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A simulation model for the optimization and risk management of preproduction

mine development in a block caving mining project

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 SME Annual Meeting
Feb. 23 - 26, 2014, Salt Lake City, UT

Preprint 14-165

A SIMULATION MODEL FOR THE OPTIMIZATION AND RISK MANAGEMENT OF PREPRODUCTION MINE DEVELOPMENT
IN A BLOCK CAVING MINING PROJECT

J. A. Botín, Pontificia Univ. Católica de Chile. Santiago, Chile

A. N. Campbell, Pontificia Univ. Católica de Chile. Santiago, Chile
R. Guzmán, Pontificia Univ. Católica de Chile. Santiago, Chile

ABSTRACT construction industry. Techniques combining PERT (Program

Evaluation Review Technique) and Monte Carlo simulation have
Mining investment decisions are difficult since decision analysis is shown potential to evaluate risk in complex, large-scale projects,
often based on scarce information. The sources of uncertainty in large where the sources of uncertainty are numerous [11]. Despite the
mining investment projects are particularly numerous and are present benefits these techniques provide, evaluators tend to assign probability
in all evaluation stages. Hence the feasibility decision for projects of distributions to activities without much empirical or technical backing,
this nature will largely depend on how well these sources of uncertainty providing little information regarding the true origin of variability. These
are managed to achieve bankable risk levels. The risk associated to techniques are extremely useful when it comes to assess risk over a
the construction stages of a mining project is particularly difficult to static construction program. However, if complex relationships under
quantify, mainly because the large number of variables affecting dynamic conditions are to be incorporated into the decision process,
constructive yields, and the complex interactions among constructive then the use of unit operation simulation should be considered.
resources. This investigation focuses on developing quantitative
simulation models and tools to increase the value of a mining project Operational simulation may be defined as a simplified
by means of an optimization of the preproduction equipment fleet. The representation of a real-life system which allows the understanding and
models were validated through their application in the Chuquicamata solution of a problem to be achieved by a trial and error approach [5]. It
Underground Mining Project. has been widely used in the mining industry to assess technology,
design and resource planning alternatives [4][5][17], and it has also
INTRODUCTION proven to be a useful tool for the simulation of underground
Large mining projects are characterized by their high capital preproduction constructive systems, where the complex interactions
requirements, long preproduction investment periods and especially for among mining equipment, physical constraints, variable constructive
their intensive exposure to various risks. These risks may come from conditions and competition for resources hinder the non-intuitive task
external sources of uncertainty, such as variability in commodity prices of risk management [17].
as well as from internal sources of uncertainty, such as ore grade The construction plan for a Block Caving Mining Project consists
variability. The financial impact of these uncertainties may be basically of the excavation of a series of development drifts and
substantial, and therefore it is of vital importance that risk be assessed infrastructure works. The development of the production level is
and quantified in order to develop effective mitigation and optimization usually the most critical activity and the production start-up generally
strategies. depends on its completion. Any delay in production start-up due to
Botín, et al. [2] defines the risk management of a mining project lower than expected development performance may therefore have a
as a “stepwise risk reduction process”, where increasingly large serious impact on the financial performance of the project.
amounts of capital are invested through time to reduce uncertainty and This paper describes the use of a discrete event simulation model
financial risk. Consequently, the feasibility evaluation of a mining as a risk management tool for the optimization of the preproduction
project will largely depend on how well these sources of uncertainty development and equipment fleets. The model was validated through
are managed along the project value chain. A clear and quantitative its application on the Chuquicamata Underground Project.
understanding of the primary drivers influencing project value and risk
is therefore critical for the purpose of achieving an efficient and SIMULATION MODEL
effective allocation of resources [16].
Scope
Traditional risk evaluation methods - such as scenario, sensitivity, The investigation was focused on the development of the
and Monte Carlo simulation analysis- fail to identify the origin of risks, horizontal tunnels on the production level but the model is applicable to
since they are mainly focused on quantifying the impact of variability any other preparation development (Figure 3). Generally, this type of
rather than understanding its source. In this context, the use of risk work is carried out by means of the drilling and blasting excavation
premium money in the construction of large mining projects is a clear method, which cycle is composed of the following operations (in order
example of how the industry has ignored the true value of risk of execution): Face drilling, explosives loading, blasting and
assessment. Rarely do contractors or clients quantify uncertainty and ventilation, scaling, mucking, and support.
risks in a systematic manner [1]. Furthermore, they usually tend to
overview all sources of risk as a single lump that has to be taken into For modeling purposes the development drifting cycle was broken
account by a contingency sum - usually estimated as a percentage of down into six sub-activities: face drilling, explosives loading, scaling,
the overall project cost- hoping that it will account for all unforeseen mucking, mesh and bolt support, and shotcrete support. The duration
expenditures [7]. Thompson and Perry [15] criticize this standard of each of these activities was modeled taking into consideration the
practice, arguing that contingency sums only indicate the potential for main variables and sources of uncertainty that affect them. For the
downside risk, and divert attention from identifying opportunities, calculation of the drilling time, for instance, the following times were
developing cost reduction and performance improvement strategies, considered: equipment transfer to the face, connection to water and
and managing risk in an economically efficient manner. electricity supplies, marking and isolation of the working area,
equipment positioning, drilling diagram loading, face drilling,
The use of traditional probabilistic methods to assess risk is disconnection from water and electricity supplies, and equipment
gradually being incorporated as a standard practice in the mining retreat from face. All these sub-activities depend, in turn, on other
1 Copyright © 2014 by SME
 SME Annual Meeting
Feb. 23 - 26, 2014, Salt Lake City, UT

