DEVELOPMENT OF ECONOMIC EVALUATION METHODS OF COARSE

ORE UPGRADING OPPORTUNITIES INCLUDING INTEGRATION OF CUT-

OFF GRADE BASED MINING STRATEGIES

by

Bryan Lee Rairdan

Bachelor of Science in Metallurgical Engineering, University of Alberta, 1997

PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF

THE REQUIREMENTS FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

In the Teck Executive MBA Program

of the
Faculty
of
Business Administration

© Bryan Rairdan 2015

SIMON FRASER UNIVERSITY
Summer 2015

All rights reserved. However, in accordance with the Copyright Act of Canada, this work
may be reproduced, without authorization, under the conditions for Fair Dealing.
Therefore, limited reproduction of this work for the purposes of private study, research,
criticism, review and news reporting is likely to be in accordance with the law,
particularly if cited appropriately.
Approval

Name: Bryan Rairdan

Degree: Master of Business Administration

Title of Project: Development of Economic Evaluation Methods of Coarse

Ore Upgrading Opportunities including Integration of
Cut-off Grade Based Mining Strategies

Supervisory Committee:

___________________________________________
Dr. Leyland Pitt
Senior Supervisor
Professor, Marketing and Dennis F. Culver EMBA Alumni
Chair of Business Faculty of Business Administration

___________________________________________
Dr. Michael Parent
Second Reader
Professor of Management Information Systems and Marketing
Faculty of Business Administration

Date Approved: ___________________________________________

ii
Abstract

Coarse ore upgrading opportunities, involving a mix of new and traditional technologies,
are gaining momentum in the mining industry as a tool to improve the economics of resource
extraction while lowering the energy and water footprint of the extraction process.

Documented attempts to quantify the value of coarse ore upgrading opportunities have
focused on the incremental change in processing costs of a static ore stream. In reality, the
inclusion of a coarse ore upgrading step will inherently change the key value drivers of the
mining operation. For example, with lower processing costs the cut-off grade (lowest grade that
can be mined profitably) can be materially reduced, impacting the mine plan and the amount of
deposit material classified as ore.

This paper provides a framework to integrate cut-of grade based analysis into the
evaluation of coarse ore upgrading opportunities from an economic perspective.

Keywords: ore-sorting, ore sorting, coarse ore upgrading, cut-off grade, sensor-based ore sorting

iii
Executive Summary

A methodology for incorporating variable cut-off grade analysis, common in mining

engineering, has been developed for a group of mineral processing technologies that are rapidly
emerging in the mining industry. These technologies, collectively known as “Coarse Ore
Upgrading” or “Ore Sorting” aim to reject material from the process that is sub-economic at a
point in the process where material historically could not be upgraded. As this step is prior to an
energy, water and cost intensive processing step, comminution, there are significant opportunities
for this technology to reduce the input intensity of mineral processing.

In order to incorporate cut-off grade analysis on these opportunities, the following

aspects of the process need to be well understood.

• Segmented processing costs – An understanding of unit costs associated with

mineral process before, during and after ore sorting.

• Sorting Separation and Recovery – Each deposit, and in some cases domains
within a deposit, will have different ore sorting opportunities depending on the
mineral structure of the deposit. This is characterized by a relationship between
the amount of mass that can be sorted and the amount of contained valuable
mineral that can be accepted for further processing. This relationship needs to be
well defined and understood.

• Operating Strategy – Depending on where the overall operational bottleneck is,

and where it would preferably be, different strategies will be used to optimize the
ore sorting process. Understanding if the mining or processing facility is the
bottleneck, plus the potential use of a low-grade stockpiling strategy, is key to
understanding the economic impact of ore sorting opportunities.

A case study was generated based on a hypothetical operating zinc mine contemplating
the use of sensor based ore sorting to reject waste material and increase the grade of material for
further processing illustrate the differences between a variable cut-off grade strategy and the
traditional method of evaluating mineral processing opportunities. Table 0.1 illustrates key
assumptions and outcomes of the different evaluation methods.

iv
 Table 0.1 Key Economic Evaluation Assumptions and Metrics

Base Case Traditional Variable Cut-Off

Evaluation Grade Evaluation

LOM (years) 10 8 7.5

LOM Material Mined (Mt) 125

LOM Strip Ratio 2.5

LOM Revenue ($M) 5,981 5,897 5,898

LOM Operating Costs ($M) 2,000 1,870 1,840

Operating Profit ($M) 3,981 4,027 4,059

Ore Sorting Capital ($M) 100

Ore Sorting Zinc Recovery - 99% 93%

Ore Sorting – Mass Accepted - 80% 63%

for downstream processing

NPV8 of Ore Sorting - $131 $201

Opportunity ($M)

