NPV Scheduler

Open Pit Planning: From Geological Model to Optimized Strategic Mine Plan

The mine design and production schedule are two elements of mine planning that are inextricably linked.
Datamine recognizes this fact and hence NPV Scheduler is unique in the mining industry as the only
strategic mine planning system that optimizes both of these elements in the search for maximum NPV.
This paper explains the methodology behind the simultaneous optimization of design and schedule and
how it results in a mine plan that is practical to extract while achieving the maximum possible NPV.

Dr Bolek Tolwinski
Dr Malcolm Newton
Andy Lapworth
John Morrison

The Datamine Group

This white
Limited, norpaper
doesisthis
fordocument
informational purposes
express only,
or imply and
any does not constitute any form of performance commitment on behalf of Datamine Corporate
warranties.

© Datamine Corporate Limited

EXECUTIVE SUMMARY

An optimal strategic plan for an open pit mine maximizes Net Present Value (NPV) while
meeting a wide range of production,
production, engineering and economic
economic constraints. Since the “time
value of money” is the essence of evaluating NPV, strategic mine planners face an unsolvable
“conundrum”: if the right time to mine a block of ore depends on its value, but its value
depends on when it is mined – when is the right time to mine it?
NPV Scheduler uses a combination of mathematical rigor and operational practicality to
resolve this issue and produce a strategic plan where both the mine design and the
production schedule are optimized for
for maximum NPV. The secret is in the methodology.
NPV Scheduler uses geological block models and mining costs, commodity prices and pit
slope parameters to create Lerchs-Grossman (LG) nested phases and an Optimal Extraction
Sequence that maximizes NPV.
NPV. It then forms pushback shapes according to economic value,
production targets and engineering constraints, but where traditional scheduling applications
confine the pushbacks to the LG phase boundaries, NPV Scheduler takes the phase
boundaries as a guide while respecting the need for practical mining shapes.
The pushbacks are then scheduled into a period by period production plan by forming
“activities” out of mineable groups of blocks and using a powerful optimizing engine to
achieve maximum NPV while ensuring a steady flow of ore tonnes at mineable strip ratios.
NPV Scheduler then refines the schedule by adding further engineering requirements:
! Haulage Analyser / Optimizer specifies the right truck fleet. It tracks the tonne-
kilometres required to mine the resource and then adjusts the schedule over multiple
years to minimize peak truck hours and limit the fluctuation in the truck fleet number.
! Mine Flow Optimizer (MFO) increases NPV by optimizing cut-off grade. It adjusts the
schedule to create more value by mining higher grade ore earlier in the schedule if doing
that compensates for the cost of wasting or stockpiling lower grade ore.
! Material Allocation Optimizer (MAO) re-allocates the processing of each block (leach
pad, mill, stockpile, waste, etc) to optimize multiple blended products (e.g. iron ore)
where production targets and product specifications can be blended from different inputs.
inputs .
! Multimine Scheduler solves the problem of optimizing multiple mines simultaneously to
meet shared production objectives. Its scalability makes it applicable to scenarios that
range from a cluster of pits at the same site up to a regional mining complex.
! Geo-Risk Assessment (GRA) manages the uncertainty inherent in interpolating grade
distribution by considering conditionally simulated block models in the strategic planning
process. GRA generates a range of risk-rated
risk-rated pits which can be used as the basis for the
strategic plan – limiting the impact of grade uncertainty on planning outcomes.
These features make NPV Scheduler the market leader in optimized strategic planning.
PREFACE
Purpose of this document

This paper is an introduction to the basic concepts of modern open pit planning techniques
and the mechanisms used in Datamine’s NPV Scheduler product to generate designs and
schedules that provide the highest NPV while being practical to mine and safe to operate.

Prerequisites

Readers will require a basic knowledge of the principles of Net Present Value as a mechanism
for evaluating project viability, and a familiarity with the theories of Lerchs and Grossman ’s
1 2
ultimate pit design and Ken Lane’s cut off grade theory . An understanding of the conditional
simulation of grade distribution in a geological model as a mechanism for analyzing
uncertainty will also be helpful.

Definitions, Acronyms and Abbreviations

Definitions of the terminology in this paper:

! design - the physical layout and dimensions of a mine including macro issues such as
the size and shape of pushbacks through to the layout and gradient of ramps.

!
schedule - the tonnes of material extracted and mineral produced in successive time
periods from known locations

! planni
planning
ng - the generic process of both designing and scheduling

! optimal - observing all financial, engineering and production constraints while

optimizing an objective; for example, maximizing Net Present Value (NPV)

The following acronyms are used throughout this document:

Acronym Description

NPV Net Present Value

LG Lerchs Grossman
MAO Material Allocation Optimizer

MFO
GRA Mine FlowAssessment
Geo-Risk Optimizer
OES Optimal Extraction Sequence
LoM Life of Mine
EFH Equivalent Flat Haul

More information

More information on NPV Scheduler can be found on www.datamine.co.uk

www.datamine.co.uk.. If you have this
product installed, you can also view the online Help and tutorials (select Help | Contents).
Contents).

