Mining sequence and mine capacity in open pit mining

Juan Camus
InnovaMine SpA, Chile
juan.camus@innovamine.cl

This paper challenges the current way the mine sequence and mine capacity are determined in
practice in open pit mining. The former is usually determined by means of the Lerchs-Grossmann
algorithm (LG) whereas the latter using a rule of thumb that involves mine equipment productivity
and / or a preemptive bench sinking rate. The advent of more capable software and hardware has
recently enabled the creation of more efficient mining applications to solve the mining sequence
problem. But their theoretical results are risking to be labeled as unpractical if the mine capacity
issue is not well understood.

The objective of this paper is to prove that the mining sequence and mine capacity are key decision variables when
planning the open pit exploitation of a mineral resource. This challenges current practice, which usually considers
both as input parameters in most mine optimization models. For this purpose, the paper first presents an outline of
the mine planning problem; this gives context to better understand the nature of the discussion. The paper then
presents the way these two variables are usually determined in practice and how they should be solved to maximize
value. The analysis is reinforced with illustrative examples, which helps understand the ideas presented and their
areas of application.

Mineral resource planning problem

To facilitate the understanding of the analysis, mining can be thought of as the business that progressively separates
the valuable part of a mineral deposit from its barren one. After defining the boundary conditions of the problem,
what matters is the time involved in each stage of the separation process and the cash flows stream achieved by the
corresponding production plan. The best plan is usually the one offering the highest NPV, for a given level of risk.

A first attempt to separate the valuable part of an orebody from its host rock is the mining method selection. In open
pit mining, this is often decided at the conceptual or pre-feasibility levels. This decision crudely defines the minable
fraction of the deposit contained within the final pit limits. At times, another key decision variable is determined
simultaneously. This is the way in which the final pit is reached. To postpone Capex and Opex and reduce the time
to start production, the final pit is usually broken down into a set of sequential exploitation units known as mining
phases, pushbacks, or cutbacks. After pre-production or development works, these phases often contain ore and
waste. The waste can be above and /or beside the ore. Their separation is usually performed by means of a cut-off
grade. This defines the material that will be processed immediately (ore to plant), processed later (low-grade ore to
stockpile) or disposed of (waste to dump).

In the downstream processing activities, the valuable content of the ore is gradually separated by physical and/or
chemical methods. An example of the former is the ore separation in concentrates and tailings, in a mill facility.
What defines this separation, in this case, is usually the grain size of the ore at the grinding circuits. The finer the
grain size the higher the metallurgical recovery, but at the expense of time and throughput.

Modelling the previous phenomenon is very convoluted given the dynamic nature of the problem, the interrelation
among decision variables, and the several operational constraints. Consequently, almost all known models can only
define a few decision variables simultaneously. These are often the most evident, considered key to the economics
of the business. But these models also contain other some variables that are either not easy to model or simply
overlooked. To run these models, these others variables are usually treated as input parameters. This is exactly the
case with the mine sequence and mine capacity, also known as mine development rate.

When Ken Lane [1] first developed his cut-off grades theory by the mid 1964s, he outlined a general model to
optimally deplete a mineral resource. However, this mostly focused on the separation occurring at the mine by
determining a cut-off grade policy for the whole mine life. All other upstream and downstream variables of this
model were treated as input parameters – i.e. mine capacity, mining sequence, grain size at the grinding circuits, and
mill capacity. Over the years, this model has been extended and improved, incorporating other cut-off variables, the
grain size at the grinding circuits / metallurgical recovery being one of them. For instance, the commercial software
known as COMET, now incorporates this and many others features, such as dynamic stockpile management policy,
multiple mines and ore type processing, considering interactions and changing economic conditions throughout
mine life.