IRR (%) of Opportunity - 9.5% 10.5%

The use of a cut-off grade strategy defines the value of finding an operating point at
which material that does not contain enough value to justify downstream costs (and is therefore
not economic to process further) is removed. The amount of mass that should actually be rejected
in the sorting step is much higher in the cut-off grade evaluation, despite the loss of additional
valuable metal, indicating that in the traditional evaluation case material that does not have
enough value to warrant further processing is being processed through the site bottleneck. The
use of this method ensures that more uneconomic waste material is rejected, ultimately resulting
in lower operating costs. The other key difference is that in a situation where the process is
bottlenecked downstream of the sorting step (in this example, in the comminution step), the value
of maximizing the mining rate and accelerating cash flow is evident in the NPV calculation.

v
 Use of the developed variable cut-off grade methodology should provide projects and
operations that are considering the use of coarse ore upgrading technologies a more fulsome
indication of the value of the technology.

vi
Dedication

This project is dedicated to my loving wife, Wendy Rairdan. The pursuit of my MBA
degree has spanned over 10 years, during which the travel and course work commitments have
been substantial. The last decade has seen our family grow with the addition of two children
(Amber and Asa), relocate to multiple international destinations, and face multiple other family
challenges – throughout which Wendy’s support of my completing this program has never
wavered.

vii
Table of Contents

Approval .......................................................................................................................................... ii
Abstract .......................................................................................................................................... iii
Executive Summary ........................................................................................................................iv
Dedication ..................................................................................................................................... vii
Table of Contents ......................................................................................................................... viii
List of Figures .................................................................................................................................ix
List of Tables .................................................................................................................................... x
1: Introduction ................................................................................................................................ 1
1.1 Coarse Ore Upgrading – Concept and Methodologies ............................................................ 1
1.2 Traditional Evaluation of Processing Projects ........................................................................ 3
1.3 Cut-off grade Based Deposit Evaluation ................................................................................. 4
2: Economic Evaluation Analysis Development .......................................................................... 6
2.1 Conceptual Framework ........................................................................................................... 6
2.2 Sorting Cut-Off Grade Equation Development ....................................................................... 8
2.3 Sorting Recovery / Mass Accept Relationship ........................................................................ 9
2.4 Equation Application............................................................................................................. 10
3: Case Study – Hypothetical Zinc Mine Opportunity ............................................................. 13
3.1 Case Study Assumptions ....................................................................................................... 13
3.2 Traditional Economic Evaluation of an Ore Sorting Opportunity ........................................ 14
3.3 Application of Cut-off Grade-based Economic Evaluation .................................................. 15
4: Conclusion................................................................................................................................. 17
Appendices .................................................................................................................................... 18
Appendix A – Coarse Ore Upgrading Examples............................................................................ 19
Appendix B – Conceptual Framework of Cut-Off Grade based Operating Strategy .................... 20
Appendix C – Business Case Production, Cash Flow, and Present Value Tables for Base,
Traditional Ore Sorting, and COG based ore sorting evaluations ......................................... 21
Bibliography.................................................................................................................................. 25
Works Cited.................................................................................................................................... 25
Works Consulted ............................................................................................................................ 25
Websites Reviewed ........................................................................................................................ 25

viii
List of Figures

Figure 2.1 Traditional Process ....................................................................................................... 6

Figure 2.2 Process Including Ore Sorting ...................................................................................... 6
Figure 2.3 Margin Curve - Linear Mining Process ......................................................................... 7
Figure 2.4 Margin Curve – Inclusion of Coarse Ore Upgrading Process ........................................ 7
Figure 2.5 Accept Stream Mass / Metal Relationship ................................................................... 10
Figure 3.1 Grade-Tonnage Curve of the Deposit ........................................................................... 16

ix
List of Tables

Table 0.1 Key Economic Evaluation Assumptions and Metrics .................................................... v

x
1: Introduction

1.1 Coarse Ore Upgrading – Concept and Methodologies

Mineral processing of base and precious metals sulphide ores containing metals such as
copper, zinc, lead, nickel, gold, and silver, is an industry with input costs that exceed US$100
billion per year worldwide annually. The facilities used to conduct mineral processing, generally
referred to as mills or concentrators, can have operating budgets in excess of US$300 million
annually for a single plant.

Operating a concentrator is highly energy intensive as the majority of these processes

involve crushing and grinding ore into very fine particle stream such that valuable mineral
particles can be separated from the non-valuable minerals (gangue). Recent estimates suggest
that as much as 3% 1 of the world’s electricity is consumed in ore comminution processes, and the
cost of this power can represent as much as 60% of a site’s overall concentrator operating costs.
For these reasons, there is currently a push towards a group of new technologies generally
referred to as “Coarse Ore Upgrading” in order to reduce operating costs and input (water and
power) intensity.

In a typical sulphide mining operation, there are only two points in the process where the
quality of the site product can be upgraded (ie. gangue mineral is rejected). The first point is
during the mining process, when ore material that naturally contains higher or lower grades is
physically separated by mining equipment and sent to different locations. For example, material
that has been broken using explosives will be sent either to a waste dump or to the concentrator
based on the value of the material. This decision is typically made based on a Cut-Off Grade
(COG), such that material with contained payable metal value higher than the COG reports to the
concentrator.