1
Optimum Design of Open Pit Mines” – Helmut Lerchs and Ingo F. Grossman. Montreal 1964 reprinted in the January 1965
“

Bulletin of the Canadian Institute of Mining and Metallurgy. Full reference Lerchs, H and Grossman,
Grossman, L, 1965. Optimum Design
Design
of Open-Pit Mines, Trans. CIM,
2
“The Economic Definition of Ore ” by Ken Lane is currently published by Elsevier in its journal ‘Resources Policy’.
CONTENTS
1 Introduction and Background 2

2 The Basic Challenges 3

2.1 The Link between Mine Design and Production Schedule 3
2.2 What to Mine, When to Mine 3
2.3 Determining Pushback Shapes 3
2.4 Optimizing the Schedule 3
3 The NPV Scheduler Methodology 4
3.1 Summary 4
3.2 Import the Data 5
3.3 Define an Economic Model 5
3.4 Create a Set of Nested Pits 5
3.5 Create the Ultimate Pit Optimal Extraction Sequence 6
3.6 Generate Pushbacks 7
3.7 Schedule 8
3.8 Optimize Mine Flow 9
3.9 Optimize Material Allocation 9
4 Geo-Risk Assessment 11

4.1
4.2 Summary
Economic Variance Derived from all Models 11
12
4.3 Risk Rated k-Pits 12
5 Multimine Scheduler 13

6 Conclusion 14

Appendix A: Haulage Analysis & Optimization 15

1 INTRODUCTION AND BACKGROUND
Strategic Mine Planning is the process of determining the best mine design and production
schedule to meet the long term goals for mineral production and financial returns of a mining
project. The most common financial criterion used by management to evaluate any such
proposed plan is to examine the Net Present Value of the mine over its projected life.

There are usually multiple possible mine planning solutions that will provide a positive NPV
assessment and so the real objective of strategic mine planning is to determine the optimal
mine plan – one that maximizes NPV while meeting all known physical, mining and economic
targets and constraints.

Strategic mine planning is not an activity that is carried out just the once at the project
feasibility stage with the expectation that the strategic plan will be followed rigorously over
the life of the mine. In most mines the process
process is carried o
out
ut at least yearly
yearly during the
budget cycle, and in many cases more often, for a multitude of reasons:

! changing economic circumstances (commodity prices, mining costs, etc),

! changing market conditions (demand, product mix,

mi x, contracted specification, etc),

! improved orebody knowledge (better understanding of structure and grade),

! senior management enquiries as to the effects of accelerating / slowing production,

! the need for corrective action because the previous plan was not followed, and

! the next budget needs to include a life-of-mine (LoM) plan that takes all of these
circumstances into consideration.

Determining the optimal strategic plan for an open pit operation is not trivial and requires the
solution of complex mathematical problems which are bound by constraints such as:

! the knowledge of the orebody (e.g. grade distribution, contaminants, structural

geology etc) which is generally manifested as geological model,

! the economic conditions for mining (e.g. mining and processing costs, start-up capital
cost, mid-project capital, commodity value and discount rate),

the engineering
recovery, etc. requirements for pit slope, dilution, minimum mining width, mill

The challenge for Datamine in developing NPV Scheduler has been to produce a commercial
software package that solves all of these problems within reasonable processing times on an
“everyday” laptop computer.

NPV Scheduler meets these challenges head on - making it the best strategic mine planning
software tool in its class.

NPV Scheduler White Paper 2 August 2007

2 THE BASIC CHALLENGES
2.1 The Link between Mine Design and Production Schedule

Mine planners are often asked to change production targets or processing capacities during
life of mine planning. If these changes
changes are substantial it may not be possible to produce a
practical schedule from the existing design and a completely new approach is required to
maximize NPV. In short, “you can’t schedule your way out of a bad design ”.

The challenge is to provide the facility to go “right back to square one” and start the mine
design with a completely different set of parameters that can be used in a new family of
planning scenarios.

2.2 What to Mine, When to Mine

In addition to the design and schedule the

First Pushback
requirement to maximize NPV burdens the mine
planner with another, almost unsolvable,
“conundrum”: the right time to mine any one discrete
block of ore depends on its value – but its value
depends on when it is mined.

Take, for example, a waste block at the surface near

the pit rim (see diagram) that might be mined early
as part of the first pit or later during pre-stripping of
Last Pushback the last pushback – perhaps a difference in scheduling
of 20 years. The fact that both are possible makes it
very difficult to determine the discount for that
specific block and hence its value in the project.

Early pit optimization methods did not take the “time

Mining a block – first or last?
value of money” into account because they were
based on undiscounted cash
cash flow. The challenge for
modern financial analysis of a mining project,
however, is to discount the block values before they
are used to calculate the ultimate pit.

2.3 Determining Pushback Shapes

The foundations for determining pushback shapes are the set of nested Lerchs-Grossman
pits, the optimal extraction sequence generated within the ultimate pit and the production
targets for ore required from each pushback.

The challenge is to find optimal pushback shapes within those constraints that are guided by
the LG phases, but not rigidly bound by them at the expense a workable design.

