SME Annual Meeting

March 1-3, 1999, Denver, Colorado

Preprint 99-130
CASE STUDY OF EFFORTS TO REDUCE COSTS AND INCREASE
PRODUCTION AT A MID-SIZED INTERNATIONAL MINING COMPANY

J. C. Harrison
M. V. T. Da Silva
Eldorado Gold Corp.
Nogales, AZ

ABSTRACT 5. Shaft hoisting capacity increase.

Eldorado Gold Corporation of Vancouver,
B.C. owns and operates three gold mines. The
São Bento underground gold mine in Minas
Gerais State, Brazil produced 105,907 ounces in
1997. The La Colorada and La Trinidad open pit,
heap leach mines in Mexico produced over 83,000
ounces in 1997. With a deteriorating gold market
plaguing the industry throughout 1997 Eldorado
had to take critical measures at each mine to
enhance gold production while lowering cash
operating costs. Each mine had its own unique
problems to confront. This case study will discuss
three distinct courses of action taken at the three
mine sites.
THE SÃO BENTO MINE
The São Bento mine is located in Minas
Gerais State of Brazil and is ranked fourth in
Brazil in annual gold production. Gold
production in 1997 came to 105,907 ounces. With
operating costs as high as $360/oz in 1996 the
mine set out to increase gold production while
reducing costs. To achieve these goals
management would have to make major changes
within the operations. The following challenges
were established and completed in 1997 and 1998:
1. Modernize and mechanize the underground
operations.
2. Implement a geological exploration that will
increase the reserve base and improve ore
grade continuity.
3. Improve safety conditions at the mine and
plant.
4. Restructure the management organization.
6. Increase process capacity in the recovery
plant.
The organization structure at São Bento was
reviewed. It was decided to incorporate
maintenance into the operational areas and to
integrate the human resources department. As
well the number of departments was reduced from
6 to 4, bringing a new management style that was
more participative.
Mining , Diamond Drilling and Productivity
Since the São Bento Mine began operating
over 1,000,000 ounces of gold have been
extracted using manual shrinkage and cut and fill
stoping methods. The manual stoping costs were
US$ 20.00/tonne and the safety record was very
poor. The mine needed to implement a more cost
effective mining method. Eldorado undertook a
detailed engineering review of the underground
operation. It was determined that a Long hole
Sub-level mining method using mechanized
mining equipment had the potential of increasing
production and lowering mining costs. A total of
15 million dollars were allocated to converting
São Bento to a mechanized Long Hole Sub-Level
mining operation. This program included the
purchase of mechanized underground equipment,
extensive diamond drilling and development
required to sustain the increased mine production
rate. To take advantage of the geological
structure, development headings are excavated on
dip with the ore vein. This increases ground
stability and reduces dilution. The new Sub-level
mining method consists of removing ore in 30-ft

