Cost Reduction in Mining Operations Discussion

19 Sep Cost Reduction in Mining Operations Discussion The operating cost structures of mining operations globally have increased significantly over past years. When raw material prices are high it might appear to be an odd time to be thinking about cost reduction, but in fact it is the ideal time. History has shown us is that high prices are inevitably followed by a downturn, so it is better to prepare for this rather than wait. Even if the downturn does not come as soon as expected, mine operators can still boost profitability and efficiency. Even in efficient mines, significant cost savings can be made, but it requires an integrated approach and a deep understanding of mining operations and behaviours. It is no good making savings in one area if you are adding more cost in another. Cost savings should cascade through the organizational and operational activity and employee behaviour so that savings are realized and sustained. This is the route to significant and bankable savings. There are a number of areas that are good sources for cost reduction where the root causes of waste in ways not typically considered. Energy usage and conservation In operations such as ore drying, where the heavy oil used in the drying furnaces has more than doubled in price, optimizing furnace utilization and ensuring a consistent feed quality to improve fuel efficiency makes very significant savings, especially at times when demand is high. Operational failings can be a big consumer of electricity but this can be hard to identify, for example overbreaking (in stoping or development) where excess tons need to be cleaned out. Water control and leaks require pumping to remove water, ineffective pumping can lead to poor working conditions which requires cleaning up and possibly bigger pumps which all consumes more electricity. Compressed air is a big consumer of electricity yet it is widely used for ventilation and cleaning where cheaper alternatives could be used. When seeking to install an energy aware mindset, people typically think of the obvious, switching off or utilizing more energy efficient machines. They fail to consider and establish a more holistic approach of optimizing operations in a way that minimizes the utilization of costly energy resources such as oil and electricity. Establishing a more energy aware mindset underpinned by a detailed energy efficiency framework that encompasses the energy strategy, sources of supply, generation and distribution, organizational awareness and behaviours and energy use, can have a substantial and immediate impact on cost reduction. Failure to utilize an energy efficiency framework can lead to unanticipated costs elsewhere. For example, there is

little point in buying fuel in bulk to save money if the cost of extra fuel storage eats up the savings. (Refer:Cost effective new formulation of ANFO by using Biomass Briquette as Additive ) Optimization of maintenance practices and management There are a couple of areas that are usually fruitful in achieving cost reduction. Typically, these are reduction of equipment downtime. For example: reduction of equipment downtime by between 15-25% can increase contractor productivity by 20-30%. It has been observed, at a recent mine project, there was an increase in preventative maintenance of 15% that resulted in a decrease in emergency work orders of around 30% and an unscheduled downtime of 24%. During a six-month Mastering Maintenance Together project a 20% reduction in work activity standards led to higher truck availabilities with front line supervisors able to spend a greater proportion of their day actually supervising work being carried out rather than being diverted to other unscheduled tasks. Improving logistics and procurement strategies Some areas where reduction may take place: examples of few real impact include: An Australian iron ore mine by properly executing logistic management reduced mine-to-port transport cycle time by 13%; by properly implementing inventory management cut procurement lead time by 35% and by improved scheduling to drastically reduce contractor and management fees. A North American iron ore producer reviewed critically its primary ore operations, iron ore processing, product delivery and maintenance and implemented measures to achieve its targeted 6% reduction in operating costs. Similarly, by critically reviewing their operation and implementing strict measures, a South American gold operation improved the productivity of its ore trucks by 12% and of the shovels and loaders by nearly 8%. Installing systems that will manage change quickly and effectively Having achieved savings, it is vital to maintain them by installing systems that will ensure improvements are both measurable and sustainable. These are just some of the areas that can yield significant savings. What is critical to maximizing cost savings is a deep understanding of the cascading impact of cost saving measures across the operation as a whole. CASE STUDIES:

