Robust, flexible and operational mine design

strategies
B. Groeneveld*1, E. Topal2 and B. Leenders3
Strategic planning in mining is an important value accretive process. One of the most essential
aspects during the planning phase is determining the correct system design. A traditional mine
design process develops a fixed system for one set of conditions or expected values. An
alternative is to develop a robust system that deals with variation, by handling a range of
conditions within the optimisation process. Conversely, a flexible design can be generated which
changes the system dynamically over time in response to change. It is hypothesised that a flexible
design generates more value than a robust design which in turn generates more value than a
traditional design. However, due to constant change, a fully flexible design is not practical.
Ideally, a hybrid of the two methods would be optimal. An operational design is proposed as a
manual solution to this problem. This paper compares these different new design methodologies.
Keywords: Strategic planning, Decision making, Mine design, Robust mine design, Flexible mine design

Introduction the matter worse, production needs to be maintained so

Decision making in mining operations can take many
years due to the period of time required to explore and
develop a large deposit. During the study and construc-
tion period, many uncertainties can unfold and multiple
economic cycles may occur. Making decisions based on
single point estimates of the future limits flexibility,
potentially resulting in premature foreclosure of an
operation. By considering changing conditions (both
upwards and downwards movements) in the decision
making process, a company is able to include flexibility
in an operation allowing value to be maximised. Current
methodologies impair a decision makers ability to
justify this additional flexibility.
Building flexibility into an operation provides a
company with the ability to quickly respond to change;
however, flexibility comes at a price. For example, an
operation of building a crusher to feed a processing
plant has an initial plan to produce at 6 Mtpa. An
option exists to build the allowance for a plant
expansion to 8 Mtpa (by increasing the size of the
foundations and footings to allow physical room for
larger equipment). However, when the decision to build
the plant is made, to minimise initial capital investment,
this flexibility is removed. One year into the operation,
the sale price of the product doubles and costs slightly
increase, while all other variables hold. In this environ-
ment, it is considered favourable to expand the
operation; however, due to the cost cutting decision,
this flexibility was removed from the plant and to make
1
Telfer Mine, Newcrest Mining Limited, Melbourne, Vic., Australia
2
Mining Engineering Department, Western Australia School of Mines,
Curtin University of Technology, Kalgoorlie, WA, Australia
3
Strategic Development, Rio Tinto Iron Ore, Perth, WA, Australia
*Corresponding author, email benjamin.groeneveld@gmail.com
the only option is to build a new crusher. Unfortunately,
this will come at a significant capital cost and time to
build; reducing the overall value of the operation had
this flexibility initially been incorporated. This upfront
flexibility is difficult to justify with current decision
making tools. Advances in an area broadly known as
real options in projects (ROIP) are beginning to
address this gap (de Neufville et al., 2005; de Neu-
fville, 2006; Wang and de Neufville, 2005, 2006; Cardin
et al., 2008; Groeneveld et al., 2009).
Real options in projects are located midway between
financial real options analysis (which does not deal with
engineering system flexibility) and traditional engineering
approaches (which do not deal with financial flexibility).
An analysis done using ROIP methods allows the design
of a system under uncertainty to be studied. Through the
analysis process, the value of each design option can be
tested. Having this information allows the decision maker
to make an informed decision on what flexibility to in-
corporate in the final design.
Previous papers using ROIP methods have shown the
value of this technique (Cardin et al., 2008; Groeneveld
et al., 2009; Groeneveld and Topal, 2011). Cardin et al.
(2008) implemented this technique for mining projects
with a Chilean mine in the Cluster Toki region. In the
paper, a methodology is implemented where operating
plans are varied by truck fleet capacity and crusher size
in response to changing prices. For each price scenario,
the optimal operational plan is selected. The application
of this method resulted in y30% more project value
than current estimates. This paper provides a strong
basis on which to grow ROIP theory in mining. Though
there are several deficiencies in the model. The approach
limits the flexibility by only including a handful of static
operational plans; it assumes that the schedule of
material moved is fixed, fails to deal with variation in

