EXPLORATION GEOLOGY (MIN ECON) Flashcards
An ore when location, quantity, grade , geol characteristics, and continuity of mineralisaton are known and there is a concentration or occurence of the material of intinsic economic interest in or on earth’s crust in such form and quantity that there are reasonable prospect for eventual economic extraction
Mineral Resource
Econmically minerable part of a measure or indicated mineral resource
Ore Reserve
A portion of a mineralized envelope within which ore reserves have been defined
Orebody
What does the term economic imply in terms of ore reserve?
Extraction has been establsihed or analytically demonstrated to be viable or justifiable under reasonable investment assumption
Any single mineral or combination of minerals occuring in a mass, or deposit, of econmic interest
Mineralisation
What event in the mid seventies abruptly slowed down the demand in metals
Coeval Oil Crisis
What is the most produced mineral resources?
Sand and Gravel
What is the least produced?
Diamond, PGEs Gold, electronic metals and Silver
What is the most valuable mineral resources produce?
Crude oil, Natural gas, Coal and Sand and Gravel
What happens if demand for a minreal product is greater that the present supply?
Prices increases and companies profit and more investment is poured into the industry
What happens if the there’s a surplus of supply and low demand?
Price falls, producers loss and pulling out of resources/investments
Forces determining prices of mineral products
1) Demand and Supply
2)Gov’t Action
3)Recycling
4)Substitution and New technology
How does demand change?
1) Significant commodity substitution and
2)A change in technology
3)Expectation of future price change or shortagescan lead to hoarding thus increading demand
What is supply?
It refers to how much of a commodity will be offered for sale at a given price over a set period of time which is dependent on price and conditions of supply
What level of price will stimulate supply?
HIgh prices stimulate supply and increase in output
How does supply change?
1) Changes due to force majeure circumstances 2) Improved technology in exploitation and 3)Discovery and exploitation of large new bodies
How does government action affect metal price?
Government can stabilize prices by hoarding stockpiles and control the spike of price.
How does recycling affect metal price?
Recycling prolong resource life, reduce mining waste and smelter effluecnts this leading to immunity from price rising, shortages of primary materials and actions of cartels. Also, energy for recycled materisals are usually lower than for ore treatments
How does substitution and new technology affect metal price?
Diminution in demand as the world thrives to improve techonology and find more effective substitution
Year when OPEC created uprecedented oil and metal price increase
1973
This helps in forecasting price trends of metals over intermediate term (decades)
rise and fall of world business activity
An example of a world event which greatly affected metal price
OPEC 1973 oil crisis
What is the reason of nongold discoveries from 1976 onwards?
Difficult of exploration of a viable deposit in an unfavorable economic climate
What types of metals significantly decline in demand durng the 1990s?
Traditional metals, Mn, Pb, Sn ad W
What metals fluorished instead?
Ti, Ta and others
what was the price of Gold from 1934 to 1973?
$US 35 per troy ounce
Who and when was fixed link between dollar and gold removed?
Nixon, 1971
Highest price of Gold during the 1980s?
$US 850 per ounce
What was the result fo the rise of Gold price in 1971?
There was an increase in prospecting and disocvery of many large deposits
What type of industrial minerals are meant for local market?
Low Unit value
What type of industrials minerals are internationally tradeable?
High Unit Value minerals
How can a low unit value become valuable?
When it is available close to a market
Differentiate the effects of world business activity between metals and non metals?
IM are generally more stable and affected less compared to metals
What brings greater stability in industrial mineral price?
Their use ad partial use in consumer nondurable for which consumption remains comparatively stable during recession or in other words, since industrial minerals are consistentl used by consumers its price is relatively stable
how does the value of a industrial mineral vary?
Depending on its end use and amount of processing/purification it has indergone.
An example of industrial mineral which varied with supply and demand?
POtash
What industrial minerals are likely to be short in supply?
sulfur, barite, talc and pyrophyllite
Cut Off Grade
?Lowest Grade of Material included in the potentially economic part of the deposit
?Determines the resource potential
?Used to calculate resource tonnage
Who calculates the tinnage and grade of a resource?