2.4 Optimizing the Schedule

The blocks within the pushbacks shapes must be scheduled to meet production targets,
specifications and engineering constraints. Each constraint penalizes the theoretical
maximum NPV, but the result must still be a practical design that delivers maximum NPV.

The number of possible outcomes is massive, so the challenge is to use a rigorous optimizing
engine that produces maximum NPV while retaining a practical design approach.

NPV Scheduler White Paper 3 August 2007

3 THE NPV SCHEDULER METHODOLOGY
3.1 Summary

!
Import Data – geological block models, topography, geological surfaces, mining
boundaries, slope regions, etc are imported or digitized through the user interface.
! Economic Model applies product prices, product recoveries, mining costs and
processing costs to the block model attributes for the life-of-mine scenario and
stores the revenue and costs in the block model.
! Ultimate Pit
! A set of nested Lerchs-Grossman (LG) pit shells (phases) is created and these
form a set of Ultimate Pits
Pi ts for varying economic parameters.
! The LG pit shells are used to determine the Ultimate Pit Optimal Extraction
Sequence (OES) that results in the maximum theoretical NPV.
! Generate Pushbacks uses the Ultimate Pit OES, the LG pits and pushback ore
targets to optimize the practical pushback shapes and generate a Pushback OES
that allows each block to be assigned its pushback number.
! Scheduler uses the Pushback OES, production targets and mining constraints to
generate an optimized schedule
schedule of mining activities.
activities. Each block in the block model
is assigned a period number in the resulting Schedule OES. Scheduler can also
schedule an externally generated pushback sequence.
! Mine Flow Optimizer optimizes the cut off grade by rescheduling the blocks to
enhance NPV by mining higher grade ore earlier in the schedule if that outweighs
the cost of wasting or stockpiling low grade ore for later processing.
! Material Allocation Optimizer, especially useful for iron ore and industrial
minerals, refines the allocation of ore classified by rock type and quality (grade) to
processing methods and/or multiple blended products.
! Geo-Risk Assessment manages the uncertainty inherent in interpolating grade
distribution by considering conditionally simulated block models in the strategic
planning process. GRA generates an ultimate pit for each conditionally-simulated
block model and calculates its NPV and profit. From the full set of
of ultimate pits GRA
generates a range of risk-rated pits which enables mine planners to choose ultimate

pits
risk according
associatedto their
with appetite
appetite
any for risk. Pit,
OES (Ultimate In addition, GRA
Pushbacks, provides MFO)
Schedule, tools to
in measure
terms of
standard statistical parameters.

NPV Scheduler White Paper 4 August 2007

3.2 Import the Data

The basic data for generating a strategic mine plan is a geological block model that contains
the geology (lithology, grade, etc) that has been created using any one of the popular
geological mining packages, including, of course, Datamine Studio.

Other data can be imported or digitized using the NPV Scheduler Digitizer Window, including
slope regions, pit limits and (later in the study) pushback adjustments. The system also
includes facilities to visualize and plot the data that has been loaded or digitized.

3.3 Define an Economic Model

The economic model is defined by setting cost and price parameters for the life of the mine
and then calculating an intrinsic value per processing method of each block as a function of
its geo-metallurgical attributes.
attributes. The value is usually
usually calculated by NPV Scheduler but it can
also be imported as an attribute of a block model if it has been calculated in another system.

The parameters used to calculate the block value are:

! the selling price of any commodity recovered from processing where the recovery is
defined as a mathematical expression of values in the block,
! a unit cost of mining (ore and waste) and a unit cost of processing (ore) and any
adjustment factors which apply,
! dilution and recovery factors for the ore,
! a unit cost of rehabilitation for waste, and
! an additional cost for proc
process
essing
ing each unit of a commodity.

3.4 Create a Set of Nested Pits

The Lerchs-Grossman (LG) method is used to determine the ultimate pit for given commodity
prices and mining cost parameters as well as the engineering constraints of the pit wall slope.
By varying the economic parameters in percentage increments, a set of nested LG pits can be
generated where each pit represents the ultimate pit of maximum value corresponding to the
particular price/cost conditions.

In
thegeneral the smallest
early stages pit isasthe
of mining it one that
is the pitrepresents
that wouldthe
stillbest
be value per even
valuable ton that is possible
under in
the worst
economic conditions. Similarly the largest
largest pit represents the pit with the longest life under

NPV Scheduler White Paper 5 August 2007

the best economic conditions. As a consequence, the nested p
pits
its are therefore in the order
order of
highest to lowest value per tonne mined.

The difference between each pit shell and the next is considered to be a “phase” as shown in
the preceding stylized diagram.

Considering that realizing the best value first is a basic principle of maximizing NPV, the order
of the phases represents the first high level categorization of the value and the first stage of
determining the Optimal Extraction Sequence.
Sequence.

The LG algorithm
the values requires that
in the economic each
model. Forblock
somehas an intrinsic
industrial valueand
minerals that can
iron bedeposits
ore calculated
theusing
final
value that can be derived from a block depends on how it is blended with other material,
either from within the same pit, another pit, or from an external source. NPV Scheduler has
unique functionality that allows the generation of the nested pits to take this into account.