Over the last 20 years, a new type of mineral resource planning models has been developed. These make use of
more powerful software and hardware available to handle the entire planning problem, integrally. The key variables
involved in these models are the final pit limits and mining sequence. Eventually, these models produce a life-of-
mine plan where the two variables are determined simultaneously. As this type of models works on a block-by-block
basis, the cut-off variables, which were the focus of previous models, are now embedded in the model results. The
preferred mathematical programming engine to build these new models is mixed-integer linear programming and its
main feature is the integrative approach to link all modelled variables. This is instead of a set of batch processes that
is common with current practice. All calculations take into account the time value of money, capacity constraints,
and, in some cases, ore blending requirements, the possibility of dealing with various ore processing routes, dynamic
stockpile policy, and truck fleet considerations.

The size of the problem in this new type of models is huge, so more often than not its solution requires shortcuts. A
common one is the use the Lerchs-Grossmann algorithm (LG) so that the model can only focus on blocks within the
confines of the final envelope determined by LG. It is worth keeping in mind that LG does not consider the time
value of money nor capacity constraints; it only determines the final pit envelope that maximizes the undiscounted
total value of extracting the blocks of ore, which individually or helped by neighboring blocks, pay for the extraction
of their top overburden. Therefore, these more robust models, which include the time value of money and capacity
constraints, should likely find their solutions within the LG final pit limits. Some other models also save time and
computer resources by using a pre-defined LG mining sequence to perform the sequence optimization. This is
usually obtained by varying the commodity price into the LG algorithm (Revenue factor, in Whittle’s parlance). In
this case, optimized results from these new models may be better than LG’s; but as they are still guided and
constrained by LG results, this could easily lead to non-optimal results.

LG flaws to determine mining sequence

LG was originally created by early-1960s [2], to find the optimum final envelope of an open pit mine. As the authors
expressed, “the objective… is to design the contour of a pit so as to maximize the difference between the total mine
value of ore extracted and the total extraction costs of the ore and waste.” The authors were aware of the more
holistic planning problem in open pit mining and its complexities when, prior to the previous statement, they warn,
“A surface mining program is a complex operation… the problem is to decide what the ultimate contour of the pit
will be [final pit limit] and in what stages this contour is to be reached [mining sequence]… A mathematical model
taking into account all possible alternatives simultaneously would, however, be of formidable size and its solution
would be beyond the means of present knowhow.”

Despite the previous warning, current practice to determine the mining sequence in open pit mining still considers
the use of LG. This is currently performed by gradually reducing the long-term commodity price to produce a set of
nested pits; the final pit is determined using the long term price or a sensitivity analysis. This procedure effectively
creates a set of nested pits, where, by definition, the smallest has the lowest extraction costs, on average, and the
biggest has an extraction cost that, on average, equals the long-term price. It is tempting to think that such a mining
sequence optimizes the present value of the whole ore extraction. However, this is far from true. In effect, because
LG does not consider the discount rate nor capacity constraints, it cannot solve the dynamic, inter-temporal problem
that underlies the mining sequence.

The example in Figure 1 illustrates the above problem for a simple case. This considers two blocks of ore and their
respective overburden, which need to be prioritized for their extraction. Both ore blocks are valued using a certain
price P1 and their respective mining & processing costs; the cost of the overburden is also valued considering the
mine unit costs. The ore block closer to surface has a lower grade and lower value whereas the deeper one has a
higher grade and higher value.
 2 Sequence
1

- 40 - 10

+25
+50
Price = P1
Margin = +15
Margin = +10

Figure 1: Mine sequence for price P1

The associated ore and waste values for each block give a margin of +15 for the low-grade block and +10 for the
high-grade block. If it is assumed that each ore block can feed a concentrator plant for one year and there is no mine
capacity constraint, the mining sequence that maximizes the present value of this operation would extracts first the
low-grade block and then the higher-grade block.

However, if price increases from P1 to P2, the value of both blocks and their associated waste together with margins
may change such as shown in Figure 2:

1 Sequence
2

- 52 - 13

+50 Price = P2 > P1

+100
Margin = +37
Margin = +48

Figure 2: Mine sequence for price P2

In this case, the ore blocks increase their value and so does their respective associated waste, albeit to a lesser extent
as is usually the case in practice. Now, the new margins are reversed and the mining sequence that maximizes the
present value would extract first the higher-grade block and then the lower-grade block.