* Increase in mine profits substantially and 30% reduction in costs, by Early In-Pit dumping of overburden waste Detailed mine planning and scheduling can allow a mine to more rapidly achieve a situation where the pit mine can reach final pit depth/limits earlier, and a allow for in pit back filling of waste. This action can massively reduce truck haul distances and therefore costs, for overburden. Also it can reduce amount of area disturbed ex-pit, and lower overall rehabilitation expenses. For Example, detailed mine planning and scheduling expertise was applied to one recent case study of a major coal mine where current haul distances on average were 1.8km one way to expit waste dumps. This study showed that when in-pit waste dumping could be introduced, truck haul distances could be reduced from 1.8km down to about 0.9km, and save some $0.40 / Bcm. This could reduce the current overburden rate from $1.25 down to $0.85/Bcm (30% reduction). For a mine with a nominal strip ratio of 6.0 Bcm/tonne, producing 10 million tonnes coal per annum, this reflects in significant extra profit. Extra profit 6.0 bcm/t x 10 mtpa x $0.40 = $ 24 million per year. * 40% costs reduction by alternative surface mining methods Direct Dozer Push applications In the face of significantly decreased coal prices and stiff international competition from Australia and China etc. Indonesia needs to lift itself up a quantum step in becoming more cost competitive, employing mining methods and technology that are to international mining standards and best practices. For certain mine site pit and seam geometries, the application of direct dozer methods can bring about massive cost reductions. These methods are almost standard practice worldwide, and there increased application into the Asian and Indonesian coal industry will become more necessary in order to reduce costs and maintain competitive position. As an example, typical hydraulic excavator and truck operations in a Indonesian mine cost approximately US$ 1.20/Bcm. A direct dozer push operation can reduce costs to some US$ 0.70 /Bcm (40% reduction). There are some excellent seam conditions in some of Indonesian mines very amenable to direct dozer push methods. Experienced contractors can carry out such operations on a unit basis $ / Bcm. * Upgrading to larger size mobile mining equipment gives cost savings of 20 30% In the Indonesian and other countries coal fields / mines further studies show that when upgrading fleet size from say the current typical standard of excavator and truck fleet from now predominantly a fleet of 13m3 excavators and 85 tonne trucks to double the size with 25m3 excavators and 160 tonne trucks. As a rule of thumb, if the fleet size can be doubled then costs can be reduced by some 30%. For at least overburden operations this should be very feasible, and an obvious step to bring an operation up to world class standards. For a typical large size mine savings could be approximately;

6 bcm/tonne x 10 mtpa x ($1.25/bcm x 30%) = $ 22 million per annum * 30% to 50% mine cost reductions by replacing long truck hauls with In-Pit Crushing and Overland Conveying Systems In the face of significantly decreased coal prices and stiff international competition from Australia and China etc. Indonesia must lift itself up a quantum step in becoming more cost competitive, employing mining methods and technology that are to international mining standards and best practices. Various systems can be further studied to replace long truck hauls with conveyors. This is a capital intensive approach, but generally gives massive operating cost savings and rapid pay back times, if volumes are large. For example case studies have been conducted at several large size Indonesian mines, which show 30% to 50% cost savings for overburden and coal transportation. Systems are capital intensive, with typical In-Pit crushing and conveying system costing in the range of US$ 30 40 million; however payback time is rapid, normally within 2 years. A significant extra benefit of these systems, is if mine costs can be significantly reduced by several dollars per tonne, then open cut pits can be extended to greater depths, and more reserves recovered, thereby increasing mine life considerably.

HALLENGES IN MINE PLANNING AND SCHEDULING DISCUSSION

01 Oct CHALLENGES IN MINE PLANNING AND SCHEDULING DISCUSSION Mining companies today are under increasing pressure to boost output from their existing mines and to bring new projects online quickly. Fundamental to the long-term performance of an operation is geologic modelling and mine planning. To maximize mine profitability, planners and schedulers must create mine plans that match the field as accurately as possible. Not surprisingly, this can be a difficult task, and getting it wrong can result in large unforeseen costs and significant lost revenue opportunities. Geologists and mining engineers must account for a staggering array of variables geological samples and data from the mine, the production capacity of available equipment, machinery and manpower availability, customer demand and commodity prices, product cost assumptions and the health and safety of workers. Traditionally, the time and resources required to continually collect this data meant that no one could keep pace with the reality of whats happening at the mine site. Furthermore, the process of developing mine plans may utilize disparate systems, which introduces inefficiencies in the process and more opportunity for error.

