A Prototype Decision Making Tool of Coal Mine

Planning Using System Dynamics Model

Phongpat Sontamino1 and Carsten Drebenstedt2

1
Prince of Songkla University, Thailand
2
TU Bergakademie Freiberg, Germany

Abstract. The decision on investment in mining, particularly coal mining project is

a complex decision system. Because of coal mining systems has many variables
connected, and respond to each other such as production rate planning, mine life,
stripping ratio, cost and income of mining, etc. So, it is not easy to know in mining
time scale with automatic calculation responding, when some value of variables in
coal mine planning change, what will happen with others. Moreover, if a variable
change or multiple variables change, may give the different results. Thus, the
complex variable system like in coal mine planning, cannot be solved easily in
the general way, for example, calculates cover all possibility result, or discovering
the optimal solution in the site condition criteria.
Therefore, in this paper, one of an alternative ways to solve a complex system of
coal mine planning condition, that have single or multiple variables change all the
time, is proposed. It is an evolution of a prototype system dynamics model of coal
mine planning by using Vensim DSS 6.0b Software. It can be a decision support
system tool to give users fast and flexible to calculate the results in many scenarios.
The prototype can make sensitivity analysis of the alternative ways and also can
find the optimal solution for each condition criteria, supported by the function of the
Vensim software as shown in the example case study simulation. In the future, the
prototype SD model will continue to develop and verify by many more case studies
to be an alternative useful tool for decision making in coal and other mining project
planning.

Keywords: Decision Making Tool, System Dynamics Model, Mining Project

Planning.

1 Introduction

Making a decision on investment in a mining project is not fast and easy, especially
a big mining such as coal mining, because it takes many times to analyst a huge of

C. Drebenstedt and R. Singhal (eds.), Mine Planning and Equipment Selection, 1475
DOI: 10.1007/978-3-319-02678-7_142, © Springer International Publishing Switzerland 2014
1476 P. Sontamino and C. Drebenstedt

information. Generally, The mining company is not only dealing with many
variables, such as production rate, amount of reserves, the quality of the reserves,
technology, and recovery etc., which can be changed all the time, but also, all
parameters or variables in mining system are connected, that mean if a variable
change, it affects others. So, the way to understand how a variable effect to others
and know the results in every variable is not easy.
Before a mining company will decide to invest in a mining project, all the
company needs to make sure that the cash flow along period of mine life will return
profit at the end. Sometime mining period is longer than 50 years, depending on the
amount of reserves and production rate. The calculation table in the spreadsheet
software as MS Excel is the most popular used at present. However, to analysis
results with a huge of parameters, in the long period of mine life, and other
conditions that can be changed, are not analyzing easily, because the spreadsheet
software may need a big data table and also many sheets for solving it. Moreover,
the restriction of the spreadsheet software for general users, when the calculation
table needs to be calculated along the period of time and it requires a result value of
calculation in the previous time to be counted in the next time step. In this case,
sometime the mining company needs to develop macro programming or use a
specific add-in tool, but that ways are not easy and also not free for user to use.
System dynamics theory and modeling, normally use to analyst the complex
system that changing over the time. So, it fits with the condition of the mining
project planning system that want to calculate a long period of mine life. The
development of the system dynamics model will relate every variable by graphic
structure and the equations, so when run the simulation and change some value of
input variables the others will automatically change follows. That means, the SD
model can run the simulation in many scenarios in a short time and user can find
more alternative way to decide on a mining project.
Hence, the development of a prototype dynamics model in this research is one of
the alternative tools that's fast and flexible to use in complex variables of coal mine
planning or in the general mine planning.

2 Objective

To develop a prototype dynamics decision making model of coal mine planning,

which following a concept of system dynamics theory and modeling. The prototype
SD model was developed by using Vensim DSS 6.0b Software.