Previous results cannot be obtained by means of LG, varying (reducing) the commodity price. As the example
clearly proves, this heuristic just creates a set of pit shells, which extracts the lower-cost ore at the beginning and
then, progressively extracts the more expensive ore, until reaching the final pit limit. At this point, the marginal cost
of extracting the last block of ore equals the long-term price. The example also shows that the mining sequence
effectively depends on the commodity price used in the evaluation. Hence, a sudden increase in this price may well
change the mining sequence, if there are no capacity constraints – both at the mine and at the processing facility
controlling the salable production volume.

Practical implications of current practice

The worldwide use of LG to help determine the final pit limit and mining sequence when planning open pit mines,
leads to the conclusion that there may be interesting value opportunities in various mining operations around the
world. This is especially true for operating mines or projects relying on orebodies with deeper and high-grades
zones, potentially openpittable, competing with upper zones of lower grades. As discussed, LG is unsuitable to find
the best mining sequence and this could be a great opportunity to unlock value.

The following case study illustrates this reality. This is about a copper open pit operation located in Chile. In this
case, the open pit mining sequence of this mine was first determined using LG. Then, another planning study was
carried out; but this time, using a new tool – SimSched Direct Block Scheduling, DBS. This is able to assess the
final pit limits and mining sequence problem, simultaneously and more accurately, among various other features. It
seems this tool is one of the few that can handle this problem simultaneously, without using shortcuts, such as LG
guidelines, to ease the computer memory constraints to handle the problem.
Results from both studies are shown in Figure 3. This displays a plant view of a representative mine bench, where it
is possible to see the mining sequence provide by LG (right-hand side) and SimSched DBS (left-hand side). Below
each alternative, in Figure 3, is the corresponding plant view of their respective operational mining phases.

Figure 3: LG and SimSched DBS results and their respective set of operational mining phases

The improvement of the mine plan present value developed with SimSched DBS is about 10 % higher, compared to
the one developed with LG. The peculiar feature of the mine plan built upon SimSched DBS guidelines is the early
extraction of the deeper, higher-grade zones located both toward the northern and southern part of the pit – phase 6
as well as phase 8 and phase 9, as can be seen in the respective set of mining phases, in Figure 3.

It is important to stress that the previous opportunities may be overlooked if another key variable of the resource
planning process is not well understood. This is the mine capacity. The following section presents some ideas to
proper determine this variable when planning open pit mines.

Mine capacity in open pit mining

The mine capacity in open pit mining has always been a key constraint in most, if not all, resource planning models.
This is expressed in terms of maximum tonnage or volume of extracted material per unit of time – i.e. tonnes of total
material extracted per year (ore plus waste). An alternative approach is to use the so-called bench advance (sinking)
rate. This specifies the maximum number of benches that can be mined from a mining phase in a period of time,
often a year. Typical numbers range from 6 to 12 benches per year, but this rule of thumb should not be generalized
since it depends on various other issues – size and geometry of mining phases and size and number of mining
equipment, among others.
Whether the constraint is expressed in terms of tonnage per unit of time or a sinking rate, the implicit assumption is
often related to the physical availability and utilization of shovels and trucks. In other words, fleet productivity.
These are the most expensive piece of equipment in open pit mining, so the mantra in this respect is to try to reduce
capital expenditures and maximize the existing fleet utilization. From the capital efficiency viewpoint – usually the
reality faced by mining contractors rather than mining companies – this may be desirable. However, from the mining
business viewpoint, this may play against the whole business value. This is a crucial concept, which requires further
discussions and the re-introduction of a very useful tool used when mine planning was mostly performed manually.

Scheme of exploitation
The scheme of exploitation is an operational design framework to organize the deployment of a defined number of
mine equipment in an open pit mine. Its outcome is a program of synchronized activities for the selected mine
equipment to exploit a mining phase. For a group of benches with similar characteristics, the scheme of exploitation
provides a set of sequential activities, which becomes cyclical as the mining phase develops downward.

