPV of future

earnings• Any time you put off getting money you get charged interest• That interest is an added cost added to the break-even cut-off grade

– Early in the life of the mine the interest charge is high so the cut-off grade is high

– Later in the mine life the remaining material has little value so the interest charge is small and lower grade material makes sense

– The result is a declining cut-off grade that is optimized to maximize the NPV

Lets Try to Do ItFire-Up MineSight Compass

On the Menu Tab

Pick the MSEP group (MSEP is forMineSight Economic Planner)

Scroll Through the Program List and Pick VALP

The First Panel Controls the Block Model and Areas Examined

Tell it where your blockModel is that it will workWith.

If your block model isLarge compared to theArea where the pit is atYou may want to limitWhich parts of the blockModel are examined toSpeed up execution.(often in our cases we willTake the defaults whichAre to look at the wholeBlock model).Click the next panel when you want to move on.

Tell It Where to Find the Surfaces

This must be the specialized file 13 that contains your pit shell surfaces thatRepresent the push-back sequence you developed in MSOPIT.

Give the Program Your Push-Back Sequence

When you ran MSOPIT you put each pit in your mining push-back sequence intoA pit surface number from 0 to #51. List those surface numbers in expanding pitOrder. (Note that you do not have to have numbered your pits any particular way)

Set the Summary Information

Enter the number of pits that represent your development from the smallestPit to your ultimate pit.

What’s This Rationalize Pits Crap?

VALP will not let you unmine rock once you mine it (ok neither will real life).VALP thus requires that each successive pit contain completely all pits minedBefore it. Depending on how you created the pits pushbacks it might be possibleThat you having a little rounding error where some material from a previous pushBack is not 100% contained in a subsequent push-back. This will cause the programTo crash. By checking the rationalize pits box you instruct the program to checkAll your pit surfaces and if any later push-backs unmine previously mined rock theyLater pit will be adjusted so this does not happen. It’s a good CYA maneuver to check

MineSight Block Model Stuff

MineSight Uses RegularlySized blocks for itsBlock model. ThisMakes routines run fasterAnd uses memory betterThan if some blocksAre subdivided intoSmaller blocks (calledSub-blocking and usedBy some other programs).

The weakness is that aMineSight block may wellBe bigger than an oreFeature – example aBlock at the surface where70% of the block is aboveThe surface.

Coping with Blocks too Big for Features

• MineSight uses a topo% or rock% or some other variable with a name of your choice to indicate what % of a block is actually rock– Thus that block that was 70% above the

surface has a rock% of 30% since only 30% of the blocks volume is actually rock

Problems with Veins

• What happens if a vein is 3 ft thick and a block is 40X40X40.– Obviously even though the block contains

valuable ore, only a small part of the block is actually ore

– MineSight keeps track of this with an item that says how much of the rock is ore (often the variable in the block model is called ore%)

Handling Both Ore and Rock %

• Suppose a vein goes through a surface block and only 30% of the block is rock and only 33% of the rock is ore– We would get our ore a rock%*ore% or

30%*33% = 10% of the block volume is actually ore.

• But what if someone clipped the blocks to topography ore we are mining a vein and we will leave the footwall and hanging wall waste behind?

Clipped Topography

• If 70% of the block is already gone then the correct ore tonnage is 33% - not 10%

• If we are going to mine ore and leave the footwall and hanging wall behind we will only mine 33% of the block and leave the waste behind.

Telling MineSight About the Problem

Tell it to “Take Ore First”. Then when it mines the vein it will get mining costs for33% of the block and leave the rest behind. Or when 70% of the block is alreadyClipped away instead of doing rock%*ore% it will just use ore% to figure out howMuch of the block to mine as ore.

Tell VALP Where To Find Its Rock% Item

Normally MineSight calculates the % of a block that is rock by looking at theGridded surface in your file 13. But perhaps you used a smooth surface and storedThe rock percent in your block model. Tell MineSight it can read the topo% (rock%)Out of the block model.

Then tell it which variable in the block model has that rock percentage in it or shouldBe used by the routine to store the rock %.