Geologist
A waste that has a grade below cut-off but is estimated to have a grade above cutoff
Misclassified Waste
An ore classified as waste and dumped without extracting any metal
Misclassified Ore
1) Classical Statistical Methods
?Global estimation of Volume and Grade w/in the mineralisation envelope
?Samples must be randomly chosen or else it will biased and each geological areas must have separate calculations
?Plotted in Frequency Distribution Graphs (Histograms)
?Scatter Diagrams (Correlation graphs)
?Cumulative Frequency Distributions - Signifant departure from a straight line indicates presence of more than one grade zone
2) Conventional Methods
?T = A x Th x BD
T- Tonnage in Tonnes
A- Area of Influence on a plan in sq.km
Th - Thickness of the deposit w/in the area of influence in meters
BD- Bulk Density
Methods
1) Thickness Contours
2) Polygons
3) Triangles
4) Cross Sections
5) Random Stratified Grid
Factors that determine the methods for conventional Calculations
1) Shape
2) Dimensions and complexity of Deposit
3) Type, dimension and pattern of spacing of sampling info
Concept of Spatial Variability
Concept of spatial Variability
?Variable or properties of a depsit (Grade or thickness) are a function of the geological and structural environment (Thus changes the geol envi will result to variations in such properties)
?A sample taken aat a very close interval tend to reflect the same geol conditions, but as the sampling distance between two samples increases, the degree of correlation or similarity decreases until it reaches a dstance where there will be no correlation anymore
Semi-Variogram
A method used to quantify and display the saptial variability within a deposit
Spherical Scheme Model
A model of idealized semi-variogram in which the model is fitted to the experimental data and is the most common used type
Nugget Variance or Nugget Effect
A discontinuity near the origin in semivariogram models
Variability increases as
Separation Distance
Changed in variability or increase of variability is marked by
A steep gradient
A term used to denote a variability that is equal to the theoretical variance of the sample values and is marked by a zero gradient (horizontal)
Zero Correlation
Sill (C+Co)
The point at which the sill value is reached
Range (Of the Semivariogram)
If a range of a data is at 500 m what does it mean?
If drill spacing is greater than 500 m then data from each sample point would not show any correlations
Industry standard of sample spacing in terms of semi variogram
2/3 of the range
How many sample points are needed in order to have reliable semivariogram w/o suffering from anisotropy
30 evenly distributed
A geostatistical estimation technique used to estimate the value of a point or a block as a linear combination of the availblae, normally distributed samples in or near that block
(The value of a block or point is determined by the NORMALLY distribued samples in or near the block)
Kriging
How is a sample point given a weight? (Paano madedetermine kung gaano ka influencial ang isang sample point sa block under investigaition?
Done in reference to semi variogram (Na nagdedetermine ng variability between two points)
When will kriging be considered as unbiased?
If the sum of the weights assigned is 1
What other factors are considered in Kriging?
1) Distance ( The closer samples the higher the wright)
2) Clustering
3) Contnuity
4) Anisotopy
5) Geometry of data points
6) Character of the variable being estimated
7) size of block
A geostatistical technique, used to verify kriging procedure to ensure that the weigths being used do minimize estimation variance
Cross Validation
The square of the difference between the Known Value (Z) and the estimated Value (Z*)
Estimation Variance
As the size of the block increases the Estimation Variance (Increass or Decreases)?
Decreases
As distance increases in semi variogram, the estimation variance (Increases, decreases?
Increases
How to minimize estimation variance?
Only the essential samples which are nearest to the block being estimated should be used in the estimation process
A function of the distance of the samples used to estimate the value of a block?
Kriging Variance
The limit set to dertemine areas that fall outside the parameter and are conisdered unreliable
Confidence Limits
Conventional
Important to know the Weighting Factor
(Can be Length in core samples,
Width in Stoping in channels
Bluk Density and Length
Area of Influence)
What does gaussian transformed mean?
Normalized
Mine Life
?Total ore reserve/ average annual production
?the greater the tonnage of mineable mineralisation the longer the mine life
Factors Affecting Mine Life
1) Legal Limitations - Hanggang kelan ang Mining Permit? Will it exceed the mine life? Will there be extensions?