In the majority of operations, all of the material sent to the concentrator is crushed and
ground to a predetermined product size before froth flotation. Flotation represents the second
traditional point in the process where upgrading occurs, ultimately resulting in a saleable product.
Technologies focused on coarse ore upgrading focus on the steps between the selective mining

1
(CEEC - Center for Eco-Effecient Comminution n.d.)

1
and flotation processes. There are three main categories of technologies in various stages of
development that that collectively represent coarse ore upgrading. In addition to the following
descriptions, Appendix A includes basic examples of how three of these technologies would be
applied in a sulphide mining operation.

• Size Based Sorting – In this case, either the natural breakage characteristics of an
ore or selective breakage during the blasting process result in varying grades at different size
fractions of an ore stream. This variability is exploited through screening or other size
classification method, resulting in two or more streams with varying grade that can be dealt with
separately.

• Bulk Sensor Based Sorting – These technologies attempt to measure the quality
of large quantities (1 – 1000 tonnes) of ore at a time using sensing technology, such as X-ray
transmission, optical, or induction sensors. Once sensed, the “lot” of material is distributed to
one of multiple locations for further handling or processing.

• Particle Scale Sensor Sorting – Technologies in this class attempt to measure the
quality of individual particles of material, generally between 5mm and 200mm in diameter.
Based on the measurement of similar sensors to the bulk sorting units, individual particles are
physically separated into differing streams, most often through the use of pneumatic ejection.

• Dense Medium Separation – These technologies utilize a mixture of fine solids

and water that act as a liquid with high specific gravity. A series of mechanical devices are used
to separate material based on the specific gravity of an individual particle. The concept of
separation by specific gravity is not in itself novel, but new application of existing technologies
has resulted in inclusion of this list.

In all four of the above cases, similar logic can be used to evaluate the opportunity. In
each case, money is spent to remove part of the mass flow resulting in higher grade material
advancing to the next step of processing, and a waste stream being generated that contains some
amount of valuable material that requires disposal. For the bulk of this paper, discussion will
focus on particle scale sensor sorting (referred to as simply “sorting” technologies). However, the
outcome of the study should be equally applicable to the other three forms of coarse ore
upgrading.

2
1.2 Traditional Evaluation of Processing Projects
Historically, mining and concentrator operations have been thought of as silos. One
classic example stems from Teck Resource’s Highland Valley Copper operation in which both
the mine and the mill generally agreed that “The mine’s job was to fill the piles, the mill’s was to
empty them 2”. The piles referenced in the aphorism are the coarse ore stockpiles where mined
material is stored prior to processing. The practical outcome of this way of thinking is that the
mill simply processes what the mine provides. Analysing an ore sorting opportunity in this
paradigm would result in the answering of the question:

How will this improve the processing operations value?

In order to evaluate the opportunity, processing impacts and costs are directly quantified.
In a recent paper, Lessard, de Bakker and McHugh (2014) (Lessard, de Bakker and McHugh
2014) present and detail a method for evaluating ore sorting opportunities from a traditional
mineral processing methodology. These authors focus on the development of three different
levels of ore sorting operation, denoted as relaxed, moderate, and aggressive. In the relaxed case,
almost every particle that contained valuable metal was accepted to the main process, where in
the aggressive case some particles that contained some level of valuable metal were rejected.
The economic analysis was completed by utilizing the following steps:

1. Establishment of Base Case: Define the throughput and head grade of a given process,
and calculate the operating costs associated with the given throughput and head grade.

2. Quantify the impact of sorting on the process: This would include allowance for the
sorting costs, rehandling of rejected material, and the impact on the operational costs of
the material noted.

Based on the above, the impact of operating costs can be quantified before and after the sorting
case. Alternatively, the throughput can be increased to maximize a particular area of the process,
but with the addition of some processing capacity. In either case, ore sorting will generally have
a positive impact on the processing economics as the unit costs (per metal product unit) will
generally decrease. The methodology can determine the impact on the economics of the process,
but does not quantify the impact on the overall site. For example, the assumption that the
throughput of the plant can be increased to increase the metal throughput of the plant is dependent
on the ability of the mine to deliver material at a cost effective mining rate to satisfy the process
requirements.
2
Author’s experience

3
 Although an acceptable way of analysing value from within a segmented section of the
overall business, as this opportunity affects the broader operation there is a need for a more
fulsome definition of the opportunity value., there appears to be more to the value proposition
than is captured in this manner.

1.3 Cut-off grade Based Deposit Evaluation

Mining engineers use a very different way to evaluate value than mineral processors have
traditionally used. During the mining engineering process, material to be mined is classified as
ore or waste, resulting in three different categories of material. The first is material that is of low
enough grade (valuable metal content) that it is not valuable enough to mine and it is located in an
area where there is no need to move the material to access higher grade, economic ore. This
material will not be mined. The second class of material is called waste rock. This material does
not have enough grade to be processed economically, but it does need to be mined in order to
access higher grade, more valuable material. The third type of material is ore, which contains
enough value to not only offset the mining and processing of itself, but also to offset the cost of
mining any waste rock that needs to be removed in order to access the ore material. However,
there also needs to be enough value in the ore to make an acceptable economic return of capital
employed, in addition to simply covering the operating costs.

