1/23 #Economics of #OpenPit #Mining & its impact on a Mining Co's success. This brilliant pic of Letseng diamond mine in Lesotho shows the results of sensible & good strategic & tactical mine #planning. Take a careful look and then compare this pic to the next one of 
2/23 Guyana Goldfields, which is an example of what NOT to do. At first glance, the two pits don't look too dissimilar, right? But what from these pictures is it that lead to the disaster & ultimate collapse sale of $GUY, while GEM Diamonds is still doing great? Can you tell?
3/23 The answers is in the phasing of the pit & ramp access. GUY's next pushback (yellow) is constantly cutting off access (red) to the cut below from blasting -The only cut which supplies the gold. They have to mine the yellow cut/pushback to expose ore later on but it looks
4/23 like they are also a bit behind on the stripping too. It seems the lower cut is almost complete so they must have started stripping too late. 🤨 Compare to that below, where the two cuts have their own systems on opposite sides of the pit so there is no interference from
5/23 the stripping activities & also you can see the cut on the right has recently been finished as the cut on the left is just arriving at an elevation where ore starts being exposed. So the Q is "What is strategic & tactical OP mine planning exactly?" A little knowledge on this
6/23 will really help you (the Retail guy) make better investment decisions, and also highlights the importance of reviewing site photo's & reports: You too could have spotted these basic errors had you actually looked when the trouble began w/ the reserve issue about 2yrs ago.👈
7/23 1st the basics: Pit #optimization. Whittle/NPV Scheduler software produces 3D wireframes of "optimal" pits based on a fixed metal price & various assumptions like recoveries, costs, slope angles etc. from a block model. (I have discussed this previously)
8/23 Whittle works out how much waste can be stripped to expose ore without losing money. IOW, the size and shape of the pit that would cover the costs at a particular price. It only considers ore that can pay for itself, and works much like applying a cut off grade in the
9/23 underground environment (yielding a subset of any resource tonnage with average grade ABOVE the C/O grade). A Whittle pit extracts only blocks that can be economically mined incl. any associated stripping. See the simplified worked example below on the mechanism.
10/23 So, below we see an important point - The total value of the ore in the ground is $19M, but that excludes the cost of the waste stripping, which reduces it to just $6M after everything has been mined (assuming ore mining & process costs are already baked in).
11/23 Note that each Whittle pit is true at one particular price. If the price were higher & the ore body continued to depth at similar grade, it would be bigger and vice versa. If the slope steepened, it could be deeper. If the price or recovery dropped, the pit would be smaller
12/23 Let's talk about STRIP ratios briefly: Not chicken strips 😁, but the ratio of waste to ore mined -by tonnage- in any pit. Here is how sly bastards in the mining space can fool you in your economic evaluations:
13/23 Okay so If we run a series of optimizations at different prices, we obviously would get a series of different sized pits like this. The smallest of which (the lowest metal price you chose) shows you where you should start mining & ALSO give you most upfront value.
14/23 And running a graph showing the waste & ore and value of this series of nested pits at price increments around your selected long-term metal price is very useful in determining what is the real Optimal THEORETICAL pit. (It would be the pit at the top of the blue curve.)
15/23 Lets now go back to our theoretical example and work the schedule practically to produce a cash flow. Bear in mind that most pits take years to deplete so the time value of money becomes important.
16/23 While practical, this is not a good thing. Last year I visited an operating gold mine in South America and the mine plan (on the right) you can see what they were doing: Mining Huge swathes of waste for very little ore on each bench &they were losing money & were selling it
17/23 Ideally, you want as much revenue up front for as little cost (read waste stripping) as possible, and delay waste as much as you can to produce a better discounted cash flow.
18/23 Here is how it would look using our simple example below, and by essentially starting with a low strip ratio and ending with a high one on the later years, we produce $1.28M more NPV than our worst case scenario schedule.
19/23 While mining super narrow benches al la "best case" is great on your laptop, it is entirely impractical in real life because you cannot fit machines onto cuts this narrow; even if you could, you would at-best end up with something VERY unproductive and costly like this:
20/23 Regardless, the Whittle optimization software gives you a schedule of nested pits by best (each successively larger pit being treated as a cut) and also worst case as if each pit were mined entirely on its own from the top to the bottom, and compares them for you nicely:
21/23 From the above pic, we see two "optimum shells", one is Pit 47 (best) & the other is Pit 24 (worst), one is twice the size the other but if I were to schedule Pit 47 by worst case, I'd make only $20M instead of making $53M mining Pit 24 by the same method. That's HUGE
22/23 Somewhere in between the 2 is the REAL OPTIMUM PIT which is actually between the two cases & is PRACTICAL in real life. Finding it is really hard. Many #MinCo 's incorrectly state Best/Worst optimum pits as optimal b/c even qualified engineers don't always understand this.
23/23 🤪 This is a lot to absorb, so I will leave it there for now. In my next series, I will take you through how to find that elusive optimum pit, pit design & pitfalls (excuse the pun) to avoid before you burn up all your hard earned💰investing into companies running OP mines
Think about it. In the example I provided the LoM CF could change by as much as 80% depending on a) Pit selection and b) how I am able to schedule the stripping. I have seen this time & again at many mines, and yet unbelievably about half don't ever even realize this...sad.