2012 Institute of Materials, Minerals and Mining

Published by Maney on behalf of the Institute and The AusIMM
Received 20 March 2011; accepted 29 October 2011
20 DOI 10.1179/1743286311Y.0000000018 Mining Technology 2012 VOL 121 NO 1

ore grade and recovery and fails to consider options in
the main value adding stages of a mining operation.
Groeneveld et al. (2009) outlined a methodology for
determining a flexible mine design by dynamically
including design options in the optimisation in order
to maximise value. Multiple states of the world were
simulated and the optimal design for each state was
determined. A dataset of results was formed from the
output of each simulated scenario. From this dataset, a
cumulative probability graph was produced, commonly
known as a value at risk graph. This resulting curve
represents a theoretical maximum achievable value.
However, this assumes that a decision maker can make
perfect decisions. In reality, this is impracticable.
An alternative is to produce a single fixed design which
handles optimally handles change. This is achieved by
taking the full set of uncertainties into the optimisation
and developing a fixed design that optimally handles the
changing uncertainties. The resultant design would be a
robust design as it would best handle variation. Since the
optimisation includes high price and low price scenarios,
it will attempt to produce a design that minimises any
losses and maximise any potential upside, while consider-
ing that these are extreme scenarios and the main
scenarios are around the average. Note that this design
is fundamentally different to a design just generated based
on the average value and this will be shown in the
illustrative case study.
However, a robust design proposes that a set and
watch approach is taken by management. Therefore, it
fails to value active management of an operation. So, a
flexible model proposes constant change which is not
practicable and a robust model does not allow manage-
ment decisions. To overcome these limitations, it is
proposed that an operational design be generated where
the initial periods have a fixed robust design and the
later years have a flexible design where management has
the ability to have multiple options in the pipeline.
This paper compares these different design methodol-
ogies. A summary of the methodology used for generat-
ing the designs is outlined followed by the mathematical
formulation of the robust design under uncertainty, using
mixed integer programming (MIP) and Monte Carlo
simulation (MCS) techniques. Furthermore, an opera-
tional design is proposed as a solution to the limitations
of the robust and flexible design methodologies. Finally,
the different design methodologies are compared against
each other and a traditional design approach, in an illu-
strative case study.
Methodology
It is proposed that for these different design scenarios, a
combination of MCS and MIP techniques be utilised.
Uncertainties (or stochastic parameters) are simulated
through MCS as inputs to the MIP model. The MIP
model allows for go or no go decisions to be grade ore for future production. When material is
modelled. An optimised MIP model therefore deter-
mines the optimal execution timing of design options for
a set of uncertainties (states of the world).
Design options
Four categories of system design options are incorpo-
rated in the model. These are mine options, preproces-
sing stockpile options, processing plant options and
capacity constraint options. Mine options represent the
Groeneveld et al. Robust, flexible and operational mine design strategies
physical extraction capacity that is required to move
material from the ground. This constraint may be an
annual tonnage constraint or an effective flat haul
constraint which considers the time required to move
material. Preprocessing stockpiles are stores of material
after extraction from the ground, either for long term
low grade scenarios, fluctuating demand scenarios or for
waste material storage. Processing plant options repre-
sent the physical and/or chemical process that is
undertaken to recover ore from the gangue material.
Capacity constraint options represent physical capacity
constraints at any point in the network. These may
represent attributes such as port capacity, loading
facilities, crusher capacities or conveyor capacities.
Resource representation
The representation of the resource in the model is by
parcels of material which contain multiple grade bins.
These parcels are designed to represent a physical
constraint on the resource, such that they must be fully
mined before mining a parcel lower in the physical
sequence. A parcel may be made up of one or more
grade bins. The average grade of a parcel is the weighted
average of the grade bins. A grade bin represents a
quantity of material at a specified grade. The size of the
parcels can be determined by the modeller, but each
parcel requires a binary variable in the model for
scheduling which increases the solution time of the
model. However, the grade bins within a parcel are an
attempt to provide a level of detail that maintains the
selectivity of the model.
Flow paths
A flow path represents a route for material to travel.
Multiple processing plants/routes can be included and
products can be generated at any point in the network.
Different routes through the network are termed flow
paths. To explain this concept, further consider Fig. 1.
Examples of flow paths in Fig. 1 include the path
from the resource (R) to mine 1 (M1) to stockpile 1 (S1)
to plant 1 (P1) through circuit 1 (C1) to product A which
would be RM1S1P1C1A, the path from the resource (R)
