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Industry Papers |
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| A Practical Application of an Economic Optimisation Model |
 In an ever changing world, where the velocity of information flow can have an immediate effect on the economics of mining concerns, the lack of management decision tools may be disastrous for both the mining company and its stakeholders.
In the open pit mining environment, there has been substantial development of optimisation tools. However, this has been lacking in the underground mining environment. To this end, an alliance was formed between Gold Fields Limited (Gold Fields) and Cyest Corporation (Cyest); Cyest has developod an Economic Optimisation Model (EOM) for each of Gold Fields’ deep level operations in South Africa. |
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| Implementation of an Economic Model at Gold Fields Limited |
 Cyest Corporation was contracted by Gold Fields Limited in 2003 to assist in the development of a prototype Economic Optimization Model (EOM) using Microsoft Excel™. The rationale for the exercise was to develop a strategic planning tool to improve decision making. The success of this initiative resulted in Gold Fields commissioning a prototype ‘Mini EOM’ for all the South African operations to test economic viability and optimise the NPV of the life of mine reserve plans and projects.
The ‘Mini EOM’ is a leaner version of the “big brother” EOM and uses the same costing and financial methodologies to generate the shaft and mine financial metrics from hard coded shaft production schedules. The ‘Mini EOM’ has allowed the quick
generation of economics for a life of mine schedule allowing more time to
optimise and test different production scenarios. Gold Fields have now
commissioned Cyest Corporation to develop this into a robust enterprise wide
economic model. |
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| Economic Modelling and Optimisation Application in the Mining Industry |
 Cyest Corporation has been involved in economic modelling and optimisation with
various mining clients within South Africa, and internationally, for the past 5 years.
In the mining industry in particular, the relationships between variables that are
controllable, and those that are not, and the physical and economic outcomes are
complex and often non-linear.These relationships constitute an economic system. In
the mining context, although many of the relationships can be accurately quantified on
a ‘single variable to single variable’ basis, such simplistic relationships will not
suffice in order to understand the dynamics of an entire mine. |
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| The Systemic Interdependency of Closure Decisions at Shaft Level |
 In an environment of constant to declining real metal price, working costs that are escalating at a rate greater
than inflation and declining grades, decisions are being made to rationalise production through the closure of
working sections and/or shafts. This rationalization tends to be guised as an optimisation process aimed at
enhancing overall value and/or short-term profitability. The closure of working sections however ultimately
impacts both variable and fixed working cost structures across the section, shaft, mining complex and in large
corporations, the Group. Should a shaft be closed when it can no longer carry its direct and overhead costs or
are direct costs the only factor?
This paper identifies and investigates the systemic links that exist between shaft, mine complex and mining
group cost structures which impact on the financial modelling of value optimisation of mining operations.
Evaluation of the impact of a shaft closure on the mine’s NPV offers some interesting insights into the decision
making process involved. It is concluded and demonstrated that it is crucial to understand the systemic
interaction of cost structures across the mining enterprise to execute effective, tactical and strategic, value
optimisation.
What the client needed to do was establish as accurately as possible, which of the five options would deliver the highest value against the lowest risk. |
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| Economic Modelling and its Application in Strategic Planning |
 Mining executives often have a difficult task determining what the strategic objective of the business should be as this can be impacted by the prevailing market conditions. In addition, they have no mechanism to quantitatively ‘test’ the impact of this strategic decision on the business and understand underlying dynamics. |
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| WHAT OUR CLIENTS SAY |
| “Cyest is a professional outfit with highly qualified and dedicated personnel going the extra mile to solve the problems ...” |
| NF van der Merwe , Kopano JV |
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