1 Copyright © 1999 by SME

lifts and 60-ft panels along strike. A rib pillar is
left between each stope panel. The ore panels are
extracted from the extremities of the ore zone
retreating towards the center. Back-filling is
conducted after the stope panel has been mucked
out. This new mining method has resulted in
reducing the stoping costs to US$ 10.00/tonne.
Increased production targets have been achieved
and the safety record has improved.
A comprehensive understanding of the ore
reserve was required for the new mining method.
In 1997 Eldorado purchased a hydraulic diamond
drill machine as well as contracting a Brazilian
company to undertake an extensive drill program.
This program provided 17,000 meters of drill
information, giving a better understanding of
geological behavior of the ore deposit and
allowing accurate mine planning and
development. The current geological resources
are 5.2 M Tons @ 10.95 g Au/tonne and
geological reserves are 3.3 M Tons @ 9.01 g
Au/tonne.
The mining method involved the utilization of
expensive and technically complicated machinery.
To ensure success São Bento undertook an
extensive training program. Rather than rely on
salesman and engineering technicians for the
training, São Bento contracted miners from
Canada who made their living from operating
these machines. The success of this program can
be demonstrated by the fact that currently most of
São Bento underground operations achieve a
productivity rate equal to that of mines in North
America.
Mechanization of the underground resulted in
a reduction of the required labor force and an
increase in the skills and responsibility of the
miner. This had the intrinsic value of allowing
São Bento the opportunity to increase salaries,
establish a bonus system and raise the
commitment, dedication and productivity of the
work force. Underground productivity has
increased from 2.5 tonnes/man/shift to 5.5
tonnes/man/shift. The ore production has
increased from 30,000 tpm to 47,000 tpm. The
underground labor force has been reduced from
900 workers and 300 contractors in January 1996
to a total of 670 workers and 120 contractors at
the end of 1998. Operation mine costs have been
reduced from $35 per tonne to $25 per tonne. The
Mine reviewed significant contracts with drilling
materials and explosives, negotiating terms and
2 Copyright © 1999 by SME
conditions, that resulted in significant cost
reduction of US$5.00/oz.
The following equipment was purchased for the
mechanization of the São Bento Mine:
1. 9-LHD Scooptrams, 6-3 yard, 1-6.5 yard, 1-
3.5 yard, and 1-2.2 yard.
2. 4-Hydraulic Single Boom Jumbos.
3. 5-Long hole drill machines, 4-Pneumatic, 1-
Hydraulic.
4. 3-16 tonne trucks.
5. Various support equipment and vehicles.
The actual equipment productivity is:
1. LHD's produce 65,000 tonnes/month.
2. Development Jumbos produce 45,000 meters
drilled/month.
3. Long hole drill machines produce 20,000
meters drilled/month.
4. Haul trucks produce 40,000 tonnes/month.
The planned production for next year is 47,000
tonnes ore/month and 500 m development/month.
Safety
Improving safety and working conditions at
São Bento was also an important objective for
Eldorado Gold Corp. The São Bento Mine
implemented the following changes to ensure a
safe and productive mine:
1. Implementation of the “Neil George” 5 point
safety system.
2. Establishment of a stench gas warning
system.
3. Construction of underground safety stations
throughout the mine that are supplied with
potable water and pressurized air in case of an
emergency or underground fire.
4. Personal self rescuer masks are carried by all
underground workers.
5. New miners lamps with 50% more light
intensity output, high intensity hand held spot
lights.
6. Improved personnel safety equipment, which
included work clothes equipped with
reflective strips, steel toe boots, ear
protection, belts with back support protection
7. Aluminum scaling bars were introduced to
allow higher back areas to be scaled more
efficiently.
 A bus and train transport system was
established to transport workers to their work
areas both on surface and underground. This
reduced worker fatigue and increased productivity
by maximizing the available work time at the
work areas. These changes helped São Bento to
achieve the best safety record in the mine history
and reduced the LTIF (lost time accident
frequency) to less than 10% of the level previous
to the changes.
In 1998, São Bento Mine made an expansion
of the ventilation main system of underground
workings. The investment included the acquisition
of two axial fans, with a nominal rate of 65 m3/s
of air and a static pressure of 18 in Hg. The total
investment in the new ventilation system was
US330,000.00. The actual volume of air is 176
m3/s, which means an increment of 120% of fresh
air to underground workings.
Increase Shaft Hoisting Capacity
The São Bento Mine hoist was rated at 38,000
tonnes of waste and ore per month. The shaft
contained a double drum hoist using a 9.5 ton
capacity skip. A cage used for hoisting workers
