Geology and Conversion to Practical Parameters (Boreholes to Reserves)

Ian de Klerk

SACPS Conference Vryheid 24 May 2006

SANS 10320:2004 - The Guideline

COA L RESOURCES
R eported as in situ estim ates

COA L RESERVES
R eported as M ineable In Situ, R and Saleable OM estim ates

INFERRED
Increasing level of geoscientific knowledge and confidence

INDICATED

PROBABLE
M ineable In-situ, R , OM Saleable

MEASURED

PROVED
M ineable In-situ, R , OM Saleable

C onsideration of m ining, coal processing, econom m ic, arketing, legal environm ental, social and governm ental factors (the 'm odifying factors')

RESOURCE AND RESERVE ESTIMATION

GEOLOGICAL DATA EVALUATION
Analysis of data integrity, distribution, spatial data density and confidence classification for both Structural and Coal Quality Data Sets

GEOLOGICAL MODEL BUILDING

Sub-seam definition, correlation and structural interpretation

GEOLOGICAL MODEL OPTIMISATION

Geological Domains, Mining Horizon selection, Optimisation of Interpolators

Confidence Classification into Measured, Indicated and Inferred Categories for both structural and coal quality models

CLASSIFICATION

REPORTED COAL RESOURCES

Coal Resources per Classification Category

MTIS
Application of Geological cutoffs and losses

RECONCILIATION
Confirmation of the estimated discount factors from GTIS to ROM and SALES within the area mined

MINING AND SALES DISCOUNT FACTORS

ROM DISCOUNT FACTORS SALES DISCOUNT FACTORS

Mine Planning, Layouts, Schedule = Economic Life of Mine Model

LIFE OF MINE PLAN

TECHNICAL MODIFYING FACTORS

ENVIROMENTAL, LEGAL GOVERNMENTAL, ECONOMIC INPUTS

CLASSIFICATION
Classification into Proven and Probable Reserve Categories

REPORTED COAL RESERVES

Coal Reserves per Classification Category

The Geological Model - Resources

Topographic DTM Borehole Collar Survey Seam / Sub-Seam Intervals and Correlation Sample Intervals, Sample Representivity Raw Coal Quality and Washability Data Selection of Mining Horizon Structural and Quality Modelling Definition of Geological Resource Blocks cut-off parameters Geological Loss Domains Resource Categories per Resource Block

Project Level and Resource Confidence

Period Inferred Indicated Measured M+I
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
0 to P ayback P ayback to 15 15 to 20 years years > 20 years Average

Pre-Feasibility Estimate (Total Area Resource Data Confidence levels)

0 toIncrease in measured0% from Pre-Feasibility to 70% Payback 30% % Feasibility Payback to 15 years 20% 30% 50% Period Measured 15 to 20 years 0 to Payback > 20 years 30% 80% 60% 20% 35% 10% 50% 0% 40% 33% 10% Inferred 10% 30% 60% 100% 50% Indicated 70% 60% 40% 0% 43% 0% Measured 25% 20% 10% 0% 0% 8%

100% 80% 70%

100% 80% 60% 40% 20%

Inferred

Measured and Indicated

Indicated M easured

20% 68%

Payback to 15 years Average 33% 15 to 20 years > 20 years Period Average 0 to Payback Payback to 15 years 15 to 20 years > 20 years Average

M+I
0%

90% 70% 40% 0% 50%

0 to Payback

Payback to 1 years 5

1 to 20 5 years

>20 years

Average

Coal Resource Statement

Mineable Tonnes In-Situ (MTIS)
1.

Includes the coal seam at the theoretical mining height and between the relevant minimum and maximum mining heights and coal quality cut-offs. Includes dilution, but excludes contamination. Geological loss factors shall be applied. Tonnage quoted on a mineable in situ basis and coal quality reported on an in situ bed moisture or air-dried uncontaminated basis over the theoretical mining height. May be subdivided into different depth and thickness categories.
(measured, indicated, inferred)

2. 3. 4.

5.

MTIS is reported per Resource Category

RESOURCE AND RESERVE ESTIMATION

GEOLOGICAL DATA EVALUATION
Analysis of data integrity, distribution, spatial data density and confidence classification for both Structural and Coal Quality Data Sets

GEOLOGICAL MODEL BUILDING

Sub-seam definition, correlation and structural interpretation

GEOLOGICAL MODEL OPTIMISATION

Geological Domains, Mining Horizon selection, Optimisation of Interpolators

Confidence Classification into Measured, Indicated and Inferred Categories for both structural and coal quality models

CLASSIFICATION

REPORTED COAL RESOURCES

Coal Resources per Classification Category

MTIS
Application of Geological cutoffs and losses

RECONCILIATION
Confirmation of the estimated discount factors from GTIS to ROM and SALES within the area mined

