1. MineSight VALP Optimizing 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.

2. 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.

3. 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

4. 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.

5. 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

6. 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”

7. 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

8. 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

9. Lets Try to Do It Fire-Up MineSight Compass On the Menu Tab Pick the MSEP group (MSEP is for MineSight Economic Planner)

10. Scroll Through the Program List and Pick VALP

11. The First Panel Controls the Block Model and Areas Examined Tell it where your block Model is that it will work With. If your block model is Large compared to the Area where the pit is at You may want to limit Which parts of the block Model are examined to Speed up execution. (often in our cases we will Take the defaults which Are to look at the whole Block model). Click the next panel when you want to move on.

12. Tell It Where to Find the Surfaces This must be the specialized file 13 that contains your pit shell surfaces that Represent the push-back sequence you developed in MSOPIT.

13. Give the Program Your Push-Back Sequence When you ran MSOPIT you put each pit in your mining push-back sequence into A pit surface number from 0 to #51. List those surface numbers in expanding pit Order. (Note that you do not have to have numbered your pits any particular way)

14. Set the Summary Information Enter the number of pits that represent your development from the smallest Pit to your ultimate pit.

15. 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 mined Before it. Depending on how you created the pits pushbacks it might be possible That you having a little rounding error where some material from a previous push Back is not 100% contained in a subsequent push-back. This will cause the program To crash. By checking the rationalize pits box you instruct the program to check All your pit surfaces and if any later push-backs unmine previously mined rock they Later pit will be adjusted so this does not happen. It’s a good CYA maneuver to check

16. MineSight Block Model Stuff MineSight Uses Regularly Sized blocks for its Block model. This Makes routines run faster And uses memory better Than if some blocks Are subdivided into Smaller blocks (called Sub-blocking and used By some other programs). The weakness is that a MineSight block may well Be bigger than an ore Feature – example a Block at the surface where 70% of the block is above The surface.

17. 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

18. 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%)

19. 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?

20. 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.

21. Telling MineSight About the Problem Tell it to “Take Ore First”. Then when it mines the vein it will get mining costs for 33% of the block and leave the rest behind. Or when 70% of the block is already Clipped away instead of doing rock%*ore% it will just use ore% to figure out how Much of the block to mine as ore.

22. Tell VALP Where To Find Its Rock% Item Normally MineSight calculates the % of a block that is rock by looking at the Gridded surface in your file 13. But perhaps you used a smooth surface and stored The 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 should Be used by the routine to store the rock %.

23. Now About That Optional Items List Of course optional item means the program will run fine if you put nothing at all Down here.

24. When Would I Use It? Not all ore is equally certain. In fact we Will not know exactly whats in the earth Until we have dug it out and processed it (and only then if we keep good records). Sometimes we have very good information And 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 inferred Coded 3 Sometimes with a “Hale Mary” and a lot of hope we believe ore might be there. This Is beyond just inferred – its faith ore coded 4 Sometimes we don’t have a clue whats there coded 5 for unknown

25. How Sure Do You Have To Be Before You’ll Make It Your Mine Plan? You can tell VALP to only bet economics On ore you are sure about. Commonly You might say to only count on ore that Is clearly indicated. In other words don’t Count on anything with a code greater Than 2. I can give this order by telling the program What parameter in my block model tells Me how sure I am, and then what is the Least certainty I will accept for planning Purposes. Note – in order for me to have this option the people who built my block model have To have not only predicted ore grades for me. They must have coded into the block Model how sure they are of the result.

26. Suppose I Am Remining an Area Where Some of the Rock is already gone? I can tell the computer what Part of a block may have Already been mined (if it is Coded in my block model). Tell the computer which Variable in the block model To look at for mined out Percentage. This might happen if I am surface mining coal that was previously auger mined or Room and pillar mined.

27. What If I Want to Make Sure the Routine Does Not Mine Certain Ground With a little planning you probably Kept your pit shells out of no mining Allowed ground to begin with. If not you can tell it that it cannot mine Blocks that have a positive value. Just tell it which variable in your block Model contains a do not mine Restriction code (a positive number).