variables which naturally are exposed to sources of uncertainty. For Finally the equipment have state variables which indicate total
example, drilling time depends upon the drilling speed, which, in turn, operating hours and their current state of operation (active or inactive).
depends largely on the effective power transferred by the drilling The latter enables the program determine which units are available for
hammer. This power will be affected ultimately by the energy operation when they are requested.
efficiency, which was modeled with a triangular distribution.
Clock and Temporary Space. A clock was created to keep track
Each time one of these unit activities is executed, the of the simulation time "t", updating its value each time an event occurs.
corresponding quantitative model is used to generate a random Parallel to this, a 12-hour shift system was established, which defines
duration. These values are independent and identically distributed. The the time period in which constructive operations can be executed. A
objective is that it be possible to use these models in a simulation on shift is separated into 5 periods: entry to the work site, first operating
any integrated system that uses the drilling and blasting method for period, lunch, second operating period and exit time. The entry to the
mining tunnel drifting. worksite, lunch and exit times are considered to be operative losses,
so all drifting activities must take place during the two effective
General Description of the Model operating periods. The loss periods are subject to variability, therefore
The preparation development process was studied by means of a the operating hours may vary from shift to shift. It is also assumed that
discrete event simulation model, in which the time is updated in blasting and ventilation activities be carried out during the lunch hour
accordance with the orderly occurrence of events. The variables that and between shifts, for which reason they are not considered to be unit
define the physical and logical state of the system, only change when activities.
an event occurs, in other words, changes never occur during the
interval between two consecutive events. The execution of an event Set of Possible Events. During simulation, six possible events
not only changes the system's condition variables, but also generates might occur, corresponding to the completion of the unitary activities
new future events which are stored in an array until their occurrence. involved in an advance cycle:
The possible events are six and they are associated with the
termination of the unitary activities described in the preceding section. 1. Completion of Face Drilling
2. Completion of Explosives Charging
The model was programmed employing the Matlab ® software, 3. Completion of Scaling
enabling the user to define variables such as: quantity of equipment 4. Completion of Mucking
and crews, drifting sequence to be followed and desired construction 5. Completion of Mesh and Bolt Support
scenario. These scenarios are generated by changing key input 6. Completion of Shotcreeting
variables, such as mechanical equipment availability, expected
equipment performance, and effective working hours per shift, among The events occur one at a time (never simultaneously), at
others. specified geographic locations, and the order in which they occur
logically depends upon the instant in the time scale for which their
Simulation Model Elements completion was calculated.
Working Area. The production level footprint was discretized in
points, each of which has a position (x,y) and state variable indicating The last event to occur in the entire preparation process will be
whether the tunnel has been prepared up to that point or not. In order the completion of the aforementioned stages 6 or 7 and will define the
to facilitate the calculation of the optimal transfer routes for the constructive milestone based upon which the entire duration until
equipment and crews, routing nodes where defined in all development production start-up shall be calculated.
intersections. Similarly to the points, each node has a location (x, y) Functions Associated with Events. The completion of a unit
and a state variable. activity (or event) implies the performance of two tasks:
Equipment and Crews. Six equipment classes where created: a) Assign the resource that has just become available to a
Jumbo drill, Explosives equipment, Scaler, LHD, Bolter and Shotcrete new face: Among the available drifts that require the
Equipment. Each class defines constituent members that enable its resource (or waitlisted), the program scans the waitlist for
instances to have their own state and behavior variables. For example, the highest ranking drift. The drift with the highest priority is
the class "Jumbo" has a common attribute called "velocity", which the one that is physically accessible, has no unit operations
refers to average displacement speed of a jumbo under normal currently occurring, has the highest sequence priority and
conditions. However, each object - or instance- from the Jumbo class the largest remaining distance. If the face exists, the
has its own record of operating hours and a state variable indicating if completion time of the activity in the new face is calculated
it is in operation or not. and stored in an array of future events. If there are no faces
The quantity of objects of each class to be created is defined by available, the resource is declared "inactive", and placed on
the user at the moment entering the input variables of the program. standby until another event requires it.
The greater the amount of resources that are used, the shorter the b) Request resource for the purpose of performing the
corresponding macro block construction time will be. following unit activity at the face: The program scans for
State Variables. State variables indicate the condition of a the inactive resource that performs the activity subsequent to
system at a given point in time, and enable the main program to make the one recently completed. If available, the resource is
decisions regarding how and where to assign the resources. There are assigned to the face involved, the completion time for the
three categories of elements possessing state variables in this activity is calculated and then stored in the array of future
program: points and nodes of the footprint, segments of each tunnel events. If there are no inactive resources, then the face is
drift and the equipments and crews. added to a waiting list for this particular resource.

