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Mining operations face many hazards.

By quantifying risks we can better allocate mitigative funds in a clear and transparent way,  evaluate projects, make better decisions.
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Examples of tolerability curves.

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Downside risks can be Green=tolerable Yellow=attention Red=intolerable compared to Tolerability Curves
Green=tolerable Yellow=attention
Probability of Occurence
1 0.1 0.01 0.001 0.0001 0.00001 0.000001 0.001 0.01 0.1 1 10

Red=intolerable

5

87

0.02

50
100

143
1000

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This is a list of hazards the client’s Risk Manager  identified.  For confidentiality reasons, we cannot  disclose their exact names.  Imagine, fires, explosions, transportation mishaps, etc.
WPI SMMF CFoTD FB PC GMPoE RE TSF BC FiSEO C&PLS FitCD E PWF

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Bar graph for the Intolerable portion of the scenarios

* A mathematical model is used  

Of the 14 initial scenarios, seven are above tolerability,  but only three are top attention priority.
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Scenarios will be prioritized  by their intolerable part of risk. 
Thus a clear road­map becomes available. Transparent decision can be taken  leading to a rational and sustainable  RM/ERM.
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Terrorism risks are dealt in the same manner.  (the hazard already exist but the probability changes  because of terrorism!)

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Design/Implementation/Construction Infrastructure (setting the bases…) Superstructure (implementing…) Life/Service Service (using, developing, …) Maintenance (repairing, adapting…) Disposal/demolition (ending, releasing…)

3 phases and a total of five steps  in the life of a project/alternative:

Each step has its own hazards and related risks…
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There are many parameters to a “good” decision
• Expected returns and effects…are abundant • Feasibility…is proven • Sustainability…is accomplished • Scalability…is well graded • Redundancy…is sufficient • Reclaim/disposing…is easy and economic

Generally a decision will require a  compromise among them
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Each parameter contributes to the risks of an alternative from cradle to grave.

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Case Study  Long term pumping  v.s. encapsulation  of a very large leaching  underground toxic waste storage.

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The “financial parameters” and risks linked to maintaining the  Status Quo can be summarized as follows (in Million $, noted  M):

 There is p=90% that a 5M capital investment will be  necessary on the treatment plant (ONLY at START)  The energy cost (diesel for the power plant) has a yearly  chance of p=30%  to multiply by two the current pumping costs  (C=2*3.6M/yr)  Because of climate changes there is a yearly chance of  p=15%  that the cost of pumping may triple (C= 3*3.6M/yr).
The data of the alternative Status Quo are displayed in the next  slide, directly taken from the screen of the CDA application.

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Case title
Life duration(Years) Construction budget

Status Quo
40 8.5

Copyright Riskope International SA, 2004­*
www.riskope.com

Email: foboni@riskope.com coboni@riskope.com Skype: droboni  or cesar.oboni

Construction analysis
cost risk min Construction Environmental Soundness 3 4.5 max 4 5.5 average stdev Prob/year 3.6 5 0.13 0.17 90.00%

Usable life analysis
cost min Running Costs 3 max 4 average stdev 3.6 0.13

External risks analysis proper to the alternative
min Energy Price Climate Changes 6 9 max 8 12 average stdev Prob/year 7.2 10.8 0.27 0.4 30.00% 15.00%

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The “financial parameters” and risks linked to building and  maintaining the Rehabilitation can be summarized as follows  (in Million $, noted M):

 There is a probability of 10 % that after spending the initial  120M another 120M is necessary to finish the project.  The energy cost (diesel for the power plant) has a yearly  chance of p=30%  to multiply by two the current pumping costs  (C=2*0.3M/yr).  Because of climate changes the is a yearly chance of p=5%   that the cost of pumping may become “normal” (i.e. The  encaptulation is not working) (C= 3.6M/yr) 
The data of the alternative Rehabilitation are displayed in Figure 6,  directly taken from the screen of the CDA application we are using. 
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Case title
Life duration(Years) Construction budget

Rehabilitation
40 120

Copyright Riskope International SA, 2004­*
www.riskope.com

Email: foboni@riskope.com coboni@riskope.com Skype: droboni  or cesar.oboni

Construction analysis
cost risk min Construction Environmental Soundness 80 80 max 110 110 average 100 100 stdev 3.33 3.33 10.00% Prob/year

