Mining Project Operating Strategy

The owner of a mining property has 3 alternatives in development strategy for bringing the property
into production.

The three alternatives are:

1) Develop the property solely as the owner and operator;

2) Employ a mining contractor to perform some or all of the mining development activities;

3) Project Joint Venture with another mining company.

Each of these alternatives has its unique advantages and disadvantages. The use of any particular
alternative depends on the advantages and disadvantages of a unique set of circumstances, the
economic consequences of the alternative, and the corporate philosophy of the property owner.
The first and second alternative is widely used in mining industry whish we will discussed.


1) Owner / Operator

The owner / operator may decide to contract some of the activities at the mine such as detailed design,
construction of processing plant, the mobilization of mining equipment, construction of access to the
property, and even including removal of overburden and still classified as owner / operator of the
project.

Advantages and disadvantages

The primary advantage of owner / operator alternative is the total control the owner has of the
development and exploitation of the property.

In all other alternatives, the owner must relinquish control of some aspects of operations.

The disadvantage is that the owner may experience higher cost per volume of commodity recovered
using his own operations as compared to using a contract miner.

2) Contract Miner

For a surface mine, the contract miner operates the mine including the removal of overburden waste,
mines the ore, and delivers the ore to a processing facility.

Advantages:
Contract mining reduces the magnitude of initial capital investment required to bring the property to
production.

Contract mining reduces direct payroll and administrative cost such as recruitment, training, and
supervision which will become the responsibility of the contract miner.

About the question of Saudization, this can be negotiated with the contractor to add (about 30 40%)
Saudi labor force from the site to the contractor workforce using contractor payroll.

Contract mining supplies a well-defined fixed cost for mining operations.

A good contract mining agreement improves efficiency for the project.


Disadvantages:
The owner relinquishes some control of the project. It is necessary for the owner to work closely with
contract miner to ensure that the overall operations will enable the contractor to meet required
production.

Selection of inefficient and unreliable contractors is a risk. Choosing wrong contractors brings more
problems than normally encountered when operations are conducted by the owner.
What Study Do We Need To Evaluate Any Mining Project?

There are three levels of engineering studies during development from exploration through
development and production, namely conceptual, pre-feasibility and feasibility.

A. Conceptual Study

This refers to scoping study which is the first level and preliminary evaluation of any mining project. The
accuracy will be low at + 50% and the drilling and sampling must be sufficient to define resource,
flowchart, cost estimation and production schedule.

This phase should clarify the following:

Technical parameters requiring additional examination or test work.

Capital and operating cost estimate.

Level of project development

In this stage the result is not sufficient for reserve due to lower accuracy.

B. Pre-Feasibility Study


This is the second state which is based on some engineering basis at + 25% accuracy higher than scoping
study.

The objective to determine the following parameters:

Resources reserve

Mine and process methods

Production rates

Mine life

Recovery rates

Capital cost estimate

Operating cost

Economic analysis and sensitivity

In this stage, geology and mine engineering work has been conducted to define resource and reserve.
Also sufficient test work has been completed and developed mining plant.

C. Feasibility Study

This stage is the last and most detailed stage in engineering process for evaluating a mining project for
go/no go decision and financing purposes. This stage is based on the following:

Complete engineering and test work.

Accuracy is higher than pre-feasibility study - + 15%.

Detailed geological and mine engineering to define resource and reserve.

Completed all mining and processing parameters for pit slope design, hydrology, geotechnical, flow
sheet development, hydrology, geotechnical, flow chart, equipment selection and sizing, etc.

Capital and operating cost estimates are derived from take-off and vendor quotes.

Economic analysis with sensitivities based on cash flow for the mine.