Stemming from these three types of material are a series of cut-off grades. A cut-off
grade is an amount of valuable material in a quantity of material at the tipping point between
these types of material. The Mine Cut-Off Grade (COGmine) is the grade at which any material
below is not mined due to its own value. Once material has been mined, and the choice is to be
made between sending the material to a waste stockpile (as waste rock) or to the mill (as ore), a
Mill Cut-Off Grade (COGmill) is often applied. This COGmill is also known as an internal cut-
off grade, particularly if there is a substantial difference in the mining costs for ore or waste
material. The difference between these COG’s revolves around sunk costs. For the COGmill, a
large proportion of the mining costs (drilling, blasting, mining G&A, and truck loading) are sunk.
In addition, the cost of hauling the material to a waste dump partially offsets the cost of hauling
the material to the processing facilities and processing the material. Explained mathematically,
both COG’s are shown below.

4
 COGmine Calculation 3

[𝑀𝑀 + 𝑃𝑃 + 𝑂𝑂]
𝑋𝑋 =
𝑅𝑅 (𝑉 − 𝑅)

COGmill Calculation4

[𝑃𝑃 + 𝑂𝑂]
𝑋𝑋 =
𝑅𝑅 (𝑉 − 𝑅)

Where:

Xc = Mine or Mill Cut-Off Grade

Mo = Mining costs on a metric tonne basis

Po = Processing costs on a metric tonne basis

Oo = Overhead costs on a metric tonne basis

Rf = Flotation Recovery (proportion of valuable product recovered)

V = Value of one unit of valuable product

R = Refining, transportation, and other costs incurred per unit of valuable product.

Since mining costs are a substantive part of the mining process, it can be seen that the
mine cut-off grade is always higher than the mill cut-off grade.

Variations of these cut-off grade analyses are available for situations where the site is
mining rate limited, milling rate limited, has a choice of processing options, etc. 5 For this
analysis, the base COGmill will be used, which assumes that neither the mine nor the mill are
materially constrained and that all costs are 100% variable, resulting in a mining decision that is
solely based on the grade of material in question. A schematic depicting the use of a cut-off
grade strategy to operate a mine is included in Appendix B for further reference.

3
(Rendu 2008)
4
(Rendu 2008)
5
(Rendu 2008)

5
2: Economic Evaluation Analysis Development

2.1 Conceptual Framework

The concept of a COGmill requires that once material has been deemed ore, then all of
that material can be sent to the process to recover the valuable material. Introduction of a sorting
step changes this concept. The COGmill can be modified, as there is an opportunity to remove
some lower value material further down the process (after additional costs are sunk) to reject
material that would be viewed as uneconomic. Modifying this cut-off grade has an impact on the
operating margin of the mining process. In order to further understand this process, the
processing costs (Po) will need to be further broken down into the main components of mineral
processing. Note that these steps can vary, but for the sake of clarity, a straightforward base
metal sulphide milling process is illustrated in figure 2.1. Figure 2.2 illustrates a similar process,
but with the addition of an ore sorting step.

Figure 2.1 Traditional Process

Concentrate
Crushing and
Grinding Flotation Dewatering and
Conveying
Tailings Storage

Figure 2.2 Process Including Ore Sorting

ACCEPT STREAM
Concentrate
Crushing and Dewatering
Ore Sorting Grinding Flotation
Conveying and Tailings
Storage

REJECT STREAM

Waste to
Rehandle 6
 The following two charts (in figures 2.3 and 2.4 below) indicate the difference in margin
between a traditional process and a process with a sorting step. As material is moved through the
process, costs are sunk into processing, reducing the opportunity value remaining in the material.
If sunk costs were to exceed the value during the process, the material would effectively be cash
negative to process. In both of the illustrated cases, the same material is mined, but it can be
seen how the margin is improved at the point in the process where material is rejected and the
opportunity value does not drop in parallel with the operating costs, increasing the margin.

Figure 2.3 Margin Curve - Linear Mining Process

Figure 2.4 Margin Curve – Inclusion of Coarse Ore Upgrading Process

7
2.2 Sorting Cut-Off Grade Equation Development
Whereas the traditional process can treat processing costs as a single unit cost (variable
on a time basis, but constant on a metric tonne basis), the second case requires a more complex
analysis as the basis will change depending on the proportion of material sorted. For the
evaluation including ore sorting, it is suggested that the processing costs be broken down into
four categories for each sorting step. All costs are on a per metric tonne basis of material
subjected to the process in question.

Pps = Processing costs incurred prior to the sorting process

Ps = Processing costs incurred during the sorting process

Pas = Processing costs incurred after the sorting process (main stream)

Psw = Processing and transportation costs incurred by the sorting waste stream

Three other key factors are the amount of material, of the original mine ore flow, that
reports to the accepted stream and the recovery of valuable material to both the accepted stream
and the flotation concentrate stream (ie. flotation recovery).