Now About That Optional Items List

Of course optional item means the program will run fine if you put nothing at allDown here.

When Would I Use It?Not all ore is equally certain. In fact weWill not know exactly whats in the earthUntil we have dug it out and processed it(and only then if we keep good records).

Sometimes we have very good informationAnd we are very sure what we have.

We call this Measured – coded 1

We may think the ore is there but not be sure – we call this Indicated – coded 2

Sometimes the drilling suggests that ore should be there – we call this inferredCoded 3

Sometimes with a “Hale Mary” and a lot of hope we believe ore might be there. ThisIs beyond just inferred – its faith ore coded 4

Sometimes we don’t have a clue whats there coded 5 for unknown

How Sure Do You Have To Be Before You’ll Make It Your Mine

Plan?You can tell VALP to only bet economicsOn ore you are sure about. CommonlyYou might say to only count on ore thatIs clearly indicated. In other words don’tCount on anything with a code greaterThan 2.

I can give this order by telling the programWhat parameter in my block model tellsMe how sure I am, and then what is theLeast certainty I will accept for planningPurposes.

Note – in order for me to have this option the people who built my block model haveTo have not only predicted ore grades for me. They must have coded into the blockModel how sure they are of the result.

Suppose I Am Remining an Area Where Some of the Rock is already

gone?I can tell the computer whatPart of a block may haveAlready been mined (if it isCoded in my block model).

Tell the computer whichVariable in the block modelTo look at for mined outPercentage.

This might happen if I am surface mining coal that was previously auger mined orRoom and pillar mined.

What If I Want to Make Sure the Routine Does Not Mine Certain

GroundWith a little planning you probablyKept your pit shells out of no miningAllowed ground to begin with.

If not you can tell it that it cannot mineBlocks that have a positive value.Just tell it which variable in your blockModel contains a do not mineRestriction code (a positive number).

Handling Mixed Ore and Waste Blocks

Ore and Waste in a BlockMight have different densityOr a different mining cost.You can store thisInformation in a blockModel, but you have toTell the computer whichVariables contain thisInformation.

This Panel Is Exactly Like the One You Know and Love from MSOPIT

Since You Are Optimizing Cut-Off Grades You Need a Panel on Cut-

Off Grades

The computer needs to know what “grade” item in your block model to use when itEvaluates Cut-Off Grades.

Consider a Copper Mine

• Suppose the percent copper were contained in a block model variable called Cu (Since you assign names to block model variables, exactly what it is called is up to you)

• The program will systematically check economic results at a series of cut-off grades you pick– You will pick the lowest Cut-Off Grade– The increment by which to increase the cut-off

grade– And the number of different Cut-Off Grades to

try

Where to Enter Things

Here you identifyYour cut-off gradeVariable

Here you enter theLowest Cut-OffGrade you wouldConsider

Here you enter theIncrement by whichTo increase theCut-Off Grade

Here you enter the number ofCut-Off Grades to Try

The Poly-metallic Problem

• Many ore deposits gain their value by combining the earnings of several minerals– For example Copper deposits are often

• Copper and Molybdenum• Copper and Gold• Copper, Lead, Zinc, and Silver• Copper and Cobalt

• A cut-off grade on one element would ignore the contribution of the other elements

A Problem Solution

• Equivalent Grades– You may be able to convert the grade of one metal to a grade of

another

• Suppose a block contains 0.3% Copper and 0.1% Molybdenum– Suppose that copper sells for $3/lb and molybdenum for $9/lb

• Moly is worth 3 times as much as copper– Therefore 0.1% moly equals 0.3% copper

• Convert Moly to an Equivalent amount of Copper– Add them up 0.3% Cu + 0.3% Equiv Copper = 0.6% copper

• There is a separate slide show on how to add equivalent grades to a block model

The Problem With a Solution

• While getting a price ratio is straight forward – different minerals may have to be processed in very different ways – and at very different costs and recoveries– It is possible for a block to contain moly that is

not economic to recover at all– Discerning such things requires extensive

review of recoveries and economics that would be tedious (at best) for a block model that may have a million blocks

The Value Per Ton Solution

• When you run MSOPIT you have the ability to enter complex process paths, recoveries and economics for many grade items.– You also have a panel that allows you to save the

value per ton of rock back into the block model– Save back the value of the block excluding mining

costs (what you do with a block after its dug out of the ground is a function of the processing costs – if you had to mine it to get to other ore your not going to throw away money you could make having a tantrum over money you’ve already spent).

