Mine planning and valuation

1. Workshop
on
Opencast Mine Planning
and Valuation
DMT Consulting Private Limited
Kolkata

2. Mining Methods
• Two methods –
– Surface/ Opencast Mining Method
– Underground Mining Method
• Criteria of Selection
– Geological characteristics of the deposit (geological
disposition, strike, dip, faults, etc.)
– Depth of the deposit
– Availability of skill sets
– Economics

3. Few Basic Terminology
• Dip = Acute angle that a seam/ deposit makes with horizontal plane
• Strike = Direction of the line formed by the intersection of the seam/ deposit with a horizontal plane
• Stripping Ratio = Amount of overburden/ waste which is required to be removed for extraction of 1 tonne of
mineral (volume of waste removed/ quantity of ore/ coal excavated)

4. Contents – Mine Planning & Valuation
Geology
• Type of Deposit
• Geological
Characteristic
• Resource Details
Mining
• Mining Technology
• Production Schedule
• Mining Equipment
• Waste Management
Infrastructure
• Beneficiation Plant
• Onsite Infrastructure
• Offsite Infrastructure
• Logistic Arrangement
Economic
Aspects
• Capital Expenditure
• Operating
Expenditure
• Cash Flow
Mine
Planning &
Valuation

5. Different Stages of Mine Planning
Conceptual Study
• Data Accuracy: +/-
50%
• Mostly assumed
parameters
Pre-feasibility
Study
• Data Accuracy: +/-
25%
• Some engineering
basis
Feasibility Study/
Detailed Project
Report
• Data Accuracy: +/-
10%
• Sound engineering
basis
Detailed
Designing
• Data Accuracy: +/-5%
• Sound engineering
basis
Operational
Planning
• Data Accuracy: N/A
• Based on actual filed
result data
• Cyclic process, the successive studies are dependent on result of previous studies
• Mine planning is refined and finalized as the study progresses towards operational
planning

6. Steps – Mine Planning
Study of Geological
Report
Geotechnical/
Hydrogeological Study
Pit Optimization/ Final
Pit Limit
Pit Progression/
Development
Pit Layout/ Haul Road
Design
Mine Capacity/
Production Schedule
Equipment Selection &
Schedule
Waste Management/
Dumping Strategy
Beneficiation
Requirement
Infrastructure &
Logistic Planning
Manpower Selection Financial Aspects

7. Study of Geological Report
• Exploration Details - Drilling density, Lithology, Quality
analysis, mineralogical composition
• Geological succession, Bed Rocks & sequence
• Deposit Characteristics – Dip/ Strike, Thickness,
Sequence, Partings
• Regional Structure – Number of Faults, Throw
• Reserves – Quality wise/ Seam wise/depth-wise etc
• O.B. volumes & S.R. – Sector-wise, depth-wise etc.
• Others
– Topography
– Climate and Vegetation

8. Geotechnical/ Hydrogeological
• Geotechnical Study
– Slope geometry for Pit slope stability
– Spoil pile configuration for external dump/ internal dump
– Rock strength test – Diggability of material, blasting
impacts
• Ground Water Hydrology
– Dewatering
– Impact on water quality
– Impact of dewatering on surrounding area
• Surface Hydrology
– Water quality
– Mine flood protection
– Options for discharge of water

9. Pit Optimization/ Final Pit Limit
• Pit Optimization is a process to determine pit
limit considering economic factor
– Geological nature (dip, strike, occurrence, depth)
– Quality aspects of the deposit
– Costs (Mining, Beneficiation, Logistics, Selling)
– Market price of the finished product
• Other influential factors
– Surface constraints such as water body, roads, electric
lines, railway lines, buildings, monuments, etc.
– Statutory requirement (barrier between two blocks)
– Stripping ratio
– Geotechnical/ hydrogeological factors