S = Fraction of mine ore reporting to the accepted stream

Rs = Fraction of valuable material reporting to the accepted stream

Rf = Fraction of valuable material reporting to the flotation concentrate

Uaccept = Value of Accept Stream

At the point of sorting, the value of the accepted material should be greater than the downstream
processing costs, which include the processing of the waste reject, sorting process costs, and
downstream costs of the accept stream in order to have positive value. Therefore:

𝑈𝑈𝑈𝑈𝑈𝑈𝑈 > 𝑃𝑃 + 𝑆(𝑃𝑃𝑃) + (1 − 𝑆)𝑃𝑃𝑃

Integrating the previously stated methods of calculating the value of a mined unit of ore, the
following equation is proposed:

8
 𝑅𝑅𝑅𝑅(𝑉 − 𝑅)𝑋 = 𝑃𝑃 + 𝑆(𝑃𝑃𝑃) + (1 − 𝑆)𝑃𝑃𝑃

Where X is the grade of the mined material.

Therefore, by setting the value of the sorted material at a minimum while still exceeding
both the sorting costs and the downstream costs of the accept and reject material, the cut-off
grade from a sorting perspective can be denoted as:

𝑃𝑃 + 𝑆(𝑃𝑃𝑃) + (1 − 𝑆)𝑃𝑃𝑃
𝑋𝑋𝑋𝑋𝑋 =
𝑅𝑅𝑅𝑅(𝑉 − 𝑅)

2.3 Sorting Recovery / Mass Accept Relationship

A parameter that needs to be well understood in order to utilize these equations is the
fraction of the processed material that will report to the accepted stream from the sorting process
(S). This proportion will vary depending on the cut-off grade and the material characteristics of
the deposit. This relationship can be described in a chart linking the percent of mass accepted to
the percent of metal accepted. If this relationship is linear, there would be no benefit from ore
sorting as no upgrading will occur through the rejection of mass. Deposits that are amenable to
ore sorting will have a curved relationship, an example of which is shown in Figure 2.5.

9
Figure 2.5 Accept Stream Mass / Metal Relationship

120.0

100.0
% Metal Accepted

80.0

60.0

40.0

20.0

0.0
0.0 20.0 40.0 60.0 80.0 100.0 120.0
% Mass Accepted

It can then be assumed that in general, there is a relationship between sorting metal
recovery (Rs) and fraction of material reporting to the accept stream (S). Therefore, either of
these two variables can be described using the other, such that:

𝑆 = 𝑓 (𝑅𝑅) 𝑜𝑜 𝑅𝑅 = 𝑓 ( 𝑆)

Since the overall costs and revenue will change with S and Rs, the sorting cut-off grade
will change depending on where on the above curve the sorting operation is operated at. In order
to determine what cut-off grade is reasonable, the equations above need to be applied through the
range of S values (0 -100) to determine the lowest cut-off grade possible. It is at this point that
the sorting system revenue and costs are balanced on a sunk cost basis. This lowest cut-off grade,
coupled with the associated S and Rs, should be used as the sorting cut-off grade.

2.4 Equation Application

The sorting waste stream is comprised of many individual particles, each of which has
been subjected to a sensor-based analysis to determine the metal content of the material. The
sensor reading at which a particle is sorted between the reject and upgraded streams in known as
the cut-point. As this process is not perfect, some particles with grade above the cut point will

10
report to the waste stream and others with grades below the cut-point will report to the upgraded
streams. Therefore, once a COGsort is calculated, it can be applied in three ways.

1. Particle Basis: In this case, every particle that is sensed to have a grade below the
COGsort (ie. COGsort is equal to the cut-point) is rejected. This is a potential option
as every particle is being measured and is being evaluated as to whether it can carry
the downstream costs and add value to the operation. However, the end result is that
the stream will have an overall grade substantially lower than the COGsort as the
waste stream will include a blend of particles ranging from no valuable material to
particles just slightly lower grade than the COGsort.

2. Stream Basis: In this case, the particles are sensed in a manner in which some
individual particles above the COGsort are purposely directed to the reject stream in
order to target an entire stream grade equal to the COGsort. The will result in more
mass reporting to the waste stream, and a higher grade accept stream reporting to the
remainder of the process.

3. Stockpile Generation Basis: In this case, an operating particle cut-off grade well in
excess of the COGsort can be used to generate a reject stream that is in excess of the
COGsort. This material will still, by definition, be ore as it will have positive
opportunity value. However, the capacity of the downstream circuit will be better
utilized with higher grade accepted material. Effectively, this results in the rejected
material being classified as low-grade material for stockpile, and should be stored in
a manner in which it can be processed at a future date.

The decision as to which of these methods to use to determine the operating point of the
sorting system lies in where the overall site bottleneck resides. The first case may be applied if
the site bottleneck rests with the capacity of the mining fleet and/or constraints to the mining rate.
Since the mining rate is restricted, the mine would endeavour to produce as high a grade material
as possible, and the milling process would focus on maximizing the amount of metal production
during a given time period. The second case is used if stockpiling space and/or complexity is the
constraint. This method will increase the utility of the process at a higher mining rate, but does
indicate that stockpiling the reject stream would not be a good business decision as the
opportunity value of the material would be negative. In this case, the reject would be stored
along with the rest of the mining waste material without any concern for loss of opportunity
value. In scenario three, there is adequate mining ability and stockpiling constraints are not an
issue, which would put the site production bottleneck on the process downstream of the sorting

11
step. In this case, the goal will be to maximize the utility of the downstream process, and allow
the rest of the site to operate at whichever rate can support the bottleneck rate.