The first example of this functionality is that the ultimate pit generation can be modified to
include all the material that has been defined as ore in the economic model. Using this option
NPV is still optimized, but because the ultimate pit is forced to contain all the ore it will
usually be larger than the pit that maximizes cash flow. This option can be used to maximize
the resource and is particularly useful when blending material from an external source.

NPV Scheduler can also generate the nested pits using an algorithm that is driven by
blending requirements as well as block value. Targets can be set to specify the amount of
material, or ratios of material to be mined in each period. These targets can vary over time.
This means that the physical design of the mine is being appropriately influenced even at this
early stage of optimization. Although the advantage of being able to generate these blended
pits is clear for deposits such as iron ore, in fact this functionality can also be useful for
analysis in precious metals where the ratio of ore to be processed by different methods needs
to be maintained.

3.5 Create the Ultimate Pit Optimal Extraction Sequence

Each phase can be thought of as consisting of horizontally “sliced” benches where each bench
is made up of layers
layers of blocks in the geological block model. The Optimal Extraction
Extraction
Sequence of the model blocks which represents the highest possible NPV is determined by
considering each phase in turn and then within each phase considering each bench (a
“phase-bench”) in turn from
from the shallowest to the deepest. This is based on the reality that
in an open pit mine extraction has to proceed generally from the surface down!

To determine the block sequence within a phase-bench the blocks in the phase-bench are
sorted in order of value from the highest to the lowest - once again seeking to maximize the
NPV by selecting the highest value first. However, the value that is used in th this
is sorting
process to determine a block’s relative position in the extraction sequence in the phase-bench
is not simply the intrinsic block
block value as calculated in the economic model. Using this
approach would be simplistic and lead to extraction sequences that, while not random, might
be neither practical nor desirable from the mining point of view.

Therefore, blocks are assigned a more sophisticated value for sorting known as their
“proximity value” and it is this value that is used for determining a block’s position in the
extraction sequence. In brief, forfor each phase-bench
phase-bench the block with the highest intrinsic
value is first selected for consideration. The remaining blocks are then sorted according
to a metric that is a combination of each block’s intrinsic value and its proximity to the
current block. This metric value is referred to as a proximity value.value. As each block is
assigned a position in the sequence it i t becomes the current block for consideration.

Using this proximity value to determine when a block is extracted can change the order of
extraction considerably. A block of relatively low intrinsic value may be pushed up the

NPV Scheduler White Paper 6 August 2007

extraction sequence order because it is physically closer to blocks with a higher intrinsic
value. This is intuitively
intuitively what mine production personnel
personnel do when extracting o ore
re while still
adhering to the overall strategic
strategic plan. One of the positive consequences
consequences of this approach is
that it tends to create large groups of contiguous blocks for extraction which in turn leads to
practical and efficient mining.

NPV Scheduler’s appreciation of these practical mining factors (while always honouring pit
wall slope constraints) creates an extraction sequence which is more realistic than the simple
sorting of the blocks into a sequence based on the calculated or intrinsic block value.

This process is repeated for each bench in each phase until the ultimate pit is exhausted.
The extraction sequence that is created using this method is called the Ultimate Pit OES as it
provides the highest theoretical possible NPV for the ultimate pit.

3.6 Generate Pushbacks

Once the Ultimate Pit OES has been established the pushback generation can commence.
The basic objective is to create a pushback shape which meets some primary targets, namely
the ore tonnage to be won from each pushback as well as its minimum mining width.

The other parameters which can be set include mining constraints on the maximum number
of pushbacks generated as well as some more general parameters for making the pushbacks
practical. These include (i) defining the feas
feasible
ible size of the “remnants” between a pushback
and the ultimate pit that must be included so that later mining need not return to capture this
ore as well as (ii) defining the “smoothness” of the pit walls to make the shape practical to
blast and mine.

NPV Scheduler White Paper 7 August 2007

The diagram above shows the steps by which the pushback generator selects blocks for the
pushback, joins them together to form contiguous shapes, takes the remnant blocks into the
pushback shape and then joins the two pushbacks so that they form practical mining
strategies. For example, PB2i represents a grouped sequence of blocks established by the
Optimal Extraction
Extraction Sequence. These groupings are expanded to create PB2ii by including
later sequenced blocks so that a specific ore tonnage condition for the second pushback is
achieved. The further addition of blocks to create PB2iii successfully joins pushback 2 to the
previous pushback and creates smooth edges.

NPV Scheduler then creates the pushback shapes by re-sorting the Ultimate Pit OES to get

contiguous
the physicalblocks
criterof
ia ore
criteria that pushback.
of the create ak.practical
pushbac mining shape
This approach is a which is then way
far superior adjusted to meet
of designing
pushback shapes than traditional methodologies that restrict the pushback to the artificial
economic boundary of the LG phase. The sheer practicality of mining may requirerequire boundaries
which do not reach or may indeed even cross an LG phase boundary.

