GPPH Papers


Abstract

The last decade has featured a large swing in the worldwide coal demand supply balance. The unexpected shortfall early in this century led to the commissioning of a large number of new projects and existing producers scrambling to expand production. As an inevitable result, supply has overshot demand and prices have retreated from historical highs. The medium term supply-demand forecasts clearly show that prices will not rise significantly from current levels. They may even fall further to balance the market. Short-term cost cutting measures have helped limit the price impact. To return to true economic profitability producers must make sustainable and underlying changes to their operations. Many Australian mining operations are able to gain an advantage over international competitors by restructuring their operations. This paper describes the macro issues faced by coal producers, and lays out a clear path for producers wanting to transition to significantly more profitable and sustainable mining operations.


Abstract

Valuation techniques used in mining include technical analysis techniques and discounted cash flow (DCF) techniques. There is considerable disagreement as to the best method to handle risk and uncertainty, leading to an array of valuation methods. One of the major disadvantages of traditional valuation methods is the inability to value management flexibility in the event of improved knowledge resolving uncertainty. Real options analysis is one way of valuing flexibility. Real options may be analysed using exact formulae, numerical approximation, or Monte Carlo simulation. Numerical approximation using a binomial analysis technique offers the flexibility to handle complex real options found in mining valuation. Early options analysis was performed on the basis of an underlying commodity price exhibiting an exponential growth. Models are available, however, to base analyses on a price that reverts to some mean value over time. An example of a complex compound option involving decisions on grade control, abandonment, mothballing and expansion was developed by Winsen, 1994. This model has been further enhanced and forms the basis for the analysis in this paper. The Winsen model did not address valuation of a mine with limited mining reserves, or the consideration of the impact of the cut-off grade on mine value. Both of these cases are considered in this paper. The algorithm developed to value these cases incorporates path dependence, linear programming, and three-staged iterative dynamic programming. Further work is suggested to turn these concepts into a practical valuation tool.


Abstract

Open cut mining in the Hunter Valley currently faces a number of challenges. A decline in productivity over the past decade is at least in part due to maturing operations. This gives increased production at higher marginal costs and higher strip ratios. Mining operations are also getting deeper. A number of open cuts are mining to depths greater than 200 metres, with some planned to greater than 400 metres deep. Marginal cost for waste removal at these depths becomes very high. Environmental impacts due to noise, dust, visibility and aquifer interference are a major community concern. In particular, the cumulative impact of numerous high production operations in close proximity is heavily scrutinised. Studies into the principal sources of emissions show haul trucks, the currently favoured haulage technology, in a poor light. These impacts are further exacerbated by the pressures from competing land use. A review of the strategic regional land use plan indicates that most of the potential open cut areas, not contained in current mining leases or exploration licenses, fall within strategic agricultural land. Crushing and conveying of waste may provide one solution to these issues. The concept is not new, with many applications in metalliferrous mines, as well as some Australian coal mines. The system components are well developed, with a number of equipment suppliers having proven expertise and products. Limitations of waste conveying systems centre on lack of flexibility. Mine designs need to adapt to the system requirements and cannot be easily altered. The advantages, however, include reduced costs and reduced noise, dust and visibility impacts. The key innovation required is in developing a suitable mine plan to take advantage of the capabilities of this mining technology..


Abstract

The question of whether to utilise underground or open cut mining methods generally arises at two different times in the assessment within the life of a resource. The first time it arises is at the feasibility stage for a greenfields site. The second time arises during the more mature stage, when the operation has been established for some time and a change is perceived to be required. At this point the decision is either to take an existing opencut and develop some underground mining capability from the opencut highwall, or to look at open cut mining of a subcrop and the part of an existing underground. This mature-age decision making has arisen a number of times and will continue to arise in the future. The question is when do these decisions arise, what is driving the decision, and what tools are used to assist in the process. This paper looks at some of the issues driving the decision-making, and the tools used in the process. This paper is a treatise of the methods and logic for the strategic decision of whether to mine via underground or open cut methods. The accompanying presentation will detail the case studies and review historical examples. .