12
3: Case Study – Hypothetical Zinc Mine Opportunity

3.1 Case Study Assumptions

In order to illustrate the concepts presented, a hypothetical, simplified case of a mid-scale
high grade zinc mine operating in remote conditions (such that electricity is diesel-power
generated) was developed. It is assumed that this mine is mid-life, and there is sufficient ore at
current cut-off grades to operate for 15 years. Key assumptions for the base case (without ore
sorting) and ore sorting scenarios include:

Pre-Ore Sorting Assumptions:

Current Life of Mine: 10 years

Annual Processing Rate: 5.0M dmt/a

Mining Strip Ratio: 1.5

Annual Mining Rate: 12.5M dmt/a

Mine Operating Costs: $10.0 / tonne mined

Processing Operating Costs: $22.0 / tonne processed

Admin OPEX $8 / tonne processed

Annual Head Grade 10.6% Zinc

Mine Cut-off Grade 6.4% Zinc

Flotation Recovery 85%

Zinc Concentrate Grade 55%

Net Smelter Return (including shipping) $600/mt concentrate or:

$1091/mt zinc in concentrate

Ore Sorting Assumptions:

Ore Sorting Capital Cost $100M

13
 Processing Operating Costs (prior to sorting): $4 / tonne processed

Processing Operating Cost (post sorting) $18 / tonne accepted

Sorting Operating Cost $1.0 / tonne processed

Sorting Recovery 99% Zinc to Accept Stream

Sorted Mass Report to Accept Stream 85%

Reject Mass Rehandling Costs $2.0 / tonne rejected

Grade/Tonnage Curve of Deposit (insert)

In addition, it is assumed that the site is bottlenecked around the comminution (ie.
grinding) circuit of the processing plant. As the grinding circuit is a very cost intensive process,
especially considered the assumption of diesel-generated electricity, the bottleneck is in the
appropriate location for the hypothesized operation.

Another key assumption in any analysis of this type is the grade-tonnage curve of the
deposit. This graph, shown in section 3.3, denotes how much of the material is mineralized and
to what extent.

3.2 Traditional Economic Evaluation of an Ore Sorting Opportunity

In this case, the capital cost is applied as a negative cash flow in the year prior to sorting
operations starting, and the same mine plan (same tonnage and grade) is executed through a
modified plant at a higher throughput. A summary sheet of the production plan and cash flow is
included in Appendix C for all scenarios, including the traditional evaluation method.

The bottleneck is assumed to be the process downstream of the sorting step, such that the
mining rate is increased to allow this bottleneck to be fully utilized. In the base case, the mine
operates at 12.5 million tonnes per year versus 15.625 million tonnes per year in the ore sorting
case. Costs are applied on a unit basis to the different streams (mined, sorted, reject and accept).
As the cost of this process are heavily weighted towards the reject stream, which is expected due
to the high cost of grinding energy that this material would be subjected to, the project economics
are favourable towards ore sorting. The split of material between the reject and accept streams
was based on the concept that very little metal would want to be lost to the reject stream, and
based on the defined separation curve, it was assumed that 99% of the contained zinc could be
recovered through sorting with 80% of the mass reporting to the accept stream.

14
 The total operating costs for the mine are reduced by approximately $130 million, with
no increase in revenue (similar metal production rates). Due to the reduction in operating costs
and the acceleration of metal production and therefore revenue, this $100 million investment
would have a net present value (NPV) at an 8% discount rate of $131 million.

3.3 Application of Cut-off Grade-based Economic Evaluation

In order to incorporate cut-off grade analysis into the process, two steps are required.
The first step is the calculation of the sorting cut-off grade. As per the above equations, the
sorting cut-off grade is the point at which particles below a certain grade do not contain enough
metal to cover the additional downstream processing required to convert the material into revenue
generating product. For this calculation, both the cut-off grade equation and the defined sorting
separation curve were used to find the minimum cut-off grade point. It was found that an optimal
operating point was 63% mass accept point and a sorting metal recovery of 93.1%. Although in
this situation about 6.9% of the metal fed from the mine to the process is lost, this material is not
deemed as economic as the material does not contain enough material to cover the downstream
processing costs. Taking this optimal point and including it in the sorting cut-off grade
calculation produces a cut-off grade of 1.7% zinc and an associated mine cut-off grade of 4.0%.

This mine cut-off grade is substantially lower than the base case cut-off grade of 4.3%
zinc. Using the reduced cut-off grade, the amount of material in the deposit that is classified as
ore, with zinc grades about the cut-off grade, increases from 50 million tonnes to 60 million
tonnes. The LOM head grade is reduced from 12.9% from 11.4%. This is shown graphically in
Figure 3.1 the grade-tonnage curve of the deposit.