NPV Scheduler employs a “trial and error” technique to find pushbacks that follow the user’s
specifications as
as closely as possible. This process has already been “pre-conditioned” for
maximum NPV and practical mining by the way in which the Ultimate Pit OES was created
using proximity values. The generation of different pushback strategies is therefore quite fast
while the remnants and smoothing ensure that the result will produce a pit that has access,
size and a practical shape while at the same time meeting the ore tonnage criterion.

It should be noted that any one pushback shape that is generated in this process will seldom,
if ever, be mined as one unit, where mining only starts in that pushback after the previous
pushback has been fully depleted and the entire pushback shape is extracted before another
pushback is started.

In short, while a pushback is very definitely a physical shape, it is never a shape that occurs
at a single point in time during the mine’s life, because as the ore mined by each pushback
lies deeper it must be pre-stripped while previous pushbacks are being mined.

The importance of the pushback shapes therefore is that rather than being the physical
stages in a mine design they form economic boundaries about which management decisions
must be made regarding the mine life. Because of the requirement for pre-stripping
pre-stripping in
advance of mining it is often necessary to make a decision about whether a pushback should
be extracted years in advance of ore being won from it.

3.7 Schedule

The objective of the Scheduler is to find a practical

practical schedule for mining the
the pushbacks. For
the highest NPV it would theoretically be best to mine the pushbacks in sequence, one at a
time. Unfortunately, this strategy
strategy is rarely practical because
because it does not satisfy tar
targets
gets such
as ensuring a steady output of ore at manageable strip ratios, nor does it satisfy other
possible requirements like ore blending or contamination control. The scheduler provides
much more practical mining strategies by allowing for mining two or more pushbacks at the
same time while targeting these other objectives.

The scheduler uses the concept of activities for creating a life of mine (LoM) schedule from
the Pushback OES. An activity is comprised
comprised of a set of contiguous blocks on a bench (or
benches) within a pushback. An appropriate optimizing engine is used to order
order the activities
and hence derive the LoM schedule that maximizes NPV while honouring production targets.

This approach builds multiple solutions meeting the targets such as ore tonnes and truck
hours, eventually selecting the solution with best NPV and/or most closely tracking the ideal
value of a chosen target. See Appendix 1 for more detailed information on using tthe
he Haulage
Optimizer.

NPV Scheduler White Paper 8 August 2007

The system can target any variables or combinations of variables that are defined by
mathematical expressions of attributes of the economic block model. Therefore, the schedule
can be set to target
target mining rates, truck hours, mill throughput, stripping ratios etc. For each
of these variables the user defines an upper and lower limit as well as an ideal target and the
system will search for a solution that meets all of the targets if possible, relaxing these
constraints if no solution can be found.

The result is a long term mine schedule which is strategic with respect to NPV, practical with
respect to mining shape and pit slope requirements and achievable with respect to the
mining equipment fleet and the ore processing capability – in short an optimal combination of

maximum NPV within a practical, workable schedule.

The Scheduler also produces a modified Optimal Extraction Sequence so that in addition to
each block having a unique sequence position, pushback number and processing destination,
each also contains the period number in which it will be mined. It is this Scheduler OES that
is used in the Mine Flow and Material Allocation Optimizers.

3.8 Optimize Mine Flow

Mine Flow Optimizer (MFO) is used to determine whether the NPV of the mine plan can be
further increased by accelerating the rate of mining in order to extract and process higher
grade ore sooner even without upgraded processing capacities. The NPV will increase
increase if this
higher grade ore is processed
processed instead of ore scheduled for processing by the Scheduler. MFO
includes in its optimization the consideration of whether the ore being replaced by mining
faster should
processed. be output
The stockpiled or treated
of MFO as waste,
is a Mine and if
Flow OES it is to be updated
containing stockpiled, when itperiods
schedule should for
be
extraction.

It should be noted that increasing the rate of mining to release higher grade ore sooner
effectively increases the ore cut off grade during the periods for which the mining rate is
increased. NPV Scheduler’s method for optimizing the mining rate, or cut off grade has the
following advantages over traditional methods of cut off grade optimization:

! Because the input into MFO is an OES there is no averaging of grades over a year and
there is much greater certainty that the increase in NPV can actually be achieved.

! It is common for cut off grade optimization to be calculated using grade tonnage
curves or grade classes for sections of the mine as inputs.

For example a set of grade classes that defines the tonnages of ore within a set of grade
ranges may be calculated for each pushback. Cut off grade calculations then determine the
amount of material
material to be taken from each
each pushback each year to maximize
maximize value. The
problem with this approach is that the physicality of where the material lies within each
pushback is lost and value calculations can vary considerably depending on whether ore can
actually be mined at the beginning or end of a year. In the worst case the theoretical NPV
produced using grade classes cannot be reproduced in a physical mine plan.

Both the Scheduler and Mine Flow Optimizer within NPV Scheduler produce precise physical
plans and do not suffer from these disadvantages.

3.9 Optimize Material Allocation

For industrial minerals-type deposits such as limestone, clays and also iron ore deposits there
is often a requirement to deliver multiple products where a product is produced by blending
several rock types in order to meet a set of specific quality targets for a number of different

NPV Scheduler White Paper 9 August 2007

elements. It is also common to use multiple processing methods with which to produce the
required products.

