Customer Service FAQ

Below are listed some FAQ's regarding the Minsoft software and resource modelling and pit optimisation techniques. For further information contact Minsoft and request a software brochure and/or a resource modelling/pit optimisation technical information sheet.

Minsoft software

What is Minsoft software?

Minsoft is an all encompassing open pit mining software with a built in geological database, 3D graphics module, resource modelling/ geostatistics module, pit optimisation module and Net Present Value scheduling module and plotting module.

Why is Minsoft better than other mining softwares?

- Minsoft has all the functions you need for open pit mining using an easy to use point and click system without the need to learn any complex macro languages. The standard of the modules and output produced by Minsoft software is as good as or better than the highest priced mining systems available on the market today.

Do I need a database software to interface to Minsoft?

- No. Most mining software retailers will tell you today that you need to purchase a database software to use their software. Hence you have unnecessary added complexity of managing the database files within database software while working within the limits required by the mining system. Minsoft software has an Interbase database fully built in to the system meaning that all files can be directly created and edited within minsoft without any difficult setup requirements using minsofts easy to use point and click selections and a fully powered database management system which is unparalled in features and ease of use in the mining industry today.

Resource modelling
What are the major resource modelling techniques in use?

- Polygonal interpolation.
- Inverse distance squared modelling.
- Inverse distance cubed modelling.
- Normal Kriging.
- Lognormal Kriging.
- Disjunctive Kriging.
- Indicator Modelling (usually Indicator Kriging).
- Multiple Indicator Kriging (MIK).

Which technique or techniques should I be using on my deposit?

The type of technique or techniques (a number of techniques may be used for comparison) depends on the distribution of your sample data, and if using the geostatistical techniques (the Kriging techniques) the quality of variograms. See below for your choice of techniques.

What types of distributions naturally occur in mineral deposits?

- Normal distribution.
- Two parameter lognormal distribution(or just "lognormal distribution").
- Three parameter lognormal distribution.
- Multiguassian distribution. (A combination of distributions, normally due to a number of stages of mineralisation.)

How can I identify which distribution I have?

The distribution type can mainly be identified by a frequency distribution plot which is
-bell shaped for a normal distribution.
Normal distribution curve.
                                Normal distribution curve.
-a bell shaped curve highly skewed towards zero for lognormal distributions.
Lognormal distribution curve.
                              Lognormal distribution curve.
-multiguassian distributions can be identified by having more than one "peak".

If my distribution is lognormal how can I further clarify this?

-If a log-probability plot is a straight line then you have a two parameter lognormal distribution.
-If the upper portion of the plot is straight with the line falling off in a curve at the lower end of the plot then you have a three parameter lognormal distribution, which is a special case of the lognormal distribution which is described by the parameter alpha which is the third parameter of the lognormal distribution. This distribution type is common in gold deposits and the parameter alpha can be used in statistical analysis of the grade data, and also in modelling which is discussed later.

Which distribution do I expect for my commodities?

Normally base metals such as zinc, copper and lead follow normal distributions while gold and silver follow lognormal distributions. Although it is not uncommon for high grade base metal mineralisation to follow a lognormal distribution. This is due to the chemistry and nature of the mineralisation.

So which modelling techniques are suited to which distributions?
 Polygonal interpolation.  Normal distribution.
 Inverse distance squared modelling.  Normal distribution.
 Inverse distance cubed modelling.  Normal distribution.
 Normal Kriging.  Normal distribution.
 Lognormal Kriging.  Lognormal distribution.
 Disjunctive Kriging.  Multigaussian distribution.
 Indicator Modelling (usually Indicator Kriging).  Any of the above.
 Multiple Indicator Kriging (MIK).  Any of the above.
Are there exceptions to this?

Yes. If you have a lognormal distribution and your variograms are poor, you must use normal distribution methods, but to account for using a normal distribution method on lognormally distributed data you must use a special topcut.
Note that for lognormal variograms that the percentage error on the estimation of the variogram sill directly correlates to the percentage error in the grade estimate. For instance if you had a lognormal distribution but poor variograms and your estimation of the variogram sill was 10% and you used lognormal kriging, your grade estimate would be in 10% error. Hence in this case you would be advised to use a normal distribution method such as inverse distance modelling or kriging with a special topcut.

Why do I need to use a special topcut if I use a normal distribution method on lognormally distributed data?