and supplies was located in the same shaft
compartment. Laws require that hoisting be
halted while miners are moved within the
production shaft compartment. This resulted in a
loss of productivity. A new design configuration
was approved that would add an additional skip
and double drum hoist allowing a single drum
hoist to move supplies and workers within a
separate shaft compartment. The shaft expansion
was completed in January 1998 and increased
production from 38,000 tons per month to
100,000 tons per month. The expansion was
completed for $4 million which was $1.6 million
under budget.
Expansion of the Recovery Plant
The São Bento mine has a complex plant for
processing and recovering gold from refractory
ore. The plant consists of an autogenous mill, a
gravity recovery stage, flotation of sulfides
followed by pressure oxidation and bio-oxidation.
The original mill processed 20,000 tonnes of
refractory ore per month. A second bio-oxidation
reactor was installed in 1993, which increased
throughput to 32,000 tonnes per month.
Eldorado Gold set the following goals:
3 Copyright © 1999 by SME
1. Increase production to 43,000 tonnes per
month.
2. Reduce operating cost by $20 per ounce.
3. Improve safety.
4. Improve environmental conditions.
A budget of $12.9 million was allocated for
the expansion from 32,000 tonnes per month to
43,000 tonnes. This sum of money would be
required to install a third autoclave and a fourth
bio-oxidation reactor. After thorough testing and
examination it was determined that by increasing
the oxidation capacity by 34% the installation of
the third autoclave would not be necessary.
Operating pressures for the two autoclave vessels
were increased from 1,600 Kpa to 1,700 Kpa and
the additional oxidation capacity was achieved.
Minor changes down stream were needed to
achieve the efficiency throughout the recovery
circuit. Two pumps were added to the
classification circuit and the CIL circuit was
expanded to handle 10,000 ton/month of oxide
product from the oxidation section . A total of $3
million dollars was spent on expansion and a
saving of $9.9 million was achieved. After this
investment the Milling area reached a production
of 47,000 tpm and exceeded 10,000 ounces per
month. São Bento reviewed all the significant
contracts with suppliers and negotiated terms and
conditions, emphasizing partnerships that resulted
in significant cost reductions. Major benefits were
realized with the oxygen costs reducing
approximately US$12.00/oz.
SUMMARY
The actions taken at São Bento improved
underground production, lowered costs and
increased throughput in the plant. The main
achievements were: Mining Method Change,
Purchase of Underground Equipment,
Implementation of a Bonus System, Improve
Working Conditions, Expansion of Shaft Hoisting
Capacity, Improve Safety, Engineering and
Planning and Optimizing of the Plant. The most
important results are: Complete Modernization
and Mechanization of the mine, Participative
Management Philosophy, Geological exploration
of Lower Levels, Optimization of Safety and Plant
expansion. The Operating costs were decreased
from $360 an ounce in 1996 to $266 in the first
quarter of 1997. These costs are expected to
reduce to $250 in 1998 and $235 in 1999.
 THE LA COLORADA MINE
The La Colorada Mine is located in the state of
Sonora, Mexico 45 kilometers southeast of the
capital city of Hermosillo. The mine is a
conventional cyanide heap leach operation
processing approximately 9,000 tonnes of ore
daily and utilizing a Merrill-Crowe recovery
circuit. Approximately 30 % of the ore is treated
as run-of-mine and dumped directly onto pads
with the majority being crushed in a two-stage
crushing plant to a size of -3/4". Combined ore
and waste production of 10-12 million tonnes per
year are mined with a fleet of Cat 992 loaders and
Cat 777/773 trucks operated by a mining
contractor. Currently the work force stands at 110
employees. Mining, blasting and security are
performed by contractors with a combined
manpower of 125. Annual gold production has
increased steadily with 20,000 ounces produced in
1994, 31,000 in 1995, 47,000 in 1996 and 53,000
in 1997.
The mine produced approximately 60,000
ounces of gold in 1998 at a cash operating cost of
$240/ounce. This is the result of efforts in 1997
and 1998 to re-design pits and reduce unit-
operating costs with the goal of being profitable at
gold prices at or slightly below $300 per ounce.
A review began in mid-1997 of all facets of
the operation including long range planning,
current operating practices, and mine costs. Some
of the resulting changes were minor but many
resulted in significant improvements in the effort
to contain costs. Although no extra impetus was
needed to proceed with these changes, the
precipitous drop in gold prices from $360/ounce
in June 1997 to the $300 range in 1997 and 1998
added the survival instinct to these efforts. The
following changes were made in 1997 and 1998 to
improve productivity while reducing costs:
1. “Partnering” with the mining contractor.
2. Reduced drilling and blasting costs.