I Can Then Run a Cut-Off Purely on post mining profit per ton

Note I have picked the block model item where I saved the value per ton as myCut-Off Grade item.

Obviously in thisCase I would neverSet the base asLess than the 0Break-even.

Scheduled Tons

The computer will look to mine so many tons at a time for scheduling purposes. InGeneral you will get the best balance of speed and precision if you pick about1 weeks production. Suppose I mine 50,000,000 tons a year and run the mine 50Weeks every year. 50,000,000/50 = 1,000,000 tons. But Wait! The blank asksFor k-tons (ie thousands of tons). 1,000,000/1,000 = 1,000. This is the value I wouldEnter here in this case.

You Need A Discount Rate to Do An NPV

Most often the planning time unit for long range planning will be 1 year. (It could beA longer or shorter time). Take the interest rate for that standard time period andEnter it here. A common discount rate for Mining is 15% per year.

You Remember That In Order to Charge Economic Rent Each Year You Had to Know How Much the Mines Future Earning Were

Worth

But you won’t know that till you’ve done the calculation. MineSight does repeatedIterations till the results converge. You set the limit on the number of iterations. It willMost likely converge well before 2,000 is reached.

You Can Also Set Variable Costs By Bench

It includes the ability to do variable mining costs by bench which will activateAnother panel

Holly Crap! – Whats This?

Actually all it is is where you tell the computer what capacity you have for yourVarious processes.

Note That Here Is Your List of Processes

It’s the same process list you filledOut on an earlier panel

You Need to Enter the Capacity of Each of Your Processes Per Time

Period (usually 1 year)

You can pick the units for your process capacity and then enter the amount ofMaterial each process can handle in each planning time unit (usually 1 year)

The Mystery of the Check Boxes

If you are using that process click the use check box (more on why you mightNot check something coming up)

Some processes have a lot of money invested and you want the full capacity ofThat process to be used each year (your mill and other processes that cost a lot toBuild will likely be checked). Check this as a “rate” process.

Explain “Rate” Process

• A Rate Process is a process that you demand be kept running at capacity– Everyone has to have at least one rate process to tell

the computer they want to run the mine and will not accept excuses

• Why would I be touchy about using a process to its capacity limit?– Suppose I build a Mill for $200,000,000.

• That money is earning interest and getting taxed and maintained whether you use it or not

• Its probably costing you $3,000 an hour just to sit there– Can you afford to have an asset like that just sitting around

idle?– (It will financially eat you alive if you do)

The Capacity Totals

How many tons of rockCan your fleet haul andYour mining equipmentBlast and dig up in anyOne time period (usually1 year). YouNeed to tell theComputer.

Sometimes you mayHave a separateEquipment fleet forMoving ore. (MiningCapacity is total ore andWaste). Usually your

Ore Mining Capacity is set equal to the sum of your rate controlling processes butIt does not necessarily have to be.

Note that the units are 1,000s of tons (ie ktons)

Another Note On Mining and Ore Capacity

Think about howOptimizing a cut-offGrade works. If you digUp a bunch of materialBut only process partOf it you can select onlyThe best for processing.This improves NPVPotentially.

Note that unless I haveMore mining capacityThan needed to keepMy ore processesBusy I will have noChance to optimizeMy cut-off grade.

The Problem of Changing Capacity

• Sometimes people will start one part of an operation before another– For example someone might start mining

copper ore from the oxide cap and leach the ore while a more complex sulfide floatation mill is being built.

• Starting a mine involves a lot of capital that starts charging interest as soon as its taken. Starting an early payback cash flow will often improve the project economics

Entering This in VALP

I could enter the yearI start my leachAnd the year mySulfide mill comesOn line and thenCheck only the leachAnd waste processesFor that time period.