2) Market Forecast - What will be the future demand and consequently value of the mineral products?
3) Political Factors - changing of leaders would more likely affect operations since not all politicians have the same views. (Gina lopez for example)
4) Financial return - for a suitable level of return, minimum life of a mine should be 7-10 years
5) Type of Mining
6) Scale of Operations
7) Accessibility of mineralisation
8) Capex limitations
What does AAPR Mean?
Average Annual Production Rate
Which entails more expensive production cost?
Underground entails 3x the cost of surface mining
the ratio of tonnage of waste removed to tonnage of ore which is fundamental economic control
Stripping Ratio
If the Stripping ratio is 4:1 and the mining cost were $US2/t, how much will be the extraction cost per ton of ore?
$US 10/t (since we have to take into account the extraction of waste as well (4+1)*$2
In an open pit mining what is the relationship of Cost and Extraction?
The higher the extraction of Ore plus waste the lower the cost
An underground mining method which is designed as low maintenance working envi with minimal operating costs but high productivity?
Block Caving
which is higher to mine, a massive tabular or a narrower vein type of deposit?
Narrower vein type since it will use labor intensive methods
What is the effect of increasing depth in an open pit mine?
Stripping ratio will be higher and will be more expensive
Effect of slope to Stripping ratio
Greate the slope (Gentler) the less the waste rock to be extracted
The larger the annual output
the lower the production cost per tonne
The raw mined material as it is delivered by the mine cars, skips, or conveyors and prior to treatment of any sort.
Run-of-Mine Grade
Commodities that usually sold as ROM
Coall
Iron Ore
Bulk (Aggregates, Sand and Gravel etc)
Commodities usually needs beneficiation
Base Metals
Precious Metals
In terms of location of mineralsation, what conditions will make a mienralisation or valuable products of greater value?
When there is a local availability of power, water supply, an skilled labor. Local housing, educational and recreational facilities for the workforce
Normal Distirbution of A mining Company’s Income or Revenue
In decreasing weight percent
1) Wages, salaeries and Benefits to employees
2) Loan Capital payments
3) Production and Processing Costs
4) Transport of the product to the market
5) Product Marketing
6) Dividends to shareholders
7) Local and National Taxes
*See Mine Law for detailed taxes in PH
The most important single variable in a feasib study which is also the most difficult to predict?
Product Price
Why is it important to predict future demand for at least over the life of the mine or at least the first 10 years of the mine, whichever is shorter?
Because, the demand for the product will determine the price of the product
If the the product has low price based on the market, what should the mining company do?
Minimize Operation Cost
Maximize revenue
(Adjust Cut-off grade to extract MAX possible tonnage of easily accessible mineralisation at the HIGHEST GRADE)
If the product is at high, what should the mining company do
Extract low grade material as well
what economic factors are crucial to life of mine?
1) Inflation
2)Demand for product
3) Prediction of general business sentiment
4) Rising equipment and labor costs
5) Higher interest rate
What are the effects of recession (and inflation) to mining companies?
Falling mineral prices
Rising Interest rates on loans
Increasing operation costs
Other considerations that determines a Healthy Profit or investment for a Mining Company?
1) Safety and Health of Employees,
2) Efficient Mineral Extraction
3) Care for the Environment
4) Payment of Local and National Taxes
What should exist between the host and the contractor?
Mutually agreeed Contract within the framwork of acceptable law
What are the Essential aspects of integral part of mining lease approval process?
1) Social
2) Environmental
3) Health and Safety
4) Governmental
What is an EIA?
A document that would explain how the company will mitigate issues such as blasting vibrations, dust, noise, atmospheric and water pollution, and increased traffic density
What are the aspects of that constribute to closure costs of a mine?
Decommisioning
Rehabilitation
Sustainable Development
A framework which decides items such as taxation of profits, import duties on Equipments, Transfer of dividends and Capital Abroad
Fiscal Policy
What is it important to consult local trade unions before starting a new mining project?
Because union disputed can effectively stop a mine
When is mineralisation valuable?
