TRANSCTION PAPER

'Short-term gain for long-term pain' - how focusing on tactical issues can destroy long-term value

B.E. Hall

AMC Consultants Pty Ltd, Australia

SYNOPSIS

Maximizing shareholder value has become a common aim for mining companies. This paper discusses the results of a number of studies developing strategic mine plans, covering a wide range of commodities, styles of mineralization, mining methods, and processing facilities, for single and multiple deposits. It has become evident that traditional methods and conventional wisdom often do not in fact achieve these goals. Operating policies at many mines ensure that shareholder value is not maximized. Changing the overall strategy can provide significant value gains.
Typically, the new optimal plan involves a significant increase in the cutoff grade, at least in the earlier years. An increase in the underground development rate or open cut stripping rate is often associated with this, at least in the short term, to establish the new strategy. Cost minimization is found to be counter-productive.
Counter-intuitive plans are often found to be optimal. For example, optimal cutoffs for different parts of an underground mine may be significantly different, even if mineralisation and cost structures are similar. Sub-optimal strategies are also frequently found to have a significantly greater financial risk than optimal lans, which have been found in many cases to be relatively insensitive to changes in major value drivers, such as metal prices.
This paper shows how identifying and then operating within the framework of an optimal strategic plan can have substantial benefits over being continually driven by short-term tactical issues.

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References

HALL, B.E. How mining companies improve share price by destroying shareholder value. Paper 1194, CIM Mining Conference, Montreal, Canada, May 2003.         [ Links ]

HALL, B.E. A quantitative assessment of the factors influencing the shaft vs trucks decision. AusIMM Hoist and Haul 2005 Conference, Perth, Australia, September 2005.         [ Links ]

HALL, B.E. and DEVRIES, J.C. Quantifying the economic risk of suboptimal mine plans and strategies. AusIMM Managing Risk in Mining Projects Conference, Sydney, Australia, September 2003.         [ Links ]

HALL, B.E. and STEWART, C.A. Optimising the strategic mine plan-methodologies, findings, successes and failures. AusIMM Orebody Modelling and Strategic Mine Planning Conference, Perth, Australia, November 2004.         [ Links ]

LANE, K.F. The economic definition of ore; cut-off grades in theory and practice.Mining Journal Books, London. 1988.         [ Links ]

HORSLEY, T.P. Differential cut-off grades. 9th AusIMM Underground Operators' Conference, Perth, Australia, March 2005.         [ Links ]