28. Handling Mixed Ore and Waste Blocks Ore and Waste in a Block Might have different density Or a different mining cost. You can store this Information in a block Model, but you have to Tell the computer which Variables contain this Information.

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

30. 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 it Evaluates Cut-Off Grades.

31. 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

32. Where to Enter Things Here you identify Your cut-off grade Variable Here you enter the Lowest Cut-Off Grade you would Consider Here you enter the Increment by which To increase the Cut-Off Grade Here you enter the number of Cut-Off Grades to Try

33. 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

34. 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

35. 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

36. 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).

37. 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 my Cut-Off Grade item. Obviously in this Case I would never Set the base as Less than the 0 Break-even.

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

39. 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 be A longer or shorter time). Take the interest rate for that standard time period and Enter it here. A common discount rate for Mining is 15% per year.

40. 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 repeated Iterations till the results converge. You set the limit on the number of iterations. It will Most likely converge well before 2,000 is reached.

41. You Can Also Set Variable Costs By Bench It includes the ability to do variable mining costs by bench which will activate Another panel

42. Holly Crap! – Whats This? Actually all it is is where you tell the computer what capacity you have for your Various processes.

43. Note That Here Is Your List of Processes It’s the same process list you filled Out on an earlier panel

44. 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 of Material each process can handle in each planning time unit (usually 1 year)

45. The Mystery of the Check Boxes If you are using that process click the use check box (more on why you might Not check something coming up) Some processes have a lot of money invested and you want the full capacity of That process to be used each year (your mill and other processes that cost a lot to Build will likely be checked). Check this as a “rate” process.

46. 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)

47. The Capacity Totals How many tons of rock Can your fleet haul and Your mining equipment Blast and dig up in any One time period (usually 1 year). You Need to tell the Computer. Sometimes you may Have a separate Equipment fleet for Moving ore. (Mining Capacity is total ore and Waste). Usually your Ore Mining Capacity is set equal to the sum of your rate controlling processes but It does not necessarily have to be. Note that the units are 1,000s of tons (ie ktons)

48. Another Note On Mining and Ore Capacity Think about how Optimizing a cut-off Grade works. If you dig Up a bunch of material But only process part Of it you can select only The best for processing. This improves NPV Potentially. Note that unless I have More mining capacity Than needed to keep My ore processes Busy I will have no Chance to optimize My cut-off grade.

49. 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

50. Entering This in VALP I could enter the year I start my leach And the year my Sulfide mill comes On line and then Check only the leach And waste processes For that time period.

51. VALP Allows Me to Have Different Time Periods With Different Capacities

52. 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.

53. That Just Leaves the Capital Investment Box The bigger the mill Or mine capacity, the More the equipment Costs. You can enter That cost here. If you do then MineSight will Calculate NPV as NPV of earnings – NPV of capital Investment. That makes sure you Get the real NPV of A particular scenario. But it does not change any of the optimizing procedures (because the optimizing Procedure is working on making NPV of earnings as large as possible). Capital Investment is not in any of those equations.

54. 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.

55. 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)

56. What Happens to the Low Grade? In optimizing cut-off grades the idea for improving NPV is to process high grade Material 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. What Happens to that low grade? 1- You might just throw it in the waste pile 2- 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!

57. 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 means The low grade will be discarded. Note that it would be hard to explain why one would have a stockpile for Material being sent to waste.

58. 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.

59. Enter the Cost Per Ton of Stockpiling

60. 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.

61. Enter that Number Here Ok – I may end up splitting those costs between ore and leach or other involved Processes. The idea is that I will not keep a process open to process low grade Ore unless the low grade ore can generate enough money to pay the fixed cost Of keeping the process open.

62. Note That I Can Also Define Time Intervals for My Stockpile Operations I might not have a mill stockpile If I had no mill? Enter the first year in which Some stockpile costs or Availability will occur Then enter the last year I can add additional time Periods as needed.

63. The Audit Options Panel is the Same as in MSOPIT

64. The Output Panel is Similar to MSOPIT but with Fewer Options It tells you where Its output Reports are going You can save for Every block What pushback It was in, what Process it went To, and what Year it happened (You don’t have To save this).

65. Of Course You Know How to Run the Procedure