15
Figure 3.1 Grade-Tonnage Curve of the Deposit

Taking into account this increase in tonnes processed and the lower grade, the economics
of the opportunity are evaluated in a similar manner to the traditional method. Due to a further
reduction in material being fed to the accept stream (only 63% of a mine plan with 120% of
mined material, the absolute value of the operating costs are reduced a further $30 million from
the traditional evaluation method. The revenue is at very similar levels to both the base case and
traditional evaluation methodology.

Due to the acceleration of the zinc production (and revenue) due to the higher processing
rate and the reduced operating costs, the NPV of the sorting project at 8% discount rate is
increased from $131 million to $201 million, an increase of 53%. Although this does only
translate to an increase in IRR of 1.0% between the two evaluation methodologies, this is material
considering this increase is strictly due to the evaluation (and proposed operational) strategy.

16
4: Conclusion
It can be concluded that the inclusion of a cut-off grade strategy can provide a more
fulsome view of the impact of an ore sorting application on a sulphide mining operation,
including the impact on the overall mine plan. As the sorting application will fundamentally shift
the cost structure of a site by providing an additional point of upgrading to the process, it stands
to reason that the impact on the material to be mined should be quantified and understood

Utilizing the equations developed in this report, whether evaluating an opportunity to

implement a coarse ore upgrading step or determining the operating strategy of an operating
system, should help tie the value created in the mining and processing activities into a single
value-based enterprise. This should increase the utility of the both the operating and resource
assets being applied in the venture.

17
Appendices

18
Appendix A – Coarse Ore Upgrading Examples

19
Appendix B – Conceptual Framework of Cut-Off Grade based
Operating Strategy

20
Appendix C – Business Case Production, Cash Flow, and Present Value
Tables for Base, Traditional Ore Sorting, and COG based ore sorting
evaluations

21
 Current LOM Plan - BASE CASE, No
Ore Sorting 8 % Discount Rate
Year 1 2 3 4 5 6 7 8 9 10
Mined Tonnage 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000
Processed Tonnage 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000
Zinc Concentrate Producted 996,818 996,818 996,818 996,818 996,818 996,818 996,818 996,818 996,818 996,818
Mine Operating Costs $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 50,000,000
Processing Operating Costs $ 110,000,000 $ 110,000,000 $ 110,000,000 $ 110,000,000 $ 110,000,000 $ 110,000,000 $ 110,000,000 $ 110,000,000 $ 110,000,000 $ 110,000,000
Admin OPEX $ 40,000,000 $ 40,000,000 $ 40,000,000 $ 40,000,000 $ 40,000,000 $ 40,000,000 $ 40,000,000 $ 40,000,000 $ 40,000,000 $ 40,000,000
Revenue 598,140,750 598,140,750 598,140,750 598,140,750 598,140,750 598,140,750 598,140,750 598,140,750 598,140,750 598,140,750
Total Operating Costs $ 200,000,000 $ 200,000,000 $ 200,000,000 $ 200,000,000 $ 200,000,000 $ 200,000,000 $ 200,000,000 $ 200,000,000 $ 200,000,000 $ 200,000,000

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Annual Operating Profit 398,140,750 398,140,750 398,140,750 398,140,750 398,140,750 398,140,750 398,140,750 398,140,750 398,140,750 398,140,750
Present Value of Operating Profit $ 398,140,750 $ 368,648,843 $ 341,341,521 $ 316,056,964 $ 292,645,337 $ 270,967,905 $ 250,896,208 $ 232,311,304 $ 215,103,059 $ 199,169,499
Total Present Value $ 2,885,281,388
Mine OPEX 4.0 $/t mined
Mine OPEX 10 $/t processed
Processing OPEX 22 $/t processed
Admin OPEX 8 $/t processed
V-r 1091 $/t contained zinc
R 0.85
Mine COG 4.3% Zinc
Mill COG 3.2% Zinc
Current LOM Plan- Traditional Ore Sorting
Analysis 8 % Discount Rate
Year
Ore Sorting Capital 1 2 3 4 5 6 7 8
Mined Tonnage 15,625,000 15,625,000 15,625,000 15,625,000 15,625,000 15,625,000 15,625,000 15,625,000
Processed Tonnage 6,250,000 6,250,000 6,250,000 6,250,000 6,250,000 6,250,000 6,250,000 6,250,000
Accepted Tonnage 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000
Rejected Tonnage 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000
Zinc Concentrate Producted 1,228,578 1,228,578 1,228,578 1,228,578 1,228,578 1,228,578 1,228,578 1,228,578
Mine Operating Costs $ 62,500,000 $ 62,500,000 $ 62,500,000 $ 62,500,000 $ 62,500,000 $ 62,500,000 $ 62,500,000 $ 62,500,000
Processing/sorting Operating Costs $ 18,750,000 $ 18,750,000 $ 18,750,000 $ 18,750,000 $ 18,750,000 $ 18,750,000 $ 18,750,000 $ 18,750,000
Reject Stream Rehandle Costs $ 2,500,000 $ 2,500,000 $ 2,500,000 $ 2,500,000 $ 2,500,000 $ 2,500,000 $ 2,500,000 $ 2,500,000
Accept Stream Costs $ 100,000,000 $ 100,000,000 $ 100,000,000 $ 100,000,000 $ 100,000,000 $ 100,000,000 $ 100,000,000 $ 100,000,000
Admin OPEX $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 50,000,000