As is described in almost all geostatistics textbooks, the problem with lognormally distributed data, is that using normal averaging techniques such as the mean, that the grade will be overestimated. Hence using inverse distance modelling on lognormally distributed data will overestimate the grade. This problem has long been recognised and as also described in many geostatistical textbooks, in 1966 H.S. Sichel devised a method called the t-estimator to estimate the true mean of a lognormally distributed population from sample data.
Note that for three parameter lognormal distributions that the third parameter alpha is used in the calculation of the sichel t-estimator.
Note also that these values are all easily displayed in the Minsoft software for any dataset. Alpha is calculated as the value which will give the logarithms of the dataset zero skewness, and the topcut required is displayed which is the topcut that will give the populations arithmetic mean equal to the t-estimator sichel mean. Note that some adjustments maybe necessary to this topcut for highly anisotropic orebodies, i.e. ones where the grade is highly directional and continuous. Dr. Sichel's paper

Pit optimisation

I've got a reputable pit optimisation software, so all the works done, I don't have to worry?

- This is incorrect. The process that the pit optimiser performs is relatively simple one, and only selects the blocks from your model that produces the maximum profit from blocks with values that you supplied. The most complex part is putting the correct profit value into each block.

I don't have to worry about the cutoff grade, the pit optimiser will do all of that for me?

- No. The optimiser only selects the blocks that give the maximum profit value - for the profits values you put in each block. Hence you have to put the profit value into each block that would be achieved as would you mine it. Hence you have to assign to blocks below the cutoff grade a waste profit value (a negative profit - mining, haulage and any rehandle cost), and the blocks above the cutoff grade their respective profit value (revenue less costs). The produce the pit with the maximum profit, as you would mine it. Note that at the end of the day the proof of any pit optimisation or design is the cashflow for the particular pit, and its reserve which can demonstrate the highest Net Cash Flow, or for in the case of mines with a longer life, Net Present Value.

So how do I calculate the cutoff grade, what costs should I include?

- The cutoff grade should include any costs to mine ore, haul ore to mill, mill and process ore, administration and grade control, less any costs incurred to mine waste, haul waste to waste dump and waste dump handling (e.g. bull dozer operating costs). Waste mining, haulage and handling are subtracted as these are sunk costs i.e. summarizing break even cut off;
Cutoff grade=(mining cost + haulage to mill cost + milling and processing costs + administration costs - waste mining cost - waste haulage to waste dump costs - waste rehandle cost)/(metal price x metallurgical recovery)
If you are mining for more than a few years a different cutoff strategy may be used to optimize Net Present Value, i.e. to get money out of the ground faster, so that it can be earning valuable interest.

Why do I subtract waste handling costs during my cutoff grade calculation?

- The increment of extra ore mined due to this marginal reduction of the cutoff grade makes a loss-, but less of a loss than if it were sent to the waste dump. Hence your total profit is greater.
This can be demonstrated by an example. Consider two blocks of ore to be mined.
 Ore and waste mining and haulage to the top of the pit.  $2.00/t
 Haulage of waste from pit edge to waste dump.  $0.50/t
 Haulage of ore to mill, processing, and administration.  $20.00/t
 Revenue  $25/%
 Block 1  1.20%
 Block 2  0.79%
Case1: Exclude waste handling costs in cutoff: Cutoff = $20/$25 = 0.8%
 Costs: $2.00+$20.00  $22.00
 Revenue: $25 x 1.25%  $31.25
 Profit: $31.25-$22.00  $9.25
 Costs: $2.00+$0.50  $2.50
 Revenue:  $0.00
 Profit: -$2.50  -$2.50
Total profit case 1 = $9.25-$2.50 = $6.75
Case2: Include waste handling costs in cutoff: Cutoff = ($20-$0.50)/$25 = 0.78%
 Costs: $2.00+$20.00  $22.00
 Revenue: $25 x 1.25%  $31.25
 Profit: $31.25-$22.00  $9.25
 Costs: $2.00+$20.00  $22.00
 Revenue:$25 x 0.79%  $19.75
 Profit: $19.75-$22.00  -$2.25
Total profit case 1 = $9.25-$2.25 = $7.00
As can be seen including the waste handling component in the cutoff increases your total profit.

Should I include depreciation as a mining cost when calculating my cutoff grade?

- Yes. Depreciation should be used in calculation of taxation, but the depreciation amount used in the optimisation is not the depreciation figure used for taxation, rather it is the real loss of value that occurs towards the end of the project due to the reduction in the sale price of the plant due to the increase in the mine life due to any additional increment of ore mined. Say for instance the value of the plant was dropping in value by a $1,000,000 a year towards the end of the project life, then this amount would be incorporated into the mine cutoff grade. If the sale price of the plant was not reducing toward the end of the project life, then no depreciation amount would be incorporated into the mine cutoff grade.
An example of calculating the cost/tonne of depreciation for a project is shown below.
 Production rate at closure:  1,000,000 mtpa
 Estimated depreciation/annum at closure.  $100,000
Depreciation cost/tonne= (100,000/1,000,000) = 0.10 $/t
Which can then be included as a cost in calculation of the mine cutoff. 
Note that the depreciation amounts are incorporated into the mine cutoff only and not into the block profit values.