It is worth emphasizing that the scheme of exploitation main objective is to analyze the various options to deploy a
defined number of loading equipment in an open pit mine. This is to maximize fleet utilization and productivity,
which may include a review of the mining phase design to better suit a chosen scheme of exploitation. All this work
may be simple for a couple of loading units; but as the number of loading units increase, finding the best scheme of
exploitation, and its matching phase design, becomes increasingly challenging.

Figure 4 depicts two pictures where a bench in a mining phase is mined using 2 shovels (Figure 4a) and 4 shovels
(Figure 4b).

Figure 4a Figure 4b

Figure 4: Scheme of exploitation

Unlike typical optimization problems encountered in mine planning, finding the best scheme of exploitation is a
creative rather than an analytical activity. The best solution usually depends on the ingenuity and experience of the
planner. As current practice tends to favor productivity and equipment utilization, so far planners have not always
been exposed to deal with complex or demanding schemes of exploitation, involving several loading units in a
mining phase. This means most people have not been able to develop a more proactive mindset to be competent in
this respect.

The more aggressive schemes maybe more expensive, in terms of capital expenditures and costs; but in return, they
can mine a mining phase quicker. This surely dents mine equipment utilization, which would be a sacrilege under
the prevailing paradigm. But the key question is whether more complex schemes can create value. The answer is yes
and the reason is that value creation is always possible as long as the last piece of equipment increases somehow the
mine extraction rate. But this is only a necessary condition. Sufficiency is given by its impact on the economics of
the business.
An illustration
There are various instances in which a mine plan could be positively affected by an increase in the extraction rate.
One is the time to uncap an open pittable orebody and its impact on the economics of the business. This problem is
depicted in Figure 5, where the time to gain access to the orebody effectively depends on the time to complete the
waste removal during the pre-production stage, which is, in turn, contingent to the scheme of exploitation.

Figure 5: Scheme of exploitation and pre-production time in open-pit mining

Table 1 presents the results of mining the pre-production stage in Figure 5, using four variants of schemes of
exploitation. The tonnage involved in the pre-production activities is estimated at 120 Mt. Mine operating costs for
each variant are also presented in Table 1. These costs take into account the lower productivity of the mine fleet as
the scheme of exploitation becomes increasingly complex.

Table 1: Scheme of exploitation variants for pre-production

Shovels
Productivity Pre-production Mine costs
Scheme of exploitation
34 yd3 73 yd3 (Mt/y) (years) (US$/t)

Simple or easy 1 1 35 3.43 2.0

Moderate 1 2 54 2.22 2.3
Challenging 1 3 70 1.71 2.8
Complex or extreme 1 4 85 1.41 3.6

The example involves an open-pit mine together with a mill concentrator. The up-front capital expenditures for this
project is US$1.2 billion, discounted at the beginning of the pre-production period. This figure excludes the 120-Mt
pre-stripping costs, which for each scheme of exploitation are calculated assuming linearity over their period of
occurrence. The business present value, once the pre-production is finished, is US$3.5 billion, discounted at the start
of the production period. All these present value numbers and their cash flow stream are depicted in Figure 6.

Figure 6: Present values and cash flow stream in the examples

Equation 1, calculates the NPV of this example considering the cash flow stream shown in Figure 6:
 P (1)
NPV    PP  
Where:
(1  d) t
NPV: Net present value
I: Up-front capital investments (discounted at the beginning of time t)
PP: Capital investment of the pre-stripping works (discounted linearly at the beginning of time t)
P: Present value of cash flows CFi, generated after the pre-production works (discounted at time t)
d: Annual discount rate
t: Time to complete the pre-production works (contingent to the scheme of exploitation)

Time t is a key variable to determine the NPV in Equation 1. The longer the time t, the larger the discount factor
affecting the main income stream represented by present value P, in Equation 1.

Table 2 presents the NPV of this example for each scheme of exploitation, assuming an annual discount rate of 10%.

