It's late, its hot and I'm bored, so I may as well add to my comments on open pit stuff before I go into cutoff grades or other things. I normally walk the pueblo at night, in the cool, but there was a shootout here last week, the first in ten years and the locals are on edge. I don't want to be a mistaken victim of some edgy householder protecting his property with grandpappy's shotgun in the dark. The miscreants? Well, word on la calle is that Los Federales have them under observation. The usual result to this, in other towns to the south, is that the cops are waiting for the other cartel to strike and they'll sit back and observe the carnage, perhaps assisting when necessary. Only the last man standing is arrested. I look forward to the entertainment. However. . .
Just because a block of economic mineralization sits within an optimized pit shell doesn't make it ore. Remember this, dear investors! If some turkey is calling everything in an optimization a Reserve, then run. Or short. Whatever takes your fancy. Remember the comments I made on time dependency?
The fundamental thing necessary for "Ore" is a meaningful schedule that supports a cash-flow model. No schedule, no Reserve. How many glowing ASX "Maiden Reserve" statements have I seen that have no schedule at all, or an annualized summary?
In the JORC Code, there is a Modifying Factor "Technical" and this means "schedule and mine design". So, if you're doing your due diligence on some crappy junior (and there's lots of 'em, kiddies) look for at least an image of a sequential mine design (year 1, year 2 year 3, final pit etc) and some kind of schedule - Y1 in months, Y2,3 in quarters, Y4 onwards annualised. Almost none of these monkeys do this simple thing, but it would be so much easier to attract capital if they did so. . . If it still looks good and they haven't done this, phone the MD or Chairman and tell him that his consultant/engineer is a w@nker. He probably is too, but his ego won't admit it, so it's best not to tell him so.
The way that a competent mining engineer analyses the optimization is to look for natural breaks in the pit shells - each shell represents different metal price, remember? These breaks are the points where the geometry or grade distribution of the mineralization means that the stripping ratio increases significantly. Hey presto! Cutbacks! These allow capital repayments and operating costs to be scheduled appropriately, improving the NPV of the operation. The easy to mine, high grade ore is mined first and capital removal of waste is deferred as long as possible (remember that 12% discount rate?).
Another consideration: a truck has a life of around 50,000 hours, if well maintained. Even then, it requires a rebuild after about 30,000 hours, which introduces an opportunity (ie fixed) cost. There's something like 6,000 available operating hours in a year. So, the mine (and I haven't discussed the mill yet) requires significant sustaining capital after, say, five years. That's one really good reason why a competent operator goes contract for a new operation. Initial capital's another. Longer lived operations may have a buyout clause in the contract and everyone's happy. But be sure to steer clear or short any operation that proudly proclaims that it's going owner-operator from the outset. Maintenance and supply chain expertise is the killer. Particularly if the MD says "we bought cheap gear in a downturn". There's a really good reason why that gear is cheap, amigos. Remember - the contractor is focused on moving tonnes as efficiently as possible, while the owner wants ounces (or pounds). The two shall never meet.
Incidentally, the best run operations have around 15% allowance for "dayworks" in the schedule. If there's one thing about a schedule, it is that it's wrong, the moment it's printed. But that "wrongness" should be within a tolerance. Every pit is going to have inefficiencies - the geo wants the dozer for a day, the fill ramp collapses, there's a minor bench collapse. . . The worst operations, well it was never considered in the first place, so the schedule is not just wrong, it's totally wrong. Google the concept of "engineering tolerance".
Does anyone still think I'm only a geo?
If I don't go for a walk tomorrow and get enough likes, I'll go further into opportunity cost, which introduces cutoff grade.