10. Pit Progression/ Development
• Location of first cut - Box cut/ Access trench
– Minimum time to touch ore/ coal seam
– Near to incrop/ outcrop location
– Lowest stripping ratio
– Accommodate planned equipment
– Land availability
• Factors influencing pit progression
– Revenue generation by accessing easily available ore/
coal
– Stripping ratio – natural against average, advanced
stripping
– Lead distance from the external dump
– Production schedule/ Quality Schedule

11. Pit Progression

12. Pit Layout/ Haul Road Design
• Pit Layout
– Bench layout (working/ final benches) & level
– Main haul road/ Access ramp (permanent/ temporary)
– Space for working equipment
– In-pit infra location, if applicable (IPCC system, sump,
dewatering pipelines, etc.)
– Layout required (1st to 5th year and then of every 5th year)
• Haul Road Design
– Should be designed to reduce lead distance
– Width should cater to two way traffic (Thumb rule - 3- 4
times width of largest deployed dumper)
– Should consider drainage & windrows width
– Gradient should be aligned to equipment capability
– Avoid too much of turns, curves unless necessary
– Preferably in highwall side

13. Mine Capacity/ Production Schedule
• Annual Capacity
– Available coal reserves
– End usage requirement
– Structure of the deposit
– Pit Geometry & space available
– Mining equipment configuration & utilization
– Any other constraints
• Production Schedule
– Year wise ore/ waste schedule, Stripping ratio
– Year wise quality parameters

14. Equipment Selection & Schedule
Shovel – Dumper
• Most popular
• Two variants – Rope and Hydraulic
• Shovel – excavation & loading, Dumper – hauling
• Selection as per thickness of coal/ bench configuration
Dragline
• Side casting of overburden above coal seam
• Requires large capital investment
• Suitable for large size open pit mine with minimal geological disturbances
Inpit Crushing &
Conveying (IPCC)
• Crushing inside pit by small & strategically placed crushers
• Hauling by conveyor
• Suitable for deep mines with large size operation
Bucket Wheel Excavator
• Large opencast mine with soft strata
• Cutting by BWE and hauling by conveyor
• Require large capital investment
Surface Miner
• Does not require D&B
• Large strike length (>500 – 600m), gradient less than 7-8 degrees
• Cuts coal and loads into truck/ conveyor

15. Equipment Selection & Schedule
• Equipment schedule
– Yearwise production requirement
– Equipment productivity
 Available working time
 Utilization
 Operator skill
 Blasting performance/ Fragmentation
 Rock strength
 Life of equipment and replacement
 Lead time between order and equipment delivery

16. Waste Management
• Two type of dumps
– External dumping – Stacking of waste outside pit area
– Internal dumping – stacking of waste inside pit area
– Geotechncial rock study required for deciding slope angle
– Dumping is carried out in multiple lifts and slope of individual lifts should not exceed
natural angle of repose
• External Dumping
– Dumping level above the ground level
– High lead distance
– Land availability may be an issue
– Not environment friendly
• Internal Dumping
– Dumpling level above/ below the ground level
– Low lead distance
– Land availability not an issue
– Part of land reclamation
– Depends on steepness of seam/ deposit
– Safety distance required between internal dump
and working benches

17. Beneficiation
• ROM Product not always qualify as sellable product as it may not stipulate end usage
requirement, Product quality improvement required before selling as final product
• Financial feasibility of a product depends on beneficiation viability
• Statutory Requirement (MoEF restriction of transportation of coal with > 34% ash over
1,000 km and above)
• Beneficiation Plan set up may be done near pit mouth or away from pit area
• Setting up of Beneficiation plant near pit head reduces logistics costs

18. Infrastructure & Logistics
• Infrastructure Planning
– Primary Crusher
– Road Accessibility (access road connectivity to mine site, haul roads)
– Electric power (DC Genset/ Captive Power Plant/ State Power Company)
– Water Supply (River/ Borewells/ etc.)
– Civil Buildings (offices/ laboratories/ stores/ stackyards/ colony/ prayer room/ etc.)
– Workshops for HEMM equipment and Surface Electric Arrangement
– Fuel Supply Arrangement/ Magazine
• Logistics
– Truck
– Long Distance Conveyors – Open/ Closed
– Railway Siding