As mentioned previously, the points and nodes have a position Upon completion of the advance cycle of a face, the distance
and a state variable, which indicates the operating condition of the effectively advanced is calculated and the corresponding state
equipment unit. For the drift segments a matrix was created for the variables are updated.
purpose of storing their remaining distances as well as their current Array of "Active Faces". Each time a jumbo is assigned to a face
availability (whether or not operations are currently taking place in this for the purpose of performing drilling work, a new "active face" is
location). generated. Defined as active faces are all those that have already
This enables the program to gauge the criticality of the available begun to be developed and for which all the unitary advance activities
drifts, in order to discriminate where the resources (jumbo, LHD, etc.) have not yet been completed.
should be assigned. Active faces are stored in an "array of active faces", which
records all the information concerning those under construction. The
2 Copyright © 2014 by SME
 SME Annual Meeting
Feb. 23 - 26, 2014, Salt Lake City, UT

information stored per face includes: its geographic position, the I.D of the model will be used to analyze scenarios with varying equipment
equipment units that have operated there as well as the completion fleet sizes, in order to estimate the optimum preproduction fleet. In
times of the past activities and of those in execution. In other words, other words, the point up to which it is financially advisable to invest in
the "array of active faces" records past and future events. Finished further equipment in order to bring forward the ramp-up, will be
faces are eliminated from this array. determined.
Main Program. The function of the main program is basically to
determine which event will occur next, by processing the information
present in the array of "active faces", and then to transfer control to the
function of the corresponding event. The program will only cease to
perform these iterations when there are no "active faces" to be
developed, in other words, once the last element of the array is
eliminated.
Program Logic
Figure 1 shows the functional sequence of the program, from
which the following steps are performed:
• Definition of imput data
• Variable Inicialization
• Determination of shifts
• Random constructive scenario generation
• Development of tunnel drifts Figure 2. Isometric Perspective of the Chuquicamata U.G. Project.

Figure 3. Production Level Footprint.

Assumptions and Basic Data Input
Figure 1. Main Program Flowchart (left) and Example of the Set of The basic assumptions of the simulation model are the following:
Functions performed after the Completion of the Drilling activities at a
Face (right). • In accordance with the project's construction program, horizontal
drift initiation will begin on February 6, 2015. This date shall be
Each iteration will generate a constructive scenario under which considered as a fixed milestone.
the block preparation will take place, and each preparation will • Each macro-block will have an independent pre-productive
conclude as soon as all the drifts have been developed, in other words, construction crew with the same quantity of equipments (1 of
when the quantity of active faces is equal to zero. each type).
• The geological disposition along the tunnels is assumed to be
A CASE STUDY ON THE CHUQUICAMATA U.G PROJECT known.
Contextualization • Production crew members are assumed to be attached to the
The Chuquicamata Underground Project contemplates the equipment. Any delay in arrival of crew members is already
underground exploitation of the depth extension of the orebody under included under operational loss times (arrival to working site,
the Chuquicamata open pit mine, which is situated near the city of lunch-time, and exit from working site).
Calama, Antofagasta Region, Chile. The ore reserves of this project • Blasting and ventilation occur during lunch-time and between
amount to 1.700 million metric tons, with an average ore grade of 0.7% shifts.
Cu and 499 ppm of Mo. The project is based on a production rate of • Major equipment maintenance and overhauls derived from
140 ktpd, over 40 years, with production startup in the year 2019, a 6- catastrophic events shall not be considered in the program.
year ramp-up, 29 years of steady production at maximum capacity and • Greater delays caused by complete operation stoppages will not
5 year ramp-down [9]. The mine will be worked on four levels, by be included.
means of a four panel macro-block caving operation. • Systematic bolt, mesh and shotcrete support will be installed at
each face advanced.
Production start-up will be defined by the completion of the • The activities subsequent to the completion of horizontal tunnels
preparation of the production level of the central macro-blocks in level will commence once these are completed and will be considered
1 (MB-N1 y MB-S1), whose footprint is represented in Figure 3. to have a fixed duration.
Scope • Production start-up will commence as soon as the construction of
The simulation model developed in the study will be used to both blocks is completed.
determine possible construction completion dates for MB-N1 and MB- Some key variables such as mechanical availability and
S1, under a set of constructive scenarios. The financial risk associated equipment performance, were fit to triangular distributions where most
with the variability of production start-up will be quantified, and finally
3 Copyright © 2014 by SME
 SME Annual Meeting
Feb. 23 - 26, 2014, Salt Lake City, UT