to mine 1 (M1) to waste stockpile 1 (W1) which would
be RM1W1, the path from the resource (R) to mine 1
(M1) to stockpile 1 (S1) to plant 4 (P4) through circuit 2
(C2) to product B (B) which would be RM1S1P4C2B
and the path from the resource to mine 3 (M3) to
stockpile 1 (S1) to plant 3 (P3) through circuit 1 (C1) to
product A (A) which would be RM3S1P3C1A. This is
only a small number of the potential paths through the
network.
Stockpiling
Stockpiling is used in mine operations for many reasons
including blending of material, storage of excess mine
production, storage of waste material and storage of low
stockpiled, the grade and tonnage of the material is
known. However, as the material is mixed on the
stockpile, the grade and the tonnage become unknown.
Since the quantity of material in the stockpile is
unknown before the optimisation, this gives rise to a
non-linear constraint. To solve this problem, virtual
grade bins are created in the stockpile. These grade bins
have a maximum and minimum grade of material which
can enter the bin. As material is added to a stockpile, it
Mining Technology 2012 VOL 121 NO 1 21
Groeneveld et al. Robust, flexible and operational mine design strategies
1 Example network of design options showing numerous ow paths
will be fed into a grade bin that has a suitable grade
range. Many grade bins can be created without adver-
sely affecting the performance of the model which limits
the averaging effect.
Stochastic parameters
The model incorporates uncertainty around the input
parameters by MCS. Each simulation of values repre-
sents a state of the world that is equally probable in the
future. Various parameters can be incorporated in the
model, for example price, capital cost, operating cost,
equipment utilisation, recovery and time to build.
Running a set of simulations is intended to give a
representative sample of the future states of the world.
Models
Three different models have been proposed in order to
justify increased flexibility to determine a flexible design,
a robust design and an operational design. All models
use MCS and MIP techniques to determine a system
design. The fundamental difference between the models
is that under a robust design, multiple states of the
world are considered together, while a flexible design
considers just one state of the world at a time. An
operational design is developed by determining a fixed
design for the first couple of periods and having a
flexible design for periods after that. The flexible design
model has been published previously in (Groeneveld
et al., 2009; Groeneveld and Topal, 2011). The robust
model is outlined in this paper and the operational plan
is a new hybrid of these two models with the main
difference that the design in the initial years is fixed.
That is no binary value exits for design options in the
initial periods.
Flexible design
Some researchers (Groeneveld et al., 2009; Groeneveld
and Topal, 2011) have previously outlined a methodol-
ogy for undertaking flexible mine design. The basis of
these models was to optimise a design for a given single
state of the world. This was achieved by including
mining, plant and capacity constraint design options in
the system and allowing the MIP model to internally
handle the design options. MCS was used to generate
these different states of the world.
This methodology assumes that a decision maker
makes optimal decisions based on the knowledge of all
states of the project over time (i.e. what price and costs
occurred over time). In reality, forecasting the exact final
22 Mining Technology 2012 VOL 121 NO 1
state of a project is difficult if not impossible. The
proposed methodology provides information and insight
that can be used by the decision maker in conjunction
with other tools to make timely, informed and value
adding decisions.
Robust design
A new robust design methodology is proposed in this
paper to develop a design that better handles all states
of the world as opposed to just a single design. It uses
the same concepts and assumption developed in the
flexible design model but differs by considering numer-
ous states at once. A robust design is achieved by solving
one large MIP model that generates one design from
multiple possible options. In essence, this design is the
one which handles a range of conditions the best out of
all possible options.
Operational design
An operational design methodology is proposed as a
practical alternative to overcome the limitations of the
robust and flexible methods. Essentially, an operational
design is where the initial years of a fully flexible design
have been fixed by the modeller. This allows manage-
ment to make decisions today to enable the business to
be an ongoing concern. By not fixing future decisions,
management can maintain flexibility in order to benefit
from any upside potential and minimise any downside
risk. As this method incorporates future flexibility into
the analysis, the impact of the initial fixed decisions can
be tested and tweaked in order to maximise value.
Robust model formulation
The developed MIP model optimises the system design
for a risk neutral investor for all simulated states of the
world. Each design option can impact capital commit-
ment, revenue generated and operating expenses. The
optimisation process seeks to determine the design with
the highest equally weighted net present value for all
given financial and technical scenarios. An outline of the
mathematical formulation is provided below.
Notation
Indices
b a grade bin of material within a parcel
d product type
e dependent options
f flow path of material through the design
network
 Groeneveld et al. Robust, flexible and operational mine design strategies