When there’s a saleable product that can be exracted or produced from it
Factors that will enhance the Value of Mineralisation?
Increase:
1) Tonnage
2) Grade
3) Mineral Recovery
4) Products sales and Price
5) Political Stability
6) Sustainable Development
Decrease in
1) Mining Cost
2) Ore Beneficiation Cost
3) Transport to Market Cost
4) Capital Cost
5) Taxes
sustainable development good practice
Economic Activty = Envi Integrity and Social Responsibility
An annual summary of the Revenue and Cost of a proposed mining operation calculated on a yearly basis over either 10-year period or over the expected mine life. And
a process that will determine if a mineralisation will be considered an ore depending on its ability to produce higher revenue that costs
Cash Flow
Cash flow formula
CF=Cash into the project (Revenue/Income) - cash leaving the project (cost/expenditure)
or
CF = Income - (Mining cost+Beneficiation cost+transport cost+sales cost+capital cost+interest cost+ taxes)
How do cash flow determine the value of mineralisation
If the overall mineralisation has the ability TO PRODUCE A SERIES OF POSITIVE CASH FLOW (Revenue>Expenses)
When will you have an ideal negative cash flow
at the early stage of mining
Why do geologists need to participate fully in financial deliberations?
Because the ultimate success or failure of a project is measure by financial terms and the decisions (including financial) are made with whatever geological information is available it is the geologists’ responsibility to ensure that as much critical information is taken into account
General Sequnce of Studies in Mining
1) Conceptual
2) Order of Magnitude
3) Pre-feasibility
4) Feasibility
Exploration on new deposits
Greenfields
Evaluating a mine extension based on the result of
1) additional ore discovery
2)increase in commodity price
3) change in mning method or
4) introduction of different technology
Brownfield
Who prepares these technical and economic studies which are required to determine if the project is valuable to the company concerned?
Competent Person
Genreal divisions of a technical study
1) Objectives
2) Series of Work Programs to achieve the objectvie
3) Decision Point (proceed, Pause, discard)
How do these resource contribute to the development or opening of a mine?
1) reports discuss different technical and business issues
2) from the combination of technical and business aspects of the project, Capital and operating costs will be derived to prepare cash flows
3) Cash flows will determine the value of mienralisation
4) The value of mineralisation will be the basis of decision making (Strategic, Political, Technical, Financial, and social)
Who can be the readers of the report?
1) Internal - Operations or admins
2)External - Gov’t, Investors or Banks
Conceptual Study
Objectives: Establish the LIKELY Presence of a Resource based upon reference to deposits of similar genesis and size and may only be an OFFICE Evaluation
Work Program:
1) Identify potential issues usch as access, topographical or mining lease contraints
2) Use similar deposits as basis to establish technical fesibility
3) Costing of up to 35% of the engg requiremetns
4) Identify Major Social and Environmental Sensitivities
Decision Point: Indicate Potential to Produce Enhanced Value when compared to other potential investments
JORC/PMRC: leading to definition of inferred Resource
Order-of-Magnitude Study
Costs: Fairly low but increasing trhough the years
Objectives: Establish whether there could be a viable project that would justify the cost of progressing to a Pre-feasib
Work Program:
1) Limited Drilling and other sampling
2) Mineralogical studies to identify undesirable element and other metallurgical issues
3) Define sufficient tonnage above a given cut off to determine possible mining options and production rates and the preliminary size of equipments
4) Initiate Social and Environmenal Baseline studies
5) Financial Modeling of Options and Sensitivities
Decision: Inferred Mineral resource
Pre-Feasibility Study
Objecives:
?To eval various options and possible combintaions of business and techinal issues
?To Assess sensitivity of the project to changes in individual parameters
?To Rank vairous scenarios prior to selecting the most likely for further detailed study
Work Program:
1) Major sampling + Test Work Programs
2) Pilot Plant testing
3) Evaluate mine infra, labor requiremetns, envi impact
4) Detailed eval of capital and operating costs to come up with a Preliminary Mine Schedule
6) Sensitivity analysis: alernative mine and metallurgical methods and their outputs
7) INtegration of social and envi aspects in decision making esp. in determining impacts
8) Project with highest value at an acceptable (lowest) risk will be considered most viable
Decision:
To have enough geol confidence to declare Ore Reserves (measured and indicated) and any other mienral resource