likely, maximum and minimum values were determined by expert generating an NPV increase of 6.6%. The bolter clearly acts as
judgment Random instances of these variables were used to generate bottleneck, delaying all the subsequent activities.
the construction scenarios. Correlation among these variables was
also considered. From combination 3 onward, it can be seen that as the quantity of
equipment increases the NPV grows gradually until a maximum NPV
Risk Quantification value of 6,052 MM US$ is reached. This optimum NPV corresponds to
Five thousand simulation runs were performed for the purpose of equipment combination N° 14, which consists of 2 jumbos, 4
encompassing the entire spectrum of possible and feasible explosives equipment units, 3 scalers, 2 LHDs, 5 bolters and 3 sets of
construction scenarios. The results indicate a separation of 4 months robot and mixer trucks. From this point onward any investment in extra
between the earliest start-up date and latest one, with a mean duration equipment exerts a negative impact on the project's value, inasmuch
of 39.9 months. Assuming that once undercutting occurs production as the effect of bringing forward production does not compensate the
will increase as planned, the NPV of the project can be estimated as a investment in additional equipment.
function of the start-up date by bringing it forward or backward in time.
It can be concluded from Figure 5 that, in general, the higher
The expected utility theory will be used to quantify risk [14]. values of the project are obtained when the quantity of bolters doubles
Specifically, we define risk as the difference between the "expected"- the quantity of advance jumbos. On the other hand, the jumbo/LHD
or mean- NPV and the risk free - or bankable- NPV of the project [2]. ratio is almost always equal to 1:1, and its optimum number fluctuates
The "risk-free" NPV will be considered to be the project value under a between two and three units of each. The optimum sets of the
statistical confidence level of 95%. remaining equipments can be deducted by means of a simple
observation of the combinations that generate the highest NPVs. It can
The economic model employed is based on the cash flow model be seen that optimum quantity of explosives equipment units fluctuate
of the Chuquicamata U.G. Pre-Feasibility study dated March 2009, between 3 and 4, that of scalers between 2 and 3, that of bolters
simplified in accordance with the present case study. Cash flows were between 4 and 5 and that of robot and mixer unit sets between 2 and
discounted to January 1, 2017, using a discount rate of 8%. NPV 4, the latter being the most variable one.
includes only the cash flows subsequent to that date, for which reason
preproduction cash flows are not included (i.e. CAPEX). Figure 4 The comparison of combinations 13 and 14 reveals that in order
presents a histogram showing the possible NPV values and their to obtain an additional 1 MM US$ an investment of 3.5 MM US$ (a
frequencies, which fluctuate between 5,402 and 5,551 MM US$ (149 26% increase) would be required. From the financial point of view, it is
million spread). The expected - or mean - NPV amounts to 5,490 MM perhaps not advisable to make this additional investment; however,
US$ and the "risk free" NPV under a confidence level of 95% is 5,433 from the strategic point of view it might be advantageous, inasmuch as
MM US$. The difference of 57 MM US$ between these two values in the case of failure of any key equipment there would be another unit
represents the risk associated with the uncertainties which define the available to minimize the negative effects. For example, if combination
variability of the startup date and, therefore, the maximum disbursable 13 were selected and a bolter should fail catastrophically, the expected
value that an investor should be willing to pay in order to mitigate risk. NPV would drop by 49 MM US$. On the other hand, if combination 14
were selected and the same should happen, the NPV would only
diminish by 5 MM US$.
From the above it can be inferred that investment in proper
equipment makes it possible to significantly increase the expected
value of a project of this nature, revealing the importance of investing
in the equipment that acts as bottlenecks in preproduction drift
construction.
CONCLUSIONS & FURTHER STUDIES
Unitary operation simulation has proved to be a powerful tool in
the risk quantification process as well as in the planning strategy of a
block caving mine construction.
In the case of this study, equipment optimization significantly
increases the expected value of the project, bringing forward the
Figure 4. Histogram of the Project's NPV. expected start-up date by 420 days.
Equipment Fleet Optimization The equipment that defines the drifting speed is the bolter, which
The simulation program was adapted in order to calculate the is the bottleneck of the entire constructive process. Although the
most probable construction duration for all possible equipment advance is primarily defined by this equipment, certain basic
combinations, considering a maximum of 5 pieces of equipment per relationships regarding the quantity of the other equipment types
unitary activity. The expected NPV associated to each combination involved must be respected with a view to achieving an optimum
was calculated considering the investment in new equipment and constructive performance.
finally the information was organized for the purpose of finding the
relation between the investment on extra equipment and the expected Generally it is not advisable to save on expenses when acquiring
project NPV. It should be noted that equipment considered in the base key preproduction equipment, as the benefits obtained by counting on
case is not purchased by the client, Codelco in this case, who only an additional unit are much greater than its acquisition cost. With a
pays a fixed value per meter advanced, as stipulated with the considerably low investment, a substantial increase of 10% in the total
contractor. NPV of the project is obtained. Considering the low equipment
acquisition cost in comparison with the added value generated and
For the following analysis, it is assumed that the client is the one considering the possibility of equipment failure, it can be concluded
who invests in extra equipment in order to bring forward production that it is always advisable to have more than less key equipment at
start-up. Figure 5 (see page 5) summarizes the results obtained by hand, but never more than the optimum quantity.
progressively increasing the preproduction equipment quantity.
For a more effective risk management, it is recommended that the
The blue line represents the NPV of the project (primary vertical unit activity models be complemented with real data obtained from the
axis) and the red line represents the construction duration (secondary operations whose study is intended. Furthermore, it is recommended
vertical axis). It can be seen that if an additional bolter is added the that the geological disposition variability along the tunnels be
duration of the horizontal drifts construction diminishes drastically, by considered in future risk studies. Finally, it is recommended that the
45.5%, while the total duration of the preparation diminishes by 23.6%, scope of future risk studies should be widened in order to study the
4 Copyright © 2014 by SME
 SME Annual Meeting
Feb. 23 - 26, 2014, Salt Lake City, UT