19. Manpower
• Required for various services
– Administration (Project Head, Finance, Commercial, HR, IT, Environment, Civil,
Store, CSR, Others, etc.)
– Mining (Mines Manager, Safety Manger, Mining Enggs, Geologists, Geotechnical,
Foreman, Overman, Sirdar, Equipment Operators, Blast Crew, Surveyor, Samplers,
etc.)
– Mining Equipment Maintenance (Mechanical Engg, Foreman, Mechanics, etc)
– Electrical Maintenance (Electrical Engg, Electrical Foreman, Crew, etc)
– Crusher (Operators, Maintenance Crew)
– Logistics (Drivers/ Conveyor Operator & Maint Crew)

20. Financial Aspects
Capital Expenditure (Capex)
– Pre-production/ Development
Stage (exploration, studies,
approvals, etc.)
– Mining Equipment
– Beneficiation Plant
– Infrastructure & Logistics
– Land & R &R Activities
– Mine Closure
Operating Expenditure (Opex)
– Consumables (Diesel, Lubs, Tyres,
Spares, Explosives)
– Electric Power
– Infrastructure Maintenance costs
– Salary
– Logistics expenses
– Overhead
– Statutory Duties (Royalty, DMF, NMET)
Cash Flow
– Net Present Value (NPV)
– Internal Rate of Return (IRR)

21. Mine Valuation
• A process of estimation of worth of a mineral deposit/ Operating mine
• As per VALMIN code, Value is defined as
“… the fair market value of a mineral or petroleum asset or security. It is the amount of money (or the cash
equivalent of some other consideration) determined by the expert in accordance with the provisions of the
VALMIN Code for which the mineral or petroleum asset or security should change hands on the valuation
date in an open and unrestricted market between a willing buyer and a willing seller in an “arm’s length”
transaction, with each party acting knowledgeably, prudently and without compulsion.’
• Valuations is done for
– Investment Analysis
– Capital Budgeting
– Merger and Acquisition transaction
– Financial Reporting
– Statutory Purpose (Taxation, Litigation cases, etc.)

22. Methods of Valuation
• Appraisal Value Method
• Multiple of Exploration Expenditure Method (MEE)
• Geoscience Factor Method
• Expenditure for Last 10 Years Method
• Geological Risk Method
• Probability Weighted Discounted Cash Flow Method
• Discounted Cash Flow Method
• Real Options/ Dynamic Discounted Cash Flow Method
• Joint Venture Terms Method
• Benchmark Method
Discounted Cash Flow Method

23. Cash Flow Definition
Net amount of Cash and Cash Equivalents
moving into and out of a business in a certain
time period.
Difference in amount of cash/ cash equivalent at
the beginning of the a period (i.e. opening
balance) and at the end of that period.
or
Discounted cash flow (DCF) is obtained after discounting the net cash flow for
change in value of money over the period.

24. Factors - Cash Flow
• Three factors are important
CASH INFLOW
CASH OUTFLOW
TIME PERIOD

25. MEANS OF CASH FLOW
Cash Pool
Investing Activities
• Sale of property, plant and
equipment
• Sale of debt/ equity securities
of other entities
• Collections of loans to other
entities
Financing Activities
• Issuance of equity
securities
• Issuance of debt (bonds
and notes)
Operating Activities
• When cash receipts
(revenues) exceed cash
expenditures (expenses).
Investing Activities
• Purchase of property, plant
and equipment
• Purchase of debt/ equity
securities of other entities
• Loans to other entities
Financing Activities
• Payment of dividends
• Redemption of debt
• Reacquisition of capital
stocks
Operating Activities
• When cash expenditure
(expenses) exceed cash
receipts (revenues).
Cash Inflow
Cash Outflow