Feasibility Study
Objectives:
1) To confirm and maximize the value of the preferred technical and business options idenftified in the pre-feasib
Work Programs:
1) Envi and Statutory approvals processes will be accelerated
2) Consultaions and Negotiations w/ Local Community groups to have a basic agreement
3) Social and Envi Impact Assessment (EIA)
4) Submiission of Permiting and other statutory proceses
5) Sufficient Sample collection and Test work in this stage will be for more resource estimate to be reported in measured category
6) Sensitivity Anlyses of Risk pertaining to teh reserve
Output: Final Mine Design
Detailed Engg Studies
1) Final Stage before major capital expenditure is incurred
2) Involves producing detailed plans an work schedule
3) Orders are placed for equipments for mine devt based on the detailed plan and work sched
MINERAL PROJECT VALUATION AND SELECTION CRITERIA
Done when a company needs to select amongs a number of projects to fund based on their relative value (which is dependent on the absolute value (cash flow) of individual projects)
Payback
?Ranks projects based on the number of production years of expected investment capital return
?can serve a preliminary screening but fails to account the earnings after payback and time value of money
?Suitable for areas with political instability where recovery of investment is of particular importance
Operating Margin to Initial Investment Ratio
?Dimensionless number w/c indicates the amount of cash flow generated per dollar invested
?Indication of how financially safe the investment is
?The larger the ratio the higher the value of mienralisation
How do discount factors affect value of mineralisation?
1) Discount Factors are highest in the Early Years thus the value of a project is enhanced by generating high cash flows at the beginning of the project.
This can be obtained by extract higher grade and more accessble (lower mining cost) ore at the beginning of a poroject can enhance its value
Money that have the same purchasing power today as the money which can be received in the future
Constant Money
Present Value
the cash flow from each projected year is discounted to get the equivalent present value
Net Present Value (NPVs)
Summed PVs- Initial Capital Investments
Acquisition Value
a bonus payment during NPV Summation
Discounted Cash Flow rate of return
Special case of NPC where interest rate chosen is that which will exactly discount the future cash flows of a project to a PV equal to the initial capital investment
What is sensitivity analysis?
Part of planning or study where risk is calculated
To identify which cmponents have greater effect upon the size of the cash flow
Between Operating cost and revenue which have greater risk?
Revenue because selling prices can decrease and increas in extreme instances
Break even Price
the selling price of the commodity at which operating and financing costs can be met and the mine can continue in production
The weighted average of various price increase within a particular national economy
Gross National Product Deflator
Negative Differential Inflation
when the increase in cost is slower than the measured general inflation
Constant Money
Assumed to have the same purchasing power thrughout the valuation period and the basis for the calculation OF NPV
Current money
figures used in calculation are adjusted for the anticipated rate of inflation each year and represent the net available profit of loss
Traditional financing Sources
1) Equity
?Financing provided by owners (Shareholders) of the copamby developing the project through purchase of shares in the company when it is floated on a stock market.
?Can be bought or sold throughout the mine life
?Dividends to shareholders (paid out of profits)
2) Debt
?Financing by external sources (Banks)
?Lenders may have the power to cease trading if loans are not paid in agreed manner
?Ultimate control of company is in the financer
3) Retained Profits
?Undistributed profts which, if accumulate, can be used to develop another mineral property
Project Financing (Conventional Financing Source/Modern)
?Differs in a way that the lendor looks at the cashflow of the project as the source of paying the loan and its assets as security for the loan
Thus the developer is external in the decision making
?Commonly in a form of consortium to spread lending risk
?However, sponsor or the developer, needs to isolate the specific project funded form their other projects
?Rate of Payback period and Good Management are factor considered by banks
Notes
?Banks have the right to replace mangament in case they are proven incompetent in doing business
?Banks would not accept technical risks
?Banks reveiew envi and social impacts or issues
Summary
Cash flows in constant money (not considering inflation) are tested by senisitvity analysis