NPV Scheduler’s Material Allocation Optimizer (MAO) uses a linear programming

implementation to offer a complete solution for this type of optimal allocation problem,
allowing the engineer to determine how to best transport, stockpile and treat material to
generate all required products. The main features of MAO are:

! Inputs to MAO can be mine production, stockpiles, or externally sourced material for
blending.
!
Destinations determined by MAO can be processing methods and / or stockpiles which
also serve as inputs for the next period.
! Destinations can have any number of quality targets expressed as rates or ratios of
elements.
! Capacities of destinations can be unlimited (leach pads or waste dumps), limited
(stockpiles) or specifically targeted (processing plants).
! Global constraints can be set over several rock types, for example to ensure a
processing plant has a fixed ratio of rock types as its input.
! Destinations can have positive or negative costs. A negative cost is equivalent to a
selling price thus allowing any number of complex products that vary over time to be
specified.
MAO does not change the sequence of mining - it changes the processing destination of
where material is sent and determines a stockpiling strategy to meet different product
delivery requirements.

The outcome from MAO is an amended optimal destination for each block along with all the
other information inherited from the Scheduler’s OES. MAO is a powerful tool for evaluating
whether the mine plan can deliver variable products and can also be used to test the mine
plan’s resilience to changing sales contracts over the life of the mine.

NPV Scheduler White Paper 10 August 2007

4 GEO-RISK ASSESSMENT

4.1 Summary

All mine plans are ultimately derived from a mathematical model that describes the geology -
and in particular the grade - of the deposit to be mined. Geological models should represent
the best possible understanding of the real world, but it should also be recognized that they
are subject to (often significant) statistical error and, in many cases, this may be a limitation
on the ability to plan strategically. For example, gaining an improvement in the NPV of a
mine plan of one or two percent is not particularly useful if the confidence in the grade
estimates of the resource model is very low.

Starting with Version 4, NPV Scheduler has a set of integrated tools for using conditionally
simulated models to assess the level of risk of a project that is derived from the inherent
uncertainty of the geological model.

In order to explain how NPV Scheduler allows this risk to be assessed a few definitions are
useful:

Conditional Simulation:
Simulation: a geostatistical method of modeling mineral deposits that is designed
to reproduce the statistical properties and spatial variability of the sample grades. Instead of
producing a single average case model, conditional simulation generates a set of equally
likely models, each different from the others, but each consistent with the sample data.

Simulated grades:
grades: grades in any one of the models generated by conditional simulation.

Reference grades:
grades: block grade estimates used for building standard economic models, pit
optimization and scheduling. Usually, reference grades are obtained by other geostatistical
methods like kriging, although the average of multiple simulations can also be used.

Geological risk: the potential effects of statistical errors in reference grades estimation on the
life of mine plans based on the reference grades. The two main concerns are:

! The life of mine plan may significantly overestimate the profits and NPV; therefore,
the true return on investment may turn out lower than expected.

! The mining strategies described by the plan may not be optimal.

Value models:
models: block models with a single field representing block net value for a particular
conditional simulation model and given economic settings.

To assess the geological risks of a life of mine plan the conditionally simulated models need
to be related to economic and technological parameters.
parameters. The corresponding value models of
the deposit are built and used to infer the probability distributions of vital planning statistics
like profits and NPV.
NPV. GRA allows this to be done and also offers a risk based based method of
selecting the ultimate pit limits.

NPV Scheduler White Paper 11 August 2007

4.2 Economic Variance Derived from all Models

In NPV Scheduler all the various stages of mine planning are represented by optimal
extraction sequences.
sequences. The sequences are optimal with
with respect to the reference grades;
however the value models can be used to evaluate profits and NPV for the simulated grades.
Suppose there are 50 value models built from 50 equally likely conditionally simulated
models. Using the mine plan based on the reference grades, GRA can calculate 50 equally
likely profit and NPV values representing their respective probability distributions and the
associated parameters like median, mean, standard deviation, range, etc.

In short,
used as thethe basis
optimal extractionallsequence
to schedule derived
simulated frommodels,
geological the “best estimate
each ” model
resulting in a can be
unique
profitability and NPV. The variance in the NPV over all simulations can can be used as an
indication of the risk to the project that is inherent in the grade distribution model. The risk
can also be expressed as confidence limits around the mean NPV value.

The probability distribution parameters, and in particular the variance, give a measure of risk.
Large deviations relative to the mean indicate that the true profit (NPV) is likely to differ
significantly from the predicted (mean) profit (NPV) and therefore signal that the project may
be risky.

4.3 Risk Rated k-Pits

NPV Scheduler generates “risk rated pits” by creating a unique ultimate pit for each of the
simulated geological models. Suppose there are N value mo models
dels built from N conditionally
simulated models. For each value model an LG ultimate pit can be generated giving N pit
shells each of which is equally likely to be the “true” profit maximizing the optimal final pit
shell. There may be blocks
blocks in the model that are included in all N shells; others may be
included in N-1 shells, N-2 shells, and so on, finally some blocks will not be included in any
shell at all.