MINING AND SALES DISCOUNT FACTORS

ROM DISCOUNT FACTORS SALES DISCOUNT FACTORS

Mine Planning, Layouts, Schedule = Economic Life of Mine Model

LIFE OF MINE PLAN

TECHNICAL MODIFYING FACTORS

ENVIROMENTAL, LEGAL GOVERNMENTAL, ECONOMIC INPUTS

CLASSIFICATION
Classification into Proven and Probable Reserve Categories

REPORTED COAL RESERVES

Coal Reserves per Classification Category

Run of Mine Coal Reserves

Extractable Coal Reserve =
Mineable Tonnes In-Situ Resource - Layout Loss and Barrier Pillar Loss
(resources outside the mine layout)

x In-Panel Extraction %
(mining method, safety factors)

- Mining Loss

Run of Mine (ROM) Coal Reserve =

Extractable Coal Reserve + Contamination
(surface moisture)

(added as a thickness or a percentage)

+ ROM Moisture Correction Factor

Saleable Coal Reserves

Coal Product Interpretation
Single stage or double stage wash Max and Min washing densities Relevant washtables (borehole, 25-0.5mm) Product specs Theoretical Practical Yield
contamination borehole correlation factor (liberation) plant efficiency

Loss of fines Beneficiation of fines

coarse fines to spirals
spirals yield and efficeincy floatation yield and efficiency

ultra fines to floatation

Fines added back to Product / Discard Effect of blending optimal cut-point density Product moisture correction factor

Saleable Coal Reserves

Reporting of Reserves
Run of Mine Reserves (ROM)
1. 2. 3. Tonnes are reported on a wet, contaminated basis Coal qualities may be reported as wet, contaminated or air-dried, contaminated or dry, contaminated The basis for reporting coal qualities must be stated

Saleable Reserves
1. 2. 3. Product tonnage is reported on a wet product basis (as delivered) Product qualities may be reported as wet product or air-dried product or dry product The basis for reporting product qualities must be stated

ROM and Saleable are reported per Reserve Category

(proven, probable)

Reconciliation
Why do we do Reconciliations?
To Define the short term Budget Plan with a high degree of confidence to ensure that we achieve budget tonnes, yield and revenue predictions. To Define the Operational Life of Mine Plan with a moderate to high degree of confidence to ensure that we maximise reserve utilisation and optimise expected financial returns. To Define the new Project Life Of Mine Plan parameters with a high degree of confidence to reduce the risk of not making the expected financial returns.

Reconciliation - Operations
RECONCILIATION OF OPERATIONAL FACTORS
GEOLOGICAL MODEL
MINEABLE TONS IN-SITU With Geol Loss, min and max mining heights and coal quality Cut-offs applied

SCHEDULED RESERVES
Geological Factors Mining Factors ROM Tonnes Sales Tonnes Moisture Adjustment

SURVEY AND PRODUCTION DATA

Volumes ROM Tonnes Sales Tonnes Yields and Qualities Moisture Adjustment

MASS AND QUALITY BALANCES Volume, Tons, Coal Quality

VARIANCE ANALYSIS Identify differences between the predicted model and actual production values

3 4

FACTOR ADJUSTMENTS
GEOLOGICAL FACTORS Structural Model Quality Model Resource Confidence Geol Loss ROM FACTORS Mining Loss, Dilution, Mining Recovery, Contamination and Moisture Adjustment SALES FACTORS Wash, Yield, Plant Factor, fines and Moisture Adjustments

FINAL BUDGET MODEL

ROM MODEL SALES MODEL FINANCIAL MODEL

Reconciliation - Projects
What is different in the Project geology that can impact negatively on the Project; What is different in the mineability and operability that can impact negatively on the Project; Are the production rates realistically based on the deposit geology? Are the factors used in the Project evaluation similar to known operations, and should they be? Are the factors used in the Project realistic and achievable? Does the original view of the project turn out to be the reality in the mine.

Project Risk
Why Should we Consider Monte Carlo Simulations?
1. Project factors can be significantly over- or under-estimated, encouraging imprudent investment (corrected only with difficulty) Uncertainty is best predicted as a probabilistic range, not a single deterministic forecast (this also helps geotechnical evaluations and improves predictions) The probability range is usually much greater than most geoscientists believe their predictive ranges are too narrow. Most statistical distributions are not normal (mean??)

2.

3.

4.

Exploration expenditure is often described as a gamble where the science of geology is the only factor which does not make it an outright lottery

Project Risk
Common Distributions
Beta Beta (generalised) Beta (subjective) Binomial Chi-Squared Cumulative Discrete Error Erlang Exponential Extreme Value Gamma General Geometric Histogram Hypergeometric Integer Uniform Inverse Gaussian Logistic Log-Logistic Lognormal Negative Binomial Normal Pareto Pearson Type V, VI Pert (Beta) Poisson Rayleigh Students T Triangular Uniform Weibull

Normal (Gaussian)
commonly assumed average value central limits theorem can result in < zero values

LogNormal
more realistic no < zero values difficult statistics Convert data to Ln values

Pert
maximum-minimum-expected non-natural parameters Better than triangular distribution

Project Risk
Element Distributions

Project Risk
Prediction of Financial Performance
What is the probability of losing money on this project? What is the probability of making more than R 300 m?

8% 33%