3. Improved mine productivity by better ore
control.
4. Improved land use and waste dump planning.
5. Implemented changes in cost accounting and
purchasing.
6. Reduced manpower
"Partnering" with the Mining Contractor
Mining costs have historically been the largest
cost component for the mine. With higher
4 Copyright © 1999 by SME
stripping ratios their percentage of the total costs
continued to increase. It was this area that
provided the single largest opportunity for cost
reduction.
A Sonoran-based contractor had performed the
mining since the beginning of operations in 1993.
As production rates increased the mine contractor
continued to add equipment and build the mining
fleet. Over a three year period they had worked
under one-year contracts as the size of the deposit
continued to be defined. The uncertainty of future
work was reflected in higher unit pricing. After
Eldorado completed the drilling of the Gran
Central and La Colorada deposits, a long-term
plan was prepared. The plan was used for bidding
a more cost effective long-term contract.
A four-year mine life contract was bid on by 5
companies. All bidders were provided an estimate
of the annual mining requirement including
tonnage movements and average annual haulage
profiles. The next step was to select the three
most qualified bidders and further refine their
estimates. For this final round, Eldorado had a
more refined plan and had asked the contractors to
provide a range of unit prices depending on
average haulage distances. On a competitive
basis, Eldorado’s current contractor still proved to
be the best option. Mining costs were based on
total yearly metric tons mined versus haul
distances.
The La Colorada contractor had previously
indicated a willingness to share in the risk and
success of the La Colorada mining operation and
had voluntarily indexed the price per tonne they
charged to the gold price during the last five
months of 1997. Building on the concept that
both the company and the contractor should share
in the success or downside of the gold mining
business, a pricing table was developed for several
ranges of gold prices where the price per tonne
paid increased with increasing gold price. There
are 4 ranges starting with <$300/ounce and
increasing to >$375/ounce.
Two other factors were incorporated into this
pricing table: haulage distances and projected
annual mining rates. Haulage distances were
indexed at 500 meter increments ranging from 0
to >2,500 meters. Finally, recognizing the
relationship of economies of scale and the
contractor's overhead, the pricing table was also
indexed to variable annual production rates. This
provided Eldorado the flexibility of adjusting
mine plans without writing a new contract and
provided the contractor with higher unit prices if
annual tonnage rates were reduced.
With a new, life of mine contract in place, a
joint review of the operating efficiencies of the
contractor led to several changes that improved
productivity. Time studies to increase
productivity led to fueling during lunch periods to
decrease the down time of equipment for fueling
during the shift. The mine’s engineering
department improved the road and ramp designs
for reducing travel distances.
Reduced Drilling & Blasting Costs
Through mid-1997, blast holes were drilled to
develop 5-meter high benches. Normal pattern
spacing was 4 by 4 meters in waste and 3 by 3
meters in ore. Lower explosives costs were
achieved by increasing the bench height to 10
meters and increasing the distance between drill
holes. Eldorado continues to experiment but has
found that in most areas of the pit they are able to
drill a hole spacing of 5.5 by 5.5 and even 5.5 by
6 meters without impacting blasting effectiveness.
A comparison of the Eldorado’s in-house
blasting costs to the use of a down-the-hole
blasting service was made in September 1997.
Two quotes were received and one provided
significant savings in manpower costs and
blasting agents with a two-year contract. An
additional benefit was the readily available
technical expertise and blast monitoring
capabilities.
Improved Mine Productivity by Better Ore
Control
The one area in the mine receiving a staff
increase was the geology department. A chief
geologist and ore control technician were hired
primarily to improve ore control in the pit.
Geologists, short range mine planners and
surveyors received training in the use of the
MEDS-system modules for ore control. Prior to
this change, MEDS had been used primarily for
long range planning. The surveyors used a
separate software program.
A set of procedures was developed to
standardize and improve ore control procedures.
The model is updated quarterly with new blast
hole information and is used by the short-range
planner to prepare weekly and monthly mine
5 Copyright © 1999 by SME
plans. The monthly mine plan, including model-
predicted ore zones, is distributed at the start of
each month and is also posted at the pit for
reference.
To improve sampling efficiency, through-the-
deck ore pipe samplers were installed on the blast