VALP Allows Me to Have Different Time Periods With Different Capacities

Other Time Period Uses

• One way to increase the NPV of a project is to delay building full capacity– Later capacity additions can then be paid for with the

mines own cash flow instead of investor dollars that have steep rate of return demands

• Sometimes as the pit gets deeper you have to change the fleet capacity– For example total mining capacity might increase (to

handle the increasing strip ratio)– While ore mining capacity stays the same.

That Just Leaves the Capital Investment Box

The bigger the millOr mine capacity, theMore the equipmentCosts. You can enterThat cost here.

If you do thenMineSight willCalculate NPV asNPV of earnings –NPV of capitalInvestment.

That makes sure youGet the real NPV ofA particular scenario.

But it does not change any of the optimizing procedures (because the optimizingProcedure is working on making NPV of earnings as large as possible). CapitalInvestment is not in any of those equations.

You Might Want to Leave Capital Investment at 0.

• NPV is not a good way to compare investments of different size– Big projects will tend to have higher NPVs than

smaller projects– But bigger may not be better

• A better way to optimize the size of a project is PVR– PVR is NPVearnings/NPV investment– It tells you how many dollars you get back (after

interest) for every dollar you put in.

Doing PVRs with VALP

• Set the Capital Investment at 0

• Then VALP will return for you NPVearnings

• You then do NPV investment

• Now you can do PVR = NPVearnings/NPVinvestment– Get the program to calculate the numerator

for you (it’s the tougher one to calculate)

What Happens to the Low Grade?

In optimizing cut-off grades the idea for improving NPV is to process high gradeMaterial first to increase early year profits. Mother nature does not always cooperate.That early year high grade ore probably was accompanied by low grade ore. WhatHappens to that low grade?

1- You might just throw it in the waste pile2- Or you might stockpile it for later processing after all the good stuff has

had its turn first. - That’s what this Stockpile Panel is for!

First We Identify Whether We Will Have a Stockpile for a Process

Checking use means “yes I will stockpile my low grade”. No check mark meansThe low grade will be discarded.

Note that it would be hard to explain why one would have a stockpile forMaterial being sent to waste.

Stockpiles Aren’t Free

• Suppose I send some rock to a low grade ore stockpile instead of a floatation mill?– I will have to send it to a different location

• That could mean an increase or a decrease in my haul costs.– I may have to position it with a dozer or stacking

conveyor• That might cost me something (or maybe I would have done

about the same thing at the mill so there really is no cost different)

– Finally when I process it later I will have to dig it out of the pile, load it in the truck and haul it to the mill

• I know that not free (rehandle is seldom less than 25 cents a ton and often distinctly more).

– Add up my net cost increase per ton for stockpile handling and recovery from the stockpile.

Enter the Cost Per Ton of Stockpiling

More Stockpile Hickups

• If I end up processing my low grade stockpile at the end of the mine life– That means I will have to keep mine offices,

guard sheds, and a mill superintendent working

– These types of costs are a function of time – not tonnage processed

• When I process the tonnage I have to make enough profit on the low grade rock to pay the fixed costs of keeping the operation open.

Enter that Number Here

Ok – I may end up splitting those costs between ore and leach or other involvedProcesses. The idea is that I will not keep a process open to process low gradeOre unless the low grade ore can generate enough money to pay the fixed costOf keeping the process open.

Note That I Can Also Define Time Intervals for My Stockpile

OperationsI might not have a mill stockpileIf I had no mill?

Enter the first year in whichSome stockpile costs orAvailability will occur

Then enter the last year

I can add additional timePeriods as needed.

The Audit Options Panel is the Same as in MSOPIT

The Output Panel is Similar to MSOPIT but with Fewer Options

It tells you whereIts outputReports aregoing

You can save forEvery blockWhat pushbackIt was in, whatProcess it wentTo, and whatYear it happened(You don’t haveTo save this).

Of Course You Know How to Run the Procedure