g grade element of material within a resource XOs,j,t,n the flow out from stockpile s bin j in time t
j bin of material within a stockpile: this bin for trial n
will have a maximum and minimum grade of Xp,b,f,t,n the tonnage from parcel p bin b through flow
material which can enter path f in time t for trial n
l design options Xf,t,n the tonnage mined through flow path f in
m mining options within the set of design time t for trial n
options Xp,b,t,n the tonnage mined from parcel p bin b in
n simulated state of the world time t for trial n
p parcel of material Xpzl,b,t,n the tonnage mined from the successor parcel
r required rate of return on the project pz1 bin b in time t for trial n
t time period step (periods do not need to be Ye,t  the dependent option e of Yl,t 
equal) 1, if option l is executed in time t;
Yl,t
s stockpiling options within the set of design 0, otherwise:
options ( )
1, if pushback p is fully mined in
y tolerance factor for the deviation of the Yp,t,n time t for trial n;
mining of a bin within a parcel 0, otherwise:
Capitalised indices are the maximum value or upper
limit of that index.
Formulation
Parameters Objective function
Cl,t,n the capital cost of option l in time t for trial n The objective function seeks to maximise the equally
Dd,t,n the capacity of product d in time t for trial n weighted before tax net present value (NPV) for all
Dl,t,n the disposal cost of option l in time t for trial simulated states of the world
n ( "
Xn
1 XT
1 X
D,G
DT the lag time between these relationships (i.e. Pd,g,t,n Gg,d,t,n {
N 1zr t
build option two, three periods after option n~1 t~1 d~1,g~1

one) X
P,B,F X
P,B,F
Vl,t,n Xp,b,f,t,n { Mp,b,l,t,n Xp,b,f,t,n { (1)
FDl,t,n the fixed cost saved from not operating p~1,b~1,f~1jl[f p~1,b~1,f~1jl[f jl[m
option l from time t for trial n to the end of 39
XL XL XL XL =
the project life T Cl,t,n Yl,t { Fl,t,n Yl,t { Dl,t,n IDl,t z FDl,t,n IDl,t 5
;
Fl,t,n the fixed cost of operating option l from time l~1 l~1 l~1jt=1 l~1jt=1

t for trial n to the end of the project life T

GLg,d the lower grade limit of grade g product d The constraints in the model can be divided into five
GLj the lower grade limit of bin j categories: resource, option, stockpiling, product and
GUg,d the upper grade limit of grade g product d flow balance constraints.
GUj the upper grade limit of bin j
Gp,b the grade of parcel p bin b Resource constraints
Gg,l,n the grade g through plant l for trial n X
T
Gg,s,j the calculated average, maximum or mini- Xp,b,t,n {Rp,b 0 V p,b,n (2)
mum metal units of grade g in stockpile s in t~1
bin j
Kl,t,n the capacity of option l in time t for trial n X
B,t X
B
Xp,b,tt,n Rp,b Yp,t,n V p,t,n (3)
Ks,t,n the stockpile capacity of stockpile s in time t
b~1,tt~1 b~1
for trial n
Mp,b,l,t,n the mining cost from parcel p to bin b X
t
through mine option l in time t for trial n Xpz1,b,t,n Rpz1 Yp,tt,n Vp,t,n (4)
Pg,d,t,n the sale price of grade element g for product tt~1
d in time t for trial n (in $/metal unit)
Rl the recovery of material through circuit l X
T
Rs,j the calculated average, maximum or mini- Yp,t,n 1 Vp,n (5)
mum recovery for all material in stockpile s t~1
bin j
Rp,b the available resource of parcel p bin b XB
1 1
Xp,b,t,n { Xp,b,t,n c% V p,b,t,n (6)
Rpz1 the available resource of the successor parcel R Rp,b
b~1 p,b
pz1
Vl,t,n the variable cost of option l in time t for trial n XB
1 1
Xp,b,t,n { Xp,b,t,n {c% V p,b,t,n (7)
Variables b~1
R p,b R p,b
Gg,d,t,n the metal units of grade g produced for
The resource constraints in the model limit what
product d in time t for trial n
  quantities and grades of material can be produced by
1, if option l is disposed in time t; the system. The amount of material extracted from a
IDl,t
0, otherwise: mining grade bin in a pit has an upper bound based on
XIs,j,t,n the flow in from stockpile s bin j in time t for the resource model which is constrainted by equa-
trial n tion (2). Scheduling constraints are encorporated by