Consider the pit shell (k-Pit) that consists of all blocks included in at least k LG ultimate pits,
where k is an integer between 1 and N. Considering that any k-Pit a adheres
dheres to the same
same slope
rules as the LG ultimate pits it can be used as the mine ’s final pit shell. Like LG pits
parameterized by product prices, k-Pits are nested, that is, the k-Pit is wholly contained in
the (k-1)-Pit. The difference is that the k-Pits are ranked by geological risk whereas LG
phases are ranked by economic
economi c risk stemming from price or costs un uncertainties.
certainties.

The risk rating of a k-Pit can be quantified as s = (100*k/N); the N-pit is rated as 100% safe,
carries no risks, and the rating diminishes (the risk grows)
grows) for smaller values of k. A risk
rated pit with a “k” number of 90 is the pit outline defined by the blocks which occur in at
least 90% of all ultimate pits. Therefore the 85-pit is the pit defined by those blocks which
occur in at least 85% of all ultimate pits and so on.

Like any other pit, a k-Pit can be evaluated for costs, revenues, NPV, tonnages and grades.
A particular k-pit can therefore be used as the ultimate pit from which the nested phases are
created that form the basis of the design and schedule of the mine - in essence allowing the
mining engineer to generate a minemine plan aligned to the appetite for risk. Geological risk
ratings in conjunction with these standard statistics help to choose the final pit shell that
strikes the right balance between risks and opportunities associated with any mining venture.

In summary, Geo-Risk Assessment (GRA) manages the uncertainty inherent in grade

estimates by considering conditionally simulated block models in the strategic planning
process. GRA generates an an ultimate pit for each conditionally-simulated block model and
calculates its NPV and profit. These ultimate pits are
are used to generate a range of risk-rated
risk-rated
pits which become the basis for the strategic plan – limiting and measuring the impact of
grade uncertainty on planning outcomes.

NPV Scheduler White Paper 12 August 2007

5 MULTIMINE SCHEDULER

Multimine Scheduler solves the problem of optimizing multiple mines simultaneously to

meet common production objectives or constraints. Examples of common objectives include
meeting metal output quotas and blending material from multiple pits to obtain one or more
products with particular quality specifications. Common constraints include having a single
truck fleet within a cluster of pits and using the same plant to process material from several
mines. In the absence of common objectives and targets the best results are obtained by
optimizing each mine separately with NPV Scheduler.

The approach taken by Multimine Scheduler to manage the problem of multiple mines is to
allow for the input of multiple geological block models that define the different mines. They
are all then processed in parallel in exactly the same way as in the single mine methodology,
without favouring (or disadvantaging) any one pit in the process (unless instructed).

One of the major strengths of NPV Scheduler Version 4 is that its optimization process
considers the design and schedule of the mine from the outset. This principle is, uniquely,
also true when using Multimine Scheduler. Commercial schedulers used for multiple mine
planning generally take as an input the pushbacks or pushback benches from each pit. NPV
Scheduler however, because its input is the geological models, considers the multiple
deposits at the ultimate pit generation phase (as well as all subsequent phases). When
creating blended pits each of these input models is considered and since the nested pits are
used to determine the pushbacks, the pushbacks themselves are designed to have an
appropriate blend for scheduling.

At a practical level the system can import geological block models with completely different
configurations (cell sizes, bench heights, rock types, etc) as it is often the case that the
geology of certain deposits lends it to being modeled differently from other deposits even
though both may serve as inputs to a single mine plan and schedule. This enables mine
studies for multiple mines to be performed without the potential loss of accuracy and lead
times required to regenerate geological models in the same format. The input models can
either be closely geographically located or many kilometres apart.

Multimine Scheduler’s scalability allows it to be used in a range of situations from a simple

cluster of pits at the same mine site up to a large mine complex that extends over an entire
geographical area.

NPV Scheduler White Paper 13 August 2007

6 CONCLUSION
NPV Scheduler has been developed over ten years to become the most versatile tool for
strategic open pit mine planning on the market. It represents
represents ground-breaking thought
leadership in the theory of mine planning and geological assessment, it is a careful balance
between mathematical optimization and practical mining necessity and it has also been
refined as a piece of software to be accessible and usable with the minimum of training.

The current release,

in thousands of mine Version
planning4,exercises.
has many improvements that have been suggested after use

NPV Scheduler:

! Mine design and production schedule considered as two aspects of the same planning
problem.

! Elegant methodology employed that balances mathematical rigor with mining

pragmatism.

! Pushback generation that respects the twin goals of mining shape and optimal design.

! Practical and appropriate optimization engine used at each stage of the planning.

! Haulage fleets analyzed, specified and optimized at a detailed level for all truck types.

! Significant blending requirements solved with stockpiling and blending tools.

! Cut-off Grade Optimization of multiple rock types with different cut-off grades
throughout the mine’s life.

! Multiple mine design and schedule capability with separate geological models and pit
designs to meet common production targets or blended product specification targets.