26. Financial Cash Flow Model – Mining
Perspective
Capital Investment
(Capex)
• Pre-operatives
• Mining Equipment
• Processing Plant
• Onsite Infrastructure
• Logistics
• Land, R&R
Operating Expenses
(Opex)
• Consumables
• Electricity
• Wages
• Maintenance
• Logistics
• Royalty, Taxes and Other
Statutory Duties
• Overhead
Revenue
• Sale of final product
• Comparison with
alternative options
Cash Inflow
Cash Outflow
`

27. Process of DCF Method

28. Exercise

29. Guidelines
• Cost Model (DCF method) is prepared for Bidding of a coal block
• Bidder have to submit the price they are willing to pay to secure the coal block.
• Presently, bidders are securing coal from e-Auction at an effective price of 2,500 rs/tonne of
coal.
• Bidders have to submit the bid based on Net Present Value (i.e. project valuation) achieved in
the model.
• Successful bidders will be decided on the basis of final bidding price
• Final Winner will be decided on the basis of followings:
– Final bidding price i.e. successful bidder
– Net Present Value

30. Guidelines
• Bidders are allowed to modify followings:
– Coal Production Quantity (cell E6, PrSch worksheet): Condition – Project life can not be less than 25
years
– Equipment Selection (cell B14 to B17, EqCap worksheet): Conditions - Change followings depending on
selected equipment: (Select required details from Input WorksheetSheet)
– Equipment productivity (cell A14 to A17, EqCap worksheet)
– Equipment cost (cell F70 to F73, EqCap worksheet)
– Diesel consumption (cell E9 to E12, EqOp worksheet)
– Lub consumption (cell E38 to E41, EqOp worksheet)
– Spares requirement (cell E67 to E70, EqOp worksheet)
– Tyres requirement (cell E96 to E99, EqOp worksheet)
– Change Debt on total Initial Capex (cell D8, DCF worksheet)
– Change Bidding Price (Cell D4, DCF worksheet)

31. THANK YOU

32. Explanation of Valuation Methodology
Appraisal Value Method
Uses meaningful past exploration expenditure plus warranted future costs to test remaining
exploration potential
Multiples of Exploration Expenditure Method (MEE)
Similar to the appraised method but a prospectivity enhancement multiplier (PEM) is applied.
Geoscience Factor Method
Uses ratings of the main characteristics of mineral properties to determine the overall project
value.
Expenditure for Last 10 Years
The sum of expenditure over the previous 10 years may be used as a proxy for the market value
of tenements other than a production right.
Geological Risk Method
Based on estimating the value of a target resource and reflects the costs associated with
completing each stage of exploration and the probability of progressing to each subsequent
state

33. Explanation of Valuation Methodology
Probability Weighted Discounted Cash Flow
A DCF incorporating measures of technical risk into probable cash flow by factoring in the
probability of success
Discounted Cash Flow (DCF)
Net Present Value (NPV) performed on expected free cash flows over a project’s life
Real Options/ Dynamic DCF Method
The valuation of the scenarios encountered by management using technique applied to financial
options.
Joint Venture Terms Method
Based on the required participation expenditure in proving up or developing a property by the
incoming party.
Benchmark Method
The value of a project is estimated through comparisons with previous transactions involving
similar project

34. Explanation of Valuation Methodology
Method
Exploration &
advanced
Exploration
Pre-
development
Development/
Production
Appraised Primary method May be suitable Not Suitable
Multiple of exploration expenditure Primary method May be suitable Not Suitable
Geoscience Factor Primary method May be suitable Not Suitable
Expenditure for last 10 Years Primary method May be suitable Not Suitable
Geological Risk Primary method May be suitable Not Suitable
Probability weighted DCF May be suitable Primary method Primary method
Discounted Cash Flow Not Suitable Primary method Primary method
Real options/ Dynamic DCF Not Suitable Primary method Primary method
Joint Venture Terms
May be suitable
as a cross check
May be suitable
as a cross check
May be suitable
as a cross check
Benchmark
May be suitable
as a cross check
May be suitable
as a cross check
May be suitable
as a cross check