23
Revenue 737,147,045 737,147,045 737,147,045 737,147,045 737,147,045 737,147,045 737,147,045 737,147,045
Total Operating Costs $ 233,750,000 $ 233,750,000 $ 233,750,000 $ 233,750,000 $ 233,750,000 $ 233,750,000 $ 233,750,000 $ 233,750,000
Annual Operating Profit 503,397,045 503,397,045 503,397,045 503,397,045 503,397,045 503,397,045 503,397,045 503,397,045
Present Value of Operating Profit $ 503,397,045 $ 466,108,375 $ 431,581,829 $ 399,612,805 $ 370,011,856 $ 342,603,571 $ 317,225,528 $ 293,727,341
Total Present Value $ 3,124,268,351
Capital Required $ 100,000,000 Mine OPEX 10 $/t processed
Capital NPV (at Year 1) $ 108,000,000 Processing OPEX 2 $/t processed
Sorting Cost 1 $/t processed
Post-Project NPV $ 3,016,268,351 Accept Stream OPEX 20 $/t processed through Accept Stream
Reject Rehandle 2 $/t processed through Reject Stream
Difference vs. Base Case $ 130,986,963 Admin OPEX 8 $/t processed
IRR 9.5 %
Current LOM Plan - COG Based Ore
Sorting Analysis 8 % Discount Rate
Year 0 1 2 3 4 5 6 7 8
Mined Tonnage 16,515,200 16,515,200 16,515,200 16,515,200 16,515,200 16,515,200 16,515,200 9,193,600
Processed Tonnage 7,940,000 7,940,000 7,940,000 7,940,000 7,940,000 7,940,000 7,940,000 4,420,000
Zinc Concentrate Producted 1,300,962 1,300,962 1,300,962 1,300,962 1,300,962 1,300,962 1,300,962 724,213
Mine Operating Costs $ 66,060,800 $ 66,060,800 $ 66,060,800 $ 66,060,800 $ 66,060,800 $ 66,060,800 $ 66,060,800 $ 36,774,400
Processing Operating Costs $ 113,859,600 $ 113,859,600 $ 113,859,600 $ 113,859,600 $ 113,859,600 $ 113,859,600 $ 113,859,600 $ 63,382,800
Admin OPEX $ 63,520,000 $ 63,520,000 $ 63,520,000 $ 63,520,000 $ 63,520,000 $ 63,520,000 $ 63,520,000 $ 35,360,000
Revenue 780,577,069 780,577,069 780,577,069 780,577,069 780,577,069 780,577,069 780,577,069 434,527,789
Total Operating Costs $ 243,440,400 $ 243,440,400 $ 243,440,400 $ 243,440,400 $ 243,440,400 $ 243,440,400 $ 243,440,400 $ 135,517,200

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Annual Operating Profit 537,136,669 537,136,669 537,136,669 537,136,669 537,136,669 537,136,669 537,136,669 299,010,589
Present Value of Operating Profit $ 537,136,669 $ 497,348,768 $ 460,508,118 $ 426,396,406 $ 394,811,487 $ 365,566,191 $ 338,487,214 $ 174,469,807
Capital Required $ 100,000,000.00 $ 108,000,000.00
Mine OPEX 4 $/t mined
Total Present Value $ 3,086,724,660 Mine OPEX 10
Processing OPEX 14.3
Improvement Over Base Case $ 201,443,272 Admin OPEX 8
1.865215484 V-r 1091
R 0.85
IRR 10.5 Rs 0.93
Mine COG 3.7%
Bibliography

Works Cited
Lessard, Joseph, Jan de Bakker, and Larry McHugh. "Development of ore sorting and its impact
on mineral processing economics." Minerals Engineering, 2014: 88-97.
Rendu, Jean-Michel. In An Introduction to Cut-Off Grade Estimation, by Jean-Michel Rendu.
Littleton: Society for Mining, Metallurgy, and Exploration, Inc., 2008.
CEEC - Center for Eco-Effecient Comminution. Why Comminution? n.d.
http://www.ceecthefuture.org/why-smart-companies-are-focusing-on-comminution/
(accessed 03 07, 2015).

Works Consulted

Norgate, Terry, and Nawshad Haque. "The Greenhouse Gas Impact of IPCC and ore-sorting
technologies." Minerals Engineering, 2013: 13-21.

Websites Reviewed
CEEC - Center for Eco-Effecient Comminution. Why Comminution? n.d.
http://www.ceecthefuture.org/why-smart-companies-are-focusing-on-comminution/
(accessed 03 07, 2015).

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