Usable life analysis
cost min Running Costs 0.25 max 0.35 average 0.3 stdev 0.02

External risks analysis proper to the alternative
min Energy Price Climate Changes 0.5 3 max 0.7 4 average 0.6 3.6 stdev 0.03 0.13 Prob/year 30.00% 5.00%

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The “financial parameters” and risks linked to building and  maintaining the Failed Rehabilitation can be summarized as  follows (in Million $, noted M):

 There is a probability of 10 % that after spending the initial  120M another 120M is necessary to finish the project.  The energy cost (diesel for the power plant) has a yearly  chance of p=30%  to multiply by two the current pumping costs  (C=2*3.6M/yr)  Because of climate changes the is a yearly chance of p=15%   that the cost of pumping may triple (C= 3*3.6M/yr)
The data of the Failed Rehabilitation case are displayed in Figure 7,  directly taken from the screen of the CDA application we are using. 

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Case title
Life duration(Years) Construction budget

Failed Rehabilitation
40 120

Copyright Riskope International SA, 2004­*
www.riskope.com

Email: foboni@riskope.com coboni@riskope.com Skype: droboni  or cesar.oboni

Construction analysis
cost risk min Construction Environmental Soundness 80 80 max 110 110 average 100 100 stdev 3.33 3.33 10.00% Prob/year

Usable life analysis
cost min Running Costs 3 max 4 average 3.6 stdev 0.13

External risks analysis proper to the alternative
min Energy Price Climate Changes 6 9 max 8 12 average 7.2 10.8 stdev 0.27 0.4 Prob/year 30.00% 15.00%

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Traditional NPV analysis: ­Rehabilitation:120M$ construction, then 0.3M$/yr, 40  years life span NPV: ­123.23M$ ­Status Quo: 3.6M$/yr, 40 years life span NPV ­42.33M$

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Lets see how the CDA/ESM reacts at the 40 years time horizon  for the 2 alternatives   Status Quo, Rehabilitation, and the Failed Rehabilitation case. Figure  8 shows for each, min, max, average of the cumulative cost at fourty  years.
­450.00 ­400.00 ­500.00 ­450.00 ­400.00 ­350.00 ­300.00 ­250.00 ­200.00 ­150.00 ­100.00 ­50.00 0.00 ­200.00 ­350.00 ­300.00 ­250.00
Rehabilitation Status Quo Failing Rehabilitation

Rehabilitation Status Quo Failing  Rehabilitation

­150.00 ­100.00 ­50.00 0.00

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Sensitivity of the 2 alternatives to a variation of the  probability of  raising costs of energy to the level  used in this analysis.
­450.00

Probability  75%

­400.00

­350.00

­300.00

­250.00

Probability  0%

Probability  5%

Probability  10%

Probability  20%

Probability  30%

Probability  40%

Probability  50%

­200.00

­150.00

­100.00

­50.00

0.00

For all probabilities of energy cost increase the Rehabilitation (yellow bar) is more costs  efficient than the Status Quo (blue bar), once all the three considered risks are included.  If the probablities that the costs of energy might be triple or more is considered, for any  value of it, the Status Quo alternative is less appealing than Rehabilitation. 

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The tool used to avoid these NPV pitfalls is called CDA/ESM™ and is  used to compare alternatives in financial terms, including:  Life’s cycle balance encompassing internal and external risks over a 

selected duration,  Project implementation and demobilization costs and risks.

The approaches described above have been successfully applied to: Rope v.s. road transportation  Surface v.s. underground solutions Water treatments alternatives Transportation networks Go/no­go decisions

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Tools exist and do work Experience is eloquent We all prefer to succeed rather than fail. Thinking and fixing before it happens is way cheaper than fixing afterwards Thanks to specific techniques each decision can be supported by transparent and rational evaluations ERM will not eliminate losses but reduce them and allow for quicker rebound
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What can we accomplish?
By using a transparent and sound quantitative approach we can:
Scientifically select the most significant risks, Draw attention to the objective highest exposures (filtering emotional perceptions), and Prioritize them to allow reasonable mitigation in a very focused way.

We clearly enhance the ability to prioritize risks for a rational and sustainable development.
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BUT, more importantly
Create the basis to avoid a slide into a crisis, by proactively controlling the situation.

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