! Conditional simulation models used to assess risk due to the uncertainty of grade
estimates.

! Improved user interface with sophisticated case management tools (copy, modify,
etc) to allow multiple cases to be assessed simultaneously.

Batch processing tools for easier use.

NPV Scheduler is a robust mine optimization system that uses sophisticated mathematics and
elegant programming to solve substantial mining problems. It provides a stepwise work
progression that can be controlled, reviewed and adjusted by the user to logically build
multiple mine strategy scenarios for comparison and evaluation for their financial merit and
engineering robustness.

As a consequence it is no surprise that NPV Scheduler is now the market leader in open pit
mine strategy solutions.

NPV Scheduler White Paper 14 August 2007

Appendix A: HAULAGE ANALYSIS & OPTIMIZATION
The total required truck hours is an important consideration for any level of mine planning,
including for strategic plans. A good strategic plan will minimize the peak requirement for
truck hours, which can represent significant capital expenditure; it will delay the peak
requirement in order to delay capital expenditure and hence increase NPV; and it will avoid
large fluctuations to ensure a consistent truck fleet size is required for periods of several
years. Finally the schedule should require that the fleet size is fully utilized in order to meet
all required targets. It is sometimes the case that the total truck hours required at the start of
mining is higher in order to carry out waste pre-stripping, but this can often be done using
contract fleets.

The traditional approach to achieving acceptable required truck hours is to create a strategic
plan that meets production targets and then as a result of that schedule carry out haulage
analysis to assess the total truck hours required for each year. In order to resolve fluctuations
in truck requirements or delay early capital expenditure the schedule is rerun with refined
targets. This process tends to require several iterations and potentially produces sub optimal
plans. At worst plans are produced that are in fact not practical because the fleet size
required to mine them is too variable. For an operation that can potentially process material
at a multiple number of destinations the process of obtaining a schedule with feasible and
acceptable total annual truck hours that also maximizes value is complex.

NPV Scheduler is unique in being able to employ a one-step optimization of the mine
schedule and haulage plan, combining the "scheduling" and "haulage analysis" functions
without the need for iterations. The following section describes the basic methodology NPV
Scheduler uses to simultaneously produce a schedule that meets annual targets for truck
hours in addition to meeting all other scheduling targets, whilst maximizing NPV.

Haulage Optimization Methodology

The haulage route from block to destination is broken down into four components as shown
in the diagram below:

Where:

! p is the distance from load point (shovel) to bench exit point (entry to ramp).

! P is the EFH distance from bench exit point, up the ramp to the pit exit point.

! F is the EFH distance from the pit exit point to the destination entry point.

!
D(x) is EFH distance from the destination entry point to the dump point where D is a
linear function of the total tonnes delivered to the destination (x).

NPV Scheduler White Paper 15 August 2007

The bench haul (p) will vary for every block mined and is dependent upon the position of
the mining face and the position at which the ramp intersects the bench. For strategic
planning a reasonable approximation, which takes due account of the different pushback
geometries, is to at least specify the average equivalent flat haul (EFH) distance for each
pushback. NPV Scheduler allows an exit point to be specified for each phase-bench, with a
minimum of one exit point per pushback being required.

The ramp haul (P) is calculated simply by measuring the elevation difference from the
bench to the pit exit point. If we have 10m benches and the truck has to climb 12 benches to
exit the pit on a ramp with a gradient of 1:7, then the inclined distance (whatever route is
2 2
taken) is for
distance, readily calculated
example (= !
at a 1:7 (120 +an
gradient (120*7) ) = way
848m one 848)inclined
and then converted
distance to have
might an EFH
an
EFH of 1520m. So we can calculate ramp haul EFH by simply multiplying the number of
benches by a factor. In our example, the Gradient Factor is equal to 127 (EFH = 127*B
where B is the number of benches the truck travels up from the shovel to the pit rim). Or
expressed another way, the inter-bench EFH distance is 127m. This is a universal constant
applied to the entire pit.

The surface haul (F),

(F), EFH from the pit rim to each destination entry point is constant and
supplied by the user.

The dump haul (D) may be zero, as in the case of a fixed crusher, or may be a function of
the tonnes already delivered to that destination. A simple linear relation is assumed between
distance and tonnes at dump. The user specifies a Dump Haul Factor for each destination
such that the dump haul is calculated by EFH =( Dump Haul Factor)*(ktonnes at dump). For
example, a dump with a DHF of 0.08 means that when 10m tonnes has been dumped, the
EFH = 0.08*10000000/1000 = 800m.

Multiple destinations are defined. Destinations can be restricted to accept specific rock types
and processes e.g. a mill crusher may only accept one type of ore and leach pads only accept
other types. Where multiple destinations are defined for the same rock-process types, the
program will preferentially send the material to the closest destination, and when that has
been filled, will divert the material to the next closest destination.

Note that the same physical destination can be defined by multiple sequential destinations
allowing for changes in the haulage distances over the life of the mine.

NPV Scheduler White Paper 16 August 2007

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info@datamine.co.uk

NPV Scheduler White Paper 17 August 2007