Should I include capital costs in my optimisation?

- Definitely not. Capital costs are a sunk cost and should not be included. The increment of ore beyond that which pays for your capital is still economic material, and will add profitable returns, further increasing your mine Net Cash Flow or in the case of longer term operations, Net Present Value.

Do I include a value for waste overburden cost removal in calculation of my ore block profit values.?

- No. This is what the optimiser does for you, determining which cones of material have positive profit values after including the waste block profit (negative profit) values of overlying overburden.

So in summary how are the block profit values calculated?

- For blocks with grades above the mine cutoff the profit is calculated as the blocks total revenue less the total ore costs. For blocks below the mine cutoff grade the profit value is calculated as the total waste costs. e.g. a simple example is shown.
 Mining ($/t)  2.00
 Grade Control ($/t)  0.50
 Ore Haulage ($/t)  5.00
 Waste Haulage ($/t)  1.00
 Administration ($/t)  1.00
 Milling and processing ($/t)  15.00
 Revenue ($/%)  20.00
 Recovery (%)  97
 Cutoff grade = (5.00 - 1.00 + 1.00 + 15.00) / (20.00 x 0.97) = 1.03%
 e.g. for a block above cutoff with a grade of 2%;
 Total cost = 2.00 + 0.50 + 5.00 + 1.00 + 15.00 = $23.50
 Total revenue = 2 x 20 x 0.97 = $38.80
 Profit value for block = 38.80 - 23.50 = $15.30
 for a block below cutoff;
 Total cost = 2.00 + 1.00 = $3.00
 Profit value for block = $-3.00
Note that Minsoft has devised a detailed schedule of all cost and revenue factors to be used in cutoff grade calculation and block profit value calculation for any mine, so that the data can be quickly assembled and processed.

What is Net Present Value?

The Net Present Value or NPV is the value of the project in todays money for the given interest rate. When calculating NPV you select an interest rate which is the interest that you can achieve on investing cash generated by the project.

Why do I wan't to maximize the NPV for my project?

NPV tells us a number of things about a project. Say for instance you can achieve 8% on monies generated by the project. The project NPV at 8% is then the the value of an investment that you would make today for the length of the project at 8% compound interest. Say you determined that the NPV@ 8% for a project 10 years long was $10,000,000. This means that your project is the equivalent of investing $10,000,000 in a bank or other at 8% per annum for 10 years. So incorporated into NPV is the fact that you will be reinvesting monies generated by the project at a given interest rate. This is the time value of money, and hence the sooner money is won out of the ground, the more interest it can achieve in other investments. Hence NPV tells us;
- Knowing the interest rate that will be achieved on funds invested from the project, it tells us the maximum purchase price of the project. Say you determine that cash generated by the project can be invested in a financial institution at 8% per/annum compound or alternatively invested in other operations or exploration effectively earning 8% per annum. So to work out the maximum purchase price of the mine, you should work out the NPV@8%. Say this figure came to $10,000,000 and the net cashflow of the mine was $20,000,000. The maximum purchase price would then be $10,000,000. If you had to pay any more than this then you would get better returns by investing the $10,000,000 in the financial institution or alternate activities. But you want to exceed the performance of the financial institution or alternate activities, so you should only consider paying a figure less than the $10,000,000. Note that with an 8% interest rate, and reinvestment of the monies generated by the project that the total return on the project is much greater than the NCF of $20,000,000.
- If maximized, it tells us that we will achieve the maximum return not only from the project, but also from reinvestment of monies generated by the project. The sooner money is generated by the project, the more valuable interest it can be achieving in other investments or projects.
- Hence it also tells us that if the NPV has been maximized that the Net Future Worth or NFW is maximized. NFW is the sum of all the cashflows generated by the project, plus all of the compound interest generated up to the end of the project life, due to reinvestment of the funds generated by the project.
Unfortunately most texts on financial and mine investment analysis give poor explanations of these concepts.
Note that projects with a life less than approximately three years that NPV analysis is often ignored due to the small difference it makes compared to maxmizing the Net Cash Flow or NCF as is done with a normal cutoff grade calculation and pit optimisation.

So what interest rate should I be using to calculate my NPV?

The interest rate interest that you will achieve from cash generated by the project.
This might be the interest rate of investments made or if the cash was invested in exploration projects you may estimate the interest return on such projects to be a nominal figure such as 10% per annum.

What is Internal Rate of Return?

Internal Rate of Return or IRR is the interest rate achieved on the capital outlay for the project. In terms of NPV analysis IRR is the interest rate if you paid nothing for the project, i.e. already own it.

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