hole drills. These samplers were "field-modified"
to ensure a sufficient sample size. These changes
resulted in a reduction of manpower of three
laborers per shift that had been previously
assigned sampling responsibilities. Another
change was to designate "no sampling" areas in
the pit to reduce the assay requirements in the lab.
Waste stripping areas are identified and marked
by ore control personnel and no samples are
taken.
In the assay lab insufficient fire assay
capability to assay all blast holes required the use
of a cyanide-shake analysis for determining blast
hole assays. A factor was developed based on
check assays to convert this assay back to a fire
assay equivalent.
The use of factors to make critical ore-waste
determinations had been an on-going subject of
discussion and concern. For this reason, two used
fire assay units were installed in the first quarter
of 1998.
Improved Land Use and New Waste Dump
Planning
In conjunction with reducing costs in the near-
term and in obtaining the optimum pit design, a
fresh look at the location of leach pads and waste
dumps was undertaken. In this exercise, an area
closer to the open pit but not permitted as a waste
dump was considered for a future waste dump.
This area had not been permitted for waste
material due to inadequate condemnation drilling
years earlier. In addition there were also concerns
regarding continuing rights of usage by the La
Colorada Ejido.
A study confirmed the attractiveness of this
area with an estimated reduction in average
haulage distance of $0.10/tonne in 1998 and with
a cost savings of $1,000,000. Previous
agreements with the Ejido were reviewed and
modified to ensure the proposed waste dump was
acceptable. In October 1997, a permit application
was submitted to the office of SEMARNAP, the
federal environmental agency. In February 1998
the permit was approved for about 1/2 of the
requested surface area and dumping began
immediately.
Implement Changes in Cost Accounting and
Purchasing
The completion of the 1996-1997 expansion
provided management the opportunity to focus on
cost center analysis. Detailed cost reports
available through the SUN systems software were
provided to department heads and general
foremen on a monthly basis to review total and
unit cost histories. In addition, manpower
statistics including overtime rates and productivity
provided clear measures of improvement.
Overtime rates were reduced 60% by changing the
work schedules and by focusing on personnel
requirements for individual assignments.
Purchasing procedures were strengthened and
provided the framework and discipline for
obtaining multiple quotations for services and
products. A centralized mine warehouse was also
constructed and staffed to improve receiving and
routine ordering practices.
Reduced Manpower
In mid-1997 manpower levels at the mine
were assessed and a plan and implementation
schedule for phase reductions were developed.
The added social and statutory costs per employee
are substantial and the effective cost to the
company for each employee is nearly three times
the direct wage. Beyond the higher direct costs of
having excess employees, there is often an
associated lower level of productivity.
Over a four-month period in 1997, the
permanent work force was reduced by nearly
30%.
SUMMARY
The La Colorada mine was successful at
reducing costs and increasing production by
overhauling the mining operations. The success
resulting from these changes can be seen in the
increased production and the decreases in costs
achieved in 1998.
6 Copyright © 1999 by SME
THE LA TRINIDAD MINE
The La Trinidad mine is located in the state of
Sinaloa, Mexico 100 kilometers southeast of the
port city of Mazatlan. The mine is an open pit
heap leach mining operation that processes 60,000
metric tons of ore and removes 100,000 metric
tons of waste per month. In 1997 the mine
produced 29,810 ounces of gold at a cash
operating cost of $216. The 1998 plan called for
the depletion of reserves with waste dump
reclamation commencing immediately upon
completion of mining activities. The leaching of
ore stacked on the pad would continue well into
1999 with all reclamation work to be completed
by the end of 1999. The key points under
consideration were:
1. Balance production cash flow with
reclamation and operating costs.
2. Reduce manpower requirements in
incremental steps to avoid large severance
payments.
3. Perform waste dump and pit reclamation
before the end of 1999.
4. Dispose of mine assets to assist in cash flow
requirements.
5. Reduce 1999 land occupation payments.
6. Intensify mine contractor’s participation in
community relations’ activities.
Balance Production Cash Flow with Costs
The La Trinidad ore reserves were depleted by
the end of August 1998. The mine would
continue leaching the stacked ore throughout 1998
and the first half of 1999. The mine scheduled
2,000 ounces of gold production in the final four
months of 1998. An additional 1,618 ounces of
gold would be required in 1999 to reduce
recoverable pad inventory to zero. By