Mining Technology 2012 VOL 121 NO 1 23

Groeneveld et al. Robust, flexible and operational mine design strategies

equations (3) and (4). Equation (3) ensures that a parcel Table 1 Summary of deposit
is fully mined by setting the binary value to 1 in the period
Tonnage/
that the parcel is fully mined. Equation (4) forces a parcel Parcel Bins Type Mtpa Copper/% Gold/g t21
predecessor to be fully mined before mining starting in
the sucessor. Equation (5) is a set packing constraint 1 37 Ore 73.8 1.3 0.1
which forces a parcel to only be mined once. Two fur- 1 1 Waste 118.3
ther optional constraints (equations (6) and (7)) try to 2 29 Ore 57.5 1.4 0.2
minimise grade variability by restricting the model to 2 1 Waste 244.5
3 9 Ore 14.5 1.4 0.1
mine low grade and high grade material within a parcel in 3 1 Waste 74.1
an even ratio within a given tolerance value (y%). 4 18 Ore 25.6 1.2 0.1
4 1 Waste 190.86
Option constraints
X
F X
t X
t{1
Xf,t,n{ Kl,t,n Yl,tt z Kl,t,n IDl,tt 0 V l,t,n (8) exceed the material entering the stockpile, modelled by
f~1jl[f tt~1 tt~1
equation (13). Equation (14) applies an upper limit to
the stockpiling capacity.
X
t{DT
Yl,t { Ye,tt 0 V l,t (9) Product constraints
tt~1je[l X
P,B,F
Gg,d,t,n {GUg,d Rl Xp,b,f,t,n {
X
t{1 X
t{1 p~1,b~1,f~1jd,l[fjs=
[f
IDl,t { Yl,tt { IDl,tt 0 V l,t=1 (10) (15)
tt~1 tt~2
X
F,J,S
GUg,d Rs,j XOs,j,t,n 0 V g,d,t,n
Six constraints are used to model the various design f~1,j~1,s~1jd,j,s[fjt=1
options. Each option is reflected in the model by a binary
variable. This binary variable reflects a decision about X
P,B,F
whether this option is used or not. An upper capacity Gg,d,t,n {GLg,d Rl Xp,b,f,t,n {
limit for each option is set through equation (8). Option p~1,b~1,f~1jd,l[fjs=
[f
dependence relationships can be modelled through the (16)
use of equation (9). Equation (10) introduces a disposal X
F,J,S
GLg,d Rs,j XOs,j,t,n 0 V g,d,t,n
binary variable to model disposal or closure of an option f~1,j~1,s~1jd,j,s[fjt=1
and this equation ensures that options cannot be disposed
of unless they have previously been built.
X
P,B,F

Stockpiling constraints Dd,t,n { Rl Xp,b,f,t,n {

p~1,b~1,f~1jd,l[fjs=
[f
X
P,B,F
XIs,j,t,n ~ Xp,b,f,t,n X
F,J,S

p~1,b~1,f~1js,j[f
Rs,j XOs,j,t,n 0 V d,t,n (17)
f~1,j~1,s~1jd,j,s[fjt=1
V s,j,t,njGp,b wGLj and Gp,b vGUj (11)
The system can produce multiple products allowing
different marketing strategies to be analysed. Two
X
F
XOs,j,t,n ~ Xf,t,n V s,j,t,n (12) equations handle the grade limits for the various
f~1js,j[f
products produced by equations (15) and (16).
Equation (15) determines the grade of the material
X
t{1 X
t{1 through the flow path less the upper grade limit
XOs,j,t,n XIs,j,tt,n { XOs,j,tt,n V s,j,t,n (13) multiplied by the material recovered from the plant.
tt~1 tt~2 Equation (16) handles the lower grade limit. An upper
capacity limit for the amount of product produced is
X
J,t X
J,t restricted through equation (17).
Ks,t,n XIs,j,tt,n { XOs,j,tt,n V s,t,n (14)
j~1,tt~1 j~1,tt~2 Flow balance constraints
Stockpiling is handled in the model through the use of X
F
variables for each flow path to track material flowing Xp,b,t,n ~ Xp,b,f,t,n V p,b,t,n (18)
into a grade bin within a stockpile. A grade bin defines f~1
the upper and lower grade limits of material which can
flow into a bin. The material flowing into a stockpile X
P,B