ramp-up period, since the risks associated with the rate at which new [9] Ovalle, A. W. (2012). Mass Caving Maximum Production
collapsible area is generated are amplified when preproduction and Capacity. MASSMIN 2012.
production activities are performed simultaneously.
[10] Project Management Institute. (2004). Guía de los Fundamentos
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NPV vs Development CAPEX and Construction Time
6,200
6,150 600
6,100
6,050
500
6,000
NPV (MM US$)

5,950
5,900 400

Days
5,850
5,800
5,750 300
5,700
5,650
5,600 200
5,550
5,500
5,450 100
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
CAPEX (MM US$) 0.0 1.6 2.6 4.2 6.1 7.4 9.5 11.2 11.6 12.6 13.9 20.5 13.5 17.0 18.8 20.9 21.4 23.3 24.6 26.7 27.2 29.1 30.4 31.4 33.5
# Jumbos 1 1 1 1 1 1 2 2 2 2 2 3 2 2 2 3 3 3 3 4 4 4 4 4 5
# Explosives eq. 1 1 2 2 2 2 2 2 2 3 3 3 3 4 4 4 4 4 4 4 4 4 4 5 5
# Scalers 1 1 1 1 1 2 2 2 2 2 3 3 2 3 3 3 3 3 4 4 4 4 5 5 5
# LHDs 1 1 1 1 2 2 2 2 2 2 2 3 2 2 3 3 3 4 4 4 4 5 5 5 5
# Bolters 1 2 2 3 3 3 3 4 4 4 4 5 4 5 5 5 5 5 5 5 5 5 5 5 5
# Robots+Mixers 1 1 1 1 1 1 1 1 2 2 2 4 4 3 3 3 4 4 4 4 5 5 5 5 5
NPV (MM US$) 5,505 5,871 5,894 5,970 6,005 6,006 6,007 6,030 6,038 6,047 6,050 6,050 6,051 6,052 6,049 6,047 6,048 6,045 6,045 6,044 6,043 6,039 6,037 6,038 6,034
Construction Time 614 335 318 262 236 234 232 214 208 201 198 193 197 194 195 195 194 195 194 193 193 195 195 194 195

Figure 5. NPV vs Development CAPEX and Construction Time.

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