accelerating the mine reclamation activities in
order to reduce costs, apply cost savings measures
throughout the mine and benefiting from the sale
of assets a balance in costs with income could be
achieved.
Reduction in Manpower
The mine had a workforce of 23 professional
staff members and 85 laborers. Labor laws in
Mexico require a severance payment of three
months salary plus 20 days of pay per month for
each year of service. Careful planning was
required to reduce the workforce in stages so that
mine cash flow from gold production could pay
for the reduction in workforce. It was decided
that a total of 14 professional staff members and
55 laborers would be released between September
and December 1998. Further reductions before
July of 1999 would reduce the workforce to 4
professional staff members and 29 laborers. The
29 laborers consisted of 12 security employees
and 7 camp laborers with the remaining assigned
to plant operations or reclamation.
Waste Dump and Pit Reclamation
A total of $58,892 was budgeted for pit and
waste dump reclamation between September and
December 1998. The contractor agreed to leave
several pieces of heavy equipment behind to
accelerate the waste dump and pit reclamation.
The monthly cost of $14,649 fit in well with the
cash flow from pit production. The rainy season
begins in late June and ends in early November.
The lack of moisture during the dry months makes
re-vegetation almost impossible. By performing
the waste dump reclamation during late 1998 it
would not be necessary to perform additional
work in 1999.
Disposal of Mine Assets
Once mine production ended a complete audit
of disposable mine assets was prepared. The
original cost for obtaining the mine assets came to
3.3 million dollars. A schedule was prepared that
outlined which assets could be sold and when
those assets would be available. Eldorado
assigned their chief administrator the
responsibility of locating reliable parties that
would be interested in purchasing some or all of
the mine assets. Within 45 days of completion of
mining activities bids were received for the
purchase of the crushing and conveying
equipment. The disposal of mine assets based on
an equipment availability schedule eased the cash
flow requirements throughout mine closure.
Reduction of Land Payments
The La Trinidad land package consists of over
23,264 hectares. Two land agreements within
the 23,264 hectares were made with the local
villages. The first land rental agreement signed in
December 1995 consisted of “temporary
occupation” of 160 hectares used for the mining
operation. A payment of $31,000 per year is
made to the local villages. A second agreement
for the land rental of 772.5 hectares was signed in
7 Copyright © 1999 by SME
March of 1997. This land was part of an
exploration rental agreement. A payment of
$55,625 dollars was paid in December of each
year. The local communities were informed in
October 1998 that EESA would not renew the
exploration rental agreement. The local villages
would be notified of the cancellation of the
“temporary occupation” agreement before the end
of 1999.
Contractor’s Support of the Local Communities
The La Trinidad mine contractor is the same
contractor used at the La Colorada mine.
Eldorado has always worked closely with the
local communities and expects the mine
contractor to participate in community relations’
activities. The contractor’s representative
attended local community meetings and met with
community leaders when concerns related to the
contractor were presented to Eldorado. It was
considered an important part of the mining
operation to have the mine contractor support the
local communities. The La Trinidad contractor
was responsible for road repairs, village road dust
suppressant, repairs to recreational facilities and
improvements in the community. During the
transition from a fully operational mine to a mine
in closure the local communities felt apprehension
concerning the departure of personnel and mining
equipment. The contractor assured the
communities that equipment would remain on the
property to assist in reclamation and community
improvements. The close relationship between
the company, contractor and community helped to
ease the tension felt by the villagers during the
reduction of workforce and transitional period.
SUMMARY
Though reclamation work continues at La
Trinidad Eldorado is following the original plan
laid out in 1998. The staggered reduction of
manpower, careful planning of mine reclamation
work, close relationship with the local
communities and the sale of assets have enhanced
Eldorado’s effort at balancing costs with income.
The goal is to finish reclamation by the end of
1999 with total closure costs not to exceed the
income created by leaching pad inventory and
liquidating mine assets.
 REFERENCES

Faust, W.A., Hernandez, S., 1998, “Recent

Improvements at La Colorada Mine,” SME
Annual Meeting, March 9-11.

Silva, Marcus Vinicius., 1998, “Sao Bento

Expansion,” Brazilian Gold Symposium,
September.

8 Copyright © 1999 by SME