equals the tonnage from all flow paths into the stockpile, Xf,t,n ~ Xp,b,f,t,n V f ,t,njf6 [s (19)
p~1,b~1
as stated in equation (11). Each grade bin of material in
the resource has exactly one bin in the stockpile that it
can flow into based on the upper and lower grade limits X
P,B,F
Gg,d,t,n ~ Gg,l,n Rl Xp,b,f,t,n z
of the stockpile bin (this is handled preoptimisation in
p~1,b~1,f~1jd,l[fjs=
[f
the model formulation process). Likewise, the total
tonnage flowing out of a stockpile bin equals the sum of X
F,J,S
the tonnage in each flow path out of the stockpile. Gg,s,j Rs,j Xf,t,n V g,d,t,n (20)
Furthermore, the material leaving the stockpile must not f~1,j~1,s~1jd,j,s,l[fjt=1

24 Mining Technology 2012 VOL 121 NO 1

 Groeneveld et al. Robust, flexible and operational mine design strategies

Several flow constraints are used in the model to equate

the amount of material entering a node (or option) with
the amount of material exiting a node. Briefly, these
constraints represent:
(i) equation (18): the tonnage from a bin equals the
tonnage through all paths from that bin
(ii) equation (19): the tonnage mined through each
flow path that does not go through a stockpile
equating to material mined from each parcel and
bin through the flow path
(iii) equation (20): the total amount of metal units
recovered to a product equates to the metal
content through all direct feed to a plant plus any
material treated after being stockpiled.

Non-negativity and integrality constraint

These constraints enforce non-negativity and integrality
of the variables, as appropriate 2 Gold price distribution over time

Gg,d,t,n ,Xp,b,f,t,n ,Xp,b,t,n ,Xf,t,n ,XIs,j,t,n ,XOs,j,t,n 0

V g,d,p,b,f ,s,j,t,n
IDl,t Integer V l,t and Yl,t , Yp,t binary V p,l,t
Illustrative case study
This case study examines the use of several different
mining capacity and plant capacity options for a
deposit. The deposit was divided into four parcels
generated by a single deterministic optimisation, such
as Gemcom Whittle pit shells. While this may be
considered to be removing the optimality from the
model upfront, it was primarily used as a starting point
for shape generation. Refinement through an iterative
process could easily be undertaken to improve optim-
ality. Additionally, the purpose of this case study is to
examine the execution of mining and plant options,
which is not heavily reliant on schedule and/or sequence
of extraction.
Table 1 provides a summary of the deposit used in
this case study. The case study uses a single resource
model; however, multiple stochastic models could be
included. For the purposes of this case study, a physical
constraint exists between parcels in a sequential order,
i.e. parcel two cannot start before parcel one is finished.
This case study will use four mining options, four
processing options and two stockpiling options to
undertake an analysis of the deposit. A summary of
the options included in the model is outlined in Table 2.
Stochastic variables for the following items incorporate
the uncertainty into the model, commodity prices for
gold and copper, capital cost, operating cost and plant
(21) utilisation. No detailed analysis of the underlying nature
of the stochastic variables was undertaken, as detailed
research in this area has been undertaken in other papers
(Dowd and Xu, 1995; Godoy and Dimitrakopoulos,
2004; Dimitrakopoulos and Abdel Sabour, 2007; Topal,
2008; Shafiee and Topal, 2010).
Distributions were set-up based on the parameters
below. An assumption of constant growth in values was
made and values were generated following the Markov
property. For illustrating the techniques proposed, how
the variables are simulated does not have a material
impact. The distributions are:
(i) gold price: starting value of $1200/oz, with a
normal growth factor of 4% with standard
deviation of 20%
(ii) copper price: starting value of $5000/t, with a
normal growth factor of 5% with standard
deviation of 10% and a correlation of 60% to
the gold price
(iii) capital cost multiple: with a normal growth
factor of 3% and a standard deviation 5% and a
correlation to the gold price and copper price of
10%
(iv) operating cost multiple: with a normal growth
factor of 4% and a standard deviation 10% and
a correlation to the gold price and copper price
of 30% and the capital cost index of 40%
(v) plant utilisation: triangular distribution with a
lower limit of 40%, midpoint of 85% and upper
limit of 95%.
Four hundred simulations or states of the world were
used for the case study. Summaries of the ranges of

