Deciding where to end the open pit and start the underground operation has received considerable attention in the literature since the 1980s. Some believe that you should mine the biggest open pit you can. Others take a strict cost analysis approach to determine the depth at which the transition occurs. However, the “optimal” depth of an open pit typically lies somewhere between these two limits. There are numerous technical and non-technical factors that need to be considered.
Finding the sweet spot
We start by setting the upper and lower limits of the transition zone. The lower limit is set by the Lerchs-Grossman ultimate pit. That is, the deepest you can economically mine the orebody using open pit methods, without considering an underground operation.
The upper limit is set by the minimum depth you can mine the orebody using underground methods. This is typically at the base of the weathering profile (i.e. the top of fresh rock).
Once the upper and lower limits are understood, we can then restrict the Lerchs-Grossman pit by using the opportunity cost of each block to determine the pit limit (instead of the profit), where the opportunity cost is the difference in the value of the block when mined by open pit or by underground. The underlying assumption here is that if a block can be mined by either method, if it is not mined by open pit, then it will be mined by underground.
The restricted (opportunity cost) pit is typically smaller than the ultimate Lerchs-Grossman pit shell. It should be noted that the restricted pit does not necessarily align with a particular phase in the ultimate pit as the basis for calculating the block values is quite different.
That gives the theoretical upper and lower limits to positioning the base of the pit. The optimal position lies somewhere in this transition zone. The “sweet spot” depends on a wide range of factors, both technical and non-technical.
Factors that might influence the decision include the level of knowledge you have about the deeper parts of the orebody, the availability of underground mining skills, the availability and feasibility of obtaining ore from other sources, the suitability of the current mill to process potentially different ore types at a lower feed rate, the timeframe for developing an underground operation, and the numerous environmental, safety, and social impact aspects of Lerchs-Grossman.
The point here is that it is vital to understand every factor that might influence the success of an underground operation so that management are fully informed and, in a position, to make the best possible decision.
It’s never too early to start planning
Ideally, planning for an underground transition should start at the feasibility stage of the project and not as an afterthought. If the underground operation is considered an optional extension, the planning process is often deferred, particularly if the level of knowledge about the orebody at depth is low or the company doesn’t have the skills in-house to plan an underground mine.
The timeframe for an underground transition is often underestimated, particularly when additional orebody knowledge is required to support detailed designs and approvals. When you consider the time needed to complete the required drilling programs, test work, technical studies, approvals, construction, commissioning, and production ramp-up, a transition timeframe of 10 years is not unheard of. If the transition timeframe is underestimated, shortcuts may be taken to assure production continuity. And with every shortcut comes added risk that the design is not realistic, compromising the longer-term future of the mine.
Technical factors
The successful development of any mine, open pit or underground, relies heavily on the extent and quality of the technical data available to the project team. One of the primary sources of that data is exploration drilling. As depth below surface increases, the density of drilling in both the orebody and host rocks typically reduces, due to increasing cost and availability of drill sites (due to the open pit footprint and ongoing mining operations). With reduced drilling, there is less drill core available for logging and samples for test work. This reduces the confidence planners have in a wide range of key design parameters, including geology, mineral resource estimates, ground conditions, selection of the mining method, potential production rates, mined grade, metallurgical recoveries, and costs.
This data will largely determine the technical and economic feasibility and scale of any potential underground operation, which in turn determines the position of the transition from open pit to underground mining. The transition can be highly sensitive to variations in this key technical data. At a conceptual level of design, assumptions will need to be made based on the existing data, much of which will be interpolated or inferred from the open pit experience.
But as the project matures and access to the deeper parts of the orebody improves, the continued measurement and collection of geological, rock mass quality and other geotechnical data, metallurgical, and other key design parameters will be critical to reducing the risks associated with developing the project.
Non-technical factors
According to PwC, mining companies with higher ESG (environmental, social and governance) ratings consistently outperformed the broader market during the peak of the COVID-19 crisis, delivering 34% average total shareholder return in 2019–20.
Environmental sustainability, social licence to operate (SLO), net zero emissions, resource rent, and tax transparency (to mention a few) are all key ESG metrics. And when companies are looking to attract investment, its ESG strategies on energy, infrastructure, and community are increasingly scrutinised by socially and environmentally aware investors.
Customers, employees, communities, governments, and suppliers now expect companies to create value that is sustainable. This will support the sector to be more transparent about the taxes and rents they pay and the social benefits these contributions deliver, such as hospitals, schools, and infrastructure.
The environmental advantages of an underground vs open-pit operation might also bring forward the transition irrespective of what the cost analysis tells us. The environmental impacts of an underground mine, including land use, visual amenity, soil quality, cultural heritage, surface water, air quality, noise, and biodiversity, are generally lower and more manageable than an open pit. When that’s coupled with strong ESG strategies, such as community programs, converting to renewable energy generation, electrification of the underground fleet, and reduced energy consumption per tonne of processed ore (less waste hauled, lower production rate, smaller mill), it creates a positive image for investors.
The drive towards ESG accountability has created significant challenges and costs for mining companies, but it has also presented companies with an opportunity for genuine, transformational change. The past year has demonstrated how putting ESG at the core of a strategy is crucial for delivering growth. Investors will continue to be increasingly drawn to companies that openly embrace sound ESG policies.
AMC can help
When considering the potential for and timing of an underground transition, it is important to start the planning process as early as possible, especially when you consider that a typical development timeframe may be up to 10 years. But before any detailed planning work can begin, even at a conceptual level, you need to gain a thorough understanding of the development and production strategies that produce the best outcomes for an identified risk profile.
AMC’s approach to strategy optimization is all about finding practical solutions for complex problems, rather than simplistic mathematical optima. AMC’s Hill of ValueTM (HOV) provides owners with a unique way of looking at their operation, enabling them to identify and evaluate the strategies that produce the best outcomes for an identified risk profile. HOV is ideal for analysing the complex interactions between a mine’s production strategy, ESG strategies (energy, community, environmental), and strategic risk profile.
The focus in the early years of an open pit is necessarily on short- and medium-term planning and day-to-day production issues. AMC can provide a dedicated and experienced underground mine planning team that can deliver a timely conceptual underground transition plan designed to assure production continuity and continue life beyond an existing open pit operation. Leave it too late and you run the risk of taking one too many cutbacks or perhaps even premature closure of the operation.