Table 2: Project NPV for some pre-production variants of scheme of exploitation

t PP PP + I P/(1+d)t NPV
Scheme of exploitation
(years) (MUS$) (MUS$) (MUS$) (MUS$)
Easy or simple 3.43 195.7 1,396 2,524 1,128
Moderate 2.22 237.9 1,438 2,833 1,395
Challenging 1.71 297.2 1,497 2,974 1,477
Complex or extreme 1.41 388.4 1,588 3,060 1,472

In the example, the scheme of exploitation that maximizes the NPV of the business is the challenging one. This
considers one shovel of 36-yd3 and three shovels of 73-yd3.

If the present value of the income cash flow stream after pre-production is estimated at US$6.0 billion, instead of
US$3.5 billion, the optimum scheme of exploitation may change. This may happen because of an increase in the
long-term commodity price. The changes, in this case, are illustrated in Table 3, which shows that the scheme of
exploitation providing the highest NPV is now the complex or extreme one. This option is the one with higher
operating costs, which are offset by the higher benefits of bringing forward the realization of the US$6.0 billion in
0.3 years.

Table 3: Project NPV for an increase in the orebody value

t PP PP + I P/(1+d)t NPV
Scheme of exploitation
(years) (MUS$) (MUS$) (MUS$) (MUS$)
Easy o simple 3.43 195.7 1,396 4,327 2,931
Moderate 2.22 237.9 1,438 4,856 3,418
Challenging 1.71 297.2 1,497 5,098 3,601
Complex or extreme 1.41 388.4 1,588 5,246 3,658

Additional areas of applications

The previous illustration does not include the fact that the scheme of exploitation may also affect positively the
value of the cash flow stream denoted by P, in Equation 1. This value is the income stream after the pre-stripping
activities, which can also be optimized over the whole mine life, trying different schemes of exploitation. The likely
result for this optimization would be challenging or complex schemes of exploitation in the early years of the mine
plan, relaxing these as the mine is depleted. This should happen since the opportunity cost effect, which diminishes
as the deposit is consumed.
There are other situations where this innovation could also be useful. An evident case is an open pit project or
operation planned with a relaxed scheme of exploitation. Another case is when an open pit mine suddenly faces a
price increase in its main products. In this case, to react to market conditions and increase production, a review of
the scheme of exploitation could be a good way to capture some extra value.

The application of a more aggressive scheme of exploitation may also be advisable for an open pit mine facing an
operational disruption – a slope failure or an in-pit crushing and conveying system breakdown, for instance. The
benefit may occur in case any of these incidents affects ore delivery. For example, if a slope failure locks the access
to some ore area in a pit, the released equipment could be accommodated in another mining phase to help the
waste/ore extraction to feed the plant with better-quality ore. On the other hand, if the failure occurs in an in-pit
crushing facility, it would probably affect the normal ore extraction from the pit. In this case, if there is an extra
surface crusher in the vicinity of the plant and this plant has some spare capacity, then a critical review of scheme of
exploitation may also suggest a more aggressive scheme of exploitation – to feed the plant with higher-grade ore as
a result of increasing the cut-off grade, for instance.

Conclusions

The current practice to determine the mine capacity and mining sequence in an open-pit operation seems to be weak.
This may indicate the existence of important hidden value in several of the existing open pit operations around the
world. The examples and real case previously discussed show that it is possible to unlock this value, at a reasonable
cost. This effort, however, requires a solid team, able to integrate the specific knowledge in two mining areas – mine
optimization, to deal with the mine sequence issue, and mine design, to tackle the mine capacity issue; the former is
more about analysis but the latter is more about experience and creativity.

References
[1] K. F. Lane, “Choosing the optimum cut-off grade”, Colorado School of Mines Quarterly. Vol. 59 N°4, pp.
811-829, 1964

[2] H Lerchs, I. F, Grossmann, “Optimum design of open pit mines”, Joint CORS and ORSA Conference,
Montreal, May 27-29, 1964, in Transactions, CIM , Volume XXVIII, pp 17-24, 1965