Table 2 Summary of design options

Option type Capacity/Mtpa Capital/$m Fixed cost/$/year Variable cost/$/t Disposal cost/$m

Mine A 20.0 38.5 2.60 1.22 3.5

Mine B 25.0 42.5 3.25 1.21 4.0
Mine C 30.0 45.0 3.90 1.12 4.5
Mine D 50.0 55.0 6.50 1.10 5.5
Processing A 7.5 575 13.0 1.75 5.0
Processing B 10.0 700 16.8 1.31 7.0
Processing C 12.5 850 20.0 1.05 8.5
Processing D 15.0 975 22.5 0.87 9.5
Stockpile waste 3600.0 0.20
Stockpile low grade 20.0 1.00 0.60

Mining Technology 2012 VOL 121 NO 1 25

Groeneveld et al. Robust, flexible and operational mine design strategies

4 Frequency of execution graph for exible and opera-

tional design scenarios

3 Capital cost index distribution over time mine A in period three with a net present value of
$4050m. This design was then evaluated under the
values for gold and capital cost index are shown in different simulated states of the world to test its
Figs. 2 and 3 respectively. performance under uncertainty.
A flexible design model was used to produce an
Results optimal design for each state of the world. This
Five different design scenarios were modelled based on produced a result which provided an upper bound for
the three different design methodologies. A robust, a the achievable value from the deposit, as the assumption
flexible and two operational designs, along with a is made that decision makers have perfect informa-
traditional scenario were generated. All models were tion and can therefore make perfect decision into the
processed on a Quad core Ubuntu server with 2?66 GHz future. To analyse the options used in the model, a
and 4 Gb RAM using the Gurboi 4?5?2 software. frequency of execution table and graph (Table 4 and
Solution times varied; however, for a fully flexible Fig. 4 respectively) were generated. These show how
model, the average solution time was 30 s. A summary often a particular option is used, calculated by dividing
of the results is outlined in Table 3 with a discussion the number of times that an option is used by number of
below. simulations. The available number of times that an
A traditional plan for operating a mine was generated option could be executed was 400. This showed that in
by selecting the optimal design for a single deterministic every scenario, mine D and plant D were built. Mine C
scenario. The value for the stochastic parameters was was built in most states of the world and plant C was
generated by taking the starting values and applying the built in roughly half the states of the world. It also
average growth factors only over time, i.e. no random shows that around period five, there is increased need
variation was included. This produces a value which is for mining capacity, as a handful of scenarios expand
similar to current industry practice for generating a capacity in this period.
design. For this scenario, the design generated was to Next, a robust design was generated by optimising the
build mine D, plant B and plant D in period one and design for multiple states of the world in one model. The
resulting design was to build mine option D, plants C and
Table 3 Summary of net present value results in $m D in period one and mine option C in period two. It
from different models should be noted that processing of the model with over 40
states of the world is slow. This is because the number of
Standard
Average deviation Minimum Maximum
linear variables doubles with each additional state of the
world. For the model with 40 states of the world, there
Traditional 3920 1050 1340 7640 were 22 million variables. Gurobi 4?5?2. solves this model
Flexible 4350 1140 1740 8070 in 9 h on a Quad core 2?66 GHz Ubuntu Server with
Robust 4260 1110 1560 8050 4 GB of RAM. In order to test the sensitivity of the
Operational v1 4210 1150 1530 8055 model, three scenarios were run with 25 states of the-
Operational v2 4290 1090 1670 8065
world and two scenarios with 30 states of the world.