Few challenges in mine planning are discussed in the following paragraphs by employing efficient system / software the shortcoming can be encountered and the planning system can be upgraded. A. CAPTURING THE TRUE COMPLEXITY OF MINERAL DEPOSITS THAT MATCHES THE FIELD CONDITION: Geological models generated for initial feasibility studies are often not detailed enough to provide an accurate picture of a mine suitable for creating detailed production plans and the software used to develop models in a feasibility study may not be suitable for the production environment. Geological models built for feasibility studies can be oversimplified on complex coal and metalliferous ore deposits, particularly when it comes to modelling faults. As a result, coal / mineral production forecasted in mining plans may not be there when operations uncover the area, making it difficult to predict and plan production. To address the variation between planned and actual production, mining organizations need to balance creating a mine model that matches the field as accurately as possible with the available time to stay ahead of operations. Software/ module used for geological modelling should be capable to integrate with the geological database to streamline the modelling process. It should be able deal with complex geology and visualisation tools should be able to verify and communicate quickly and efficiently such geological complexity, ensuring accurate results. Illustrating this complexity, a coal miner was typically modelling and mining two coal intervals but exploration drilling revealed an area with eight coal units and the added complexity of a sand channel unit which presented significant ground control risk. Due to this complexity, the area was mined around. As a result of using an efficient software / module, the miner was able to model the geologically complex area, develop multiple mining scenarios and the coal reserves are now part of the mining plan, increasing the available reserves and the life of the mine. B. UPDATING MINE PLANS WITH NEW DATA FROM THE FIELD: Mine planning and scheduling has traditionally been such a time-consuming, labour-intensive process that it prohibits the timely generation of new or updated plans as quickly as new data is received. This is compounded by staff turnover and a shortage of skilled mine planners and geologists to execute planning. An efficient software / module should be able to accelerate the process of geological modelling, mine planning, and mine scheduling by automating and streamlining processes, and should be able to update the plan continually based on changing conditions in the ground or with workforce, plant, or equipment availability. Engineers then have access to the latest and most accurate information from which to develop mining plans. By integrating planning tools with geological modelling, instant access to geological surfaces and intervals for developing mine designs can be obtained. C. GENERATING ACCURATE PRODUCTION AND BUDGET FORECASTS:

Managing natural variations in an ore body is extremely difficult, often leading to educated guesses and fudge factors based on past experience. Process inefficiencies and technology deficiencies delay or prohibit the inclusion of the latest mine data into the geological models and mine plans in time to stay ahead of operations. Mining plans should incorporate the latest available information to increase accuracy in the geological modelling which provides the foundation and assumptions for mine planning. Accurate geological modelling provides for accurate mine planning and scheduling. Accurate mine planning and scheduling reduces planned versus actual production variances, which increases production predictability. By continually updating plans based on new field data, guesswork can be eliminated. Efficient software system should be able to automate and streamline the processes and also should enable multiple mine plan scenarios to run to select the most optimal plan. Improving the accuracy of production forecasts eliminate surprises, instil confidence that mining plans would be achieved and sales targets could be met and results in greater budget accuracy. Mine plans which can be executed to meet sales targets within the designed budget will ensure that the designed profit is also achieved. D. CAPITALIZING ON QUICK CHANGING MARKET AND OPERATIONAL CONDITIONS: Because of the length of time required to perform some of the geological modelling and mine planning tasks, planning frequency may not be keeping pace with the frequency of change. Mine plans and schedules are difficult to adapt to the changing conditions of a companys resources, such as its people, plant, or equipment. Geologists and engineering staff focus on the mechanics of developing a mine plan rather than operational improvements. As a result, processes tend to be less automated. Automation and self documenting tools / features should be available with the efficient software system which should facilitate repeatable and auditable mine planning processes. Additional benefit of the above automation tool in software is less time is spent by technical staff, geologists and engineers in developing a plan, leaving more time available to examine ways to make the operation more efficient, such as optimizing exploration drilling programs, increasing mine reserves by uncovering ways to mine in difficult geological conditions, and applying the skills of geologists and engineers into ensuring efficient execution of the final plans with field operations. This system ultimately improves the overall efficiency of the mine planning process. E. STREAMLINING THE FLOW OF INFORMATION BETWEEN THE GEOLOGICAL MODELLING, MINE PLANNING AND MINE SCHEDULING PROCESSES: If mine planning and scheduling is not run from a single integrated system, geological, mine planning and scheduling data must be moved and re-entered, increasing the likelihood of introducing errors and decreasing mine planning turnaround time. By adopting suitable integrated system, reductions of 40-60% in time spent updating long range mine plans may take place.