MiningEconomicsAndStrategy

Mining Economics and Strategy by Ian Runge

This views mining as just a series of expected value calculations. Which it is, but that's not a helpful statement of the problem.

Imagine that you are Herbert Hoover, hired in to debug an ailing placer gold mining operation. What are the concerns at hand?

  1. Knowledge
    Were the original tests valid? What is the plan for the rest of the field? What knowledge is available at what costs? What are the typical failures for this type of operation in this environment?
  2. Costs
    Does the site layout minimize costs? Is the crew/gear right-sized for the operation? What are the cutoff yields? Are there continual tests for overburden vs paydirt, and for each part of the extraction process? How to know that profitably extractable gold was not thrown away?

It seems tractable to proceed from descriptions of extant mining to an abstract process "mining" that covers the unit economics. Instead of just mentioning Lerchs-Grossman for pit optimization, the text would have been better off internalizing the idea that mining can optimized only when it is viewed as a whole process.

In the late 1980s, a large international mining company, whose expertise was almost solely in underground mining, planned the development of a new underground precious metals mine in an African country. More than three-quarters of the reserves were too deep for open pit mining. A large (and quite profitable) underground mine was planned. Just prior to commitment, personnel not previously associated with the project undertook a fresh review (a last look!) of open cut potential. Dramatic changes followed. Although reserves as stated favored underground mining, these reserves had been delineated under the assumption of underground mining costs. There were substantial additional shallow reserves that were quite profitable to mine assuming open pit mining costs. Moreover much of the "waste" in the open pit mine--material that had to be hauled out of the pit anyway--contained precious metal for which the marginal returns from treatment substantially exceeded the extra cost if the material was otherwise dumped as waste. The mine commenced development in 1991 as a large and quite profitable open pit precious metals mine. Further, the development of the underground mine was not precluded since the reserve depletion associated with the open pit mine involved only minimal impact on the economic viability of any underground development.
In the late 1970s and early 1980s, many of the world's large oil companies entered the coal-mining business seeing it as an extension of their existing "energy" businesses. However, by the mid-1990s, almost all of these companies had sold out of their coal interests after failing to assimilate them into their larger corporate structures. Although the two businesses supply markets with many similarities, the production side of the mining business--where most difficult decisions are made--is quite different from that of the oil business, where production is relatively less important. The relative sizes of the businesses, financing and accounting inconsistencies, and the less fungible nature of coal compared to oil were just three other substantial differences that made this transition difficult.
The typical life of mobile equipment has increased. In the 1970s, large haul trucks were typically installed with a planned life of 20,000 hours or 5 years. With better design, equipment monitoring, component changeout, and longer annual usage, typical life has extended to 8 years or more, and 40,000 hours or more. The same trend is evident with dozers, loaders, hydraulic excavators, and other mobile equipment.