Table 4 Frequency of execution for exible model by period

All periods 1 2 3 4 5 6 7 8 9 10

Mine A 40% 4% 3% 3% 4% 11% 7% 6% 2% 0% 0%

Mine B 42% 1% 1% 3% 7% 19% 8% 4% 1% 0% 0%
Mine C 97% 13% 7% 13% 19% 31% 11% 2% 2% 1% 0%
Mine D 100% 86% 6% 2% 1% 1% 0% 4% 1% 0% 0%
Plant A 13% 9% 1% 1% 0% 0% 0% 1% 0% 1% 0%
Plant B 33% 28% 3% 2% 0% 0% 0% 0% 0% 0% 0%
Plant C 51% 47% 2% 1% 0% 1% 0% 0% 0% 0% 0%
Plant D 100% 90% 7% 2% 0% 1% 0% 0% 0% 0% 0%

26 Mining Technology 2012 VOL 121 NO 1


5 Value at risk graph for design scenarios
The states were all different scenarios generated from
the MCS; however, the all generated the same design
solution. So, arguably for this model, the number of
states of the world included was adequate at 25; how-
ever, this may be different for other models and should be
tested for each deposit and set of options.
Based on the results of these results, two operational
models were developed. The design was fixed for the first
two periods. For period three onwards flexibility was
available so the model could turn on and off design
options. The model formulation for this was the same as
the flexible model with the only difference being that the
binary values for the design options were fixed in periods
one and two. Two scenarios were constructed: version
one involved mine D being built in period one, plant D
in period one and plant C in period two and version two
involved mine D in period one and mine C in period
two, plant D in period one and plant C in period one.
Version one of the design has less capacity in the initial
years and produces less value than version two. Version
two produces more value as it has greater capacity in the
initial years (just having greater capacity earlier would
not always produce greater value). Interestingly, version
two design is exactly the same in the initial years as the
design generated by the robust design. The difference is
that the operational design allows for flexibility in the
later years, thus the value of the operational design is
higher than the robust design. Also, version one under-
performs when compared with the robust design, so this
would indicate to the modeller that there is a better
operational solution to be found. However, had the
robust design and the flexible design not established this
base line, this finding would have been missed.
A value of risk graph is a cumulative probability
distribution of project value in each state of the world.
This is produced to highlight the differences between
the models, as shown in Fig. 5. It allows a decision
maker to quickly and easily compare the different design
scenarios.
In comparing the models, it can be seen that the flexible
model produces a higher expected value than any other
model. This is as expected since the flexible model pro-
duces an optimal design for each state of the world. Such
Groeneveld et al. Robust, flexible and operational mine design strategies
a flexible design may be impractical in reality. However, a
robust design which does not incorporate any flexibility
produces lower value than an operational and a flexible
design as it is prohibited from reacting to change. The
operational plan design has a lower expected value than
the fully flexible design but higher than the robust design
as it maintains flexibility in the later years and it is only
the initial years that flexibility is limited. A traditional
design produces the lowest expected value overall since
it has no flexibility and is not optimised to handle
uncertainties.
The differences between the expected values of each
design approach can be attributed to two key aspects.
First of all, actively managing the operation and
allowing a flexible design (one that changes over time)
will contribute significant additional value. The second
component that contributes to additional value is being
able to develop a robust fixed design which can handle a
range of conditions. Refinement of the initial design
chosen for the operational plan may lead to the dis-
covery of plans with a higher expected value.
Conclusions
The paper has compared three different new design
methodologies: flexible, robust and operational and
extended the application of real options in design
theory to mining. It has been shown with clarity that all
these methods outperform an approach which uses
average values (the current traditional design approach).
A fully flexible design approach generates the most
value; however, it has practical implementation issues
due to constant change. A robust design produces a
single design that handles variation the best; however,
the design does not change over time and therefore does
not value active management. An operational design is
proposed to overcome the limitations of the other design
methodologies. While it does not produce as much value
as the flexible design (which is only a theoretical
maximum), it does produce more value than a robust
design. Finally, the worst performing approach was the
traditional approach which does not consider flexibili-
ty and uncertainty. Flexible operations produce greater
Mining Technology 2012 VOL 121 NO 1 27
Groeneveld et al. Robust, flexible and operational mine design strategies
project value than fixed, rigid operations, thus actively
managing an operation is imperative to maximising
value.
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