3 Literature Reviews

3.1 The Period of Mining and Mine Planning

The mining period can simplify into 3 divisions, (1) pre-mining period, (2) mining
period, and (3) post-mining period [1,4]. The pre-mining period actually is included
A Prototype Decision Making Tool of Coal Mine Planning 1477

exploration and construction time, and may cover all previous activity before
operation. Then, mining period is a mining operating time, and the post-mining
period is usually covered after operation time till mine closure activity.
Generally, the term of mine planning can separate into 2 parts as, (1) project
planning, and (2) production planning. The project plan will seek to answer the
question of accept or reject an investment in a mining project when changing a
production rate. It is a big scale of planning analysis with a long period of mine life.
While, production planning is the next step of mine planning or detail planning after
investment decided and operating mine, it is a working plan, that smaller period of
planning such as daily planning, monthly planning or yearly planning, and it deals
with how to manage machines and worker for maximum efficiency and lower cost.
P. Sontamino and C. Drebenstedt (2011) [9] had the new idea of the development
decision support system of the coal mine planning system by using system
dynamics model. The result of literature reviews shows the potential, possibility,
and advantage to apply system dynamics theory and modeling —the new
methodology and tools that rarely used in mining field — for developing an
alternative mining decision making.

3.2 Mine Investment Decision Making

In mining and other business, the cash flow analysis along the period of mining
project is a general analytical method for discussion before a decision and starting
to do any mining action. The criteria of decision making on mining investment
project such as, cash flow analysis, net present value, internal rate of return,
payback period, and so forth, were referenced by many mining books such as Open
pit mining planning & design [1], and SME mining engineering handbook. 3rd
edition [4].
P. Sontamino and C. Drebenstedt (2013) [8] developed a prototype dynamics
decision making model of mining feasibility on investment. By converting the
equation of Net present value, cash flow variables etc., to be a system dynamics
model. This SD model was found that useful more easy and flexible to change the
value of the input variable and reach the target solution by using the model.

3.3 Mining Cost Estimation

Hustrulid, W. A. and M. Kuchta (1998) [1] collected and analyst the mining cost,
they summarized results into 3 groups of cost including, (1) capital cost, (2) general
and administrative cost, and (3) operating cost. In each group, they explained detail
of sub-groups with equations and unit costs for mining cost estimation.
P. Sontamino and C. Drebenstedt (2013) [7] developed a system dynamics model
of mining cost estimation by using equations and the unit cost database from
Hustrulid, W.A. and M. Kuchta (1998), and modify some parts of the cost
estimation structure such as, added structure of the environmental protection cost.
1478 P. Sontamino and C. Drebenstedt

Capital costs for environmental protection

Total general plan capital costs

Total mill associated capital costs

Capital Costs
Total mine associated capital costs

Total mine equipment costs

Total pit services cost Total Mining Cost Estimation

G&A cost for environmental protection

G&A Costs
Total mine project overhead costs

Operating cost for environmental protection

Total daily operating costs Operating Costs

Total other operating costs

Fig. 1 Tree diagram of detail parameters of mining cost estimation [1,7]

The system dynamics model of mining cost estimation can help to simulate the cost
of mining more fast and flexible in many scenarios. Summary list of parameters in
mining cost estimation is seen above (Fig. 1).

3.4 The System Dynamics Theory and Application

System Dynamics (SD) established by Prof. J.W. Forrester in 1950 [2], is a theory
of system structure and a set of tools for representing the structure of complex
systems, and analyzing their dynamic behavior. They are many commercial
softwares help to create an SD model, but Vensim software is one of the most
popular software used to develop the SD model. Moreover, it also has a free edition
for beginning user. In below figure (Fig. 2) shows the simple structure of an SD
model created by using Vensim DSS 6.0b Software [3].

Fig. 2 Simple SD model structure

A Prototype Decision Making Tool of Coal Mine Planning 1479

4 Research Methodology

The prototype SD model was developed with the background theories and
databases of open pit mine planning and design by Hustrulid, W. A., and M. Kuchta
(1998) [1] and SME mining engineering handbook. 3rd edition by Darling, P., et.al.,
(2011). The prototype SD model focus on mining project planning which support
the calculation result for decision making of accept or reject the mining project.
By combining 2 previous system dynamics model of, (1) a system dynamics
model of mining cost estimation [7], (2) a prototype dynamics decision making
model of mining feasibility on investment [8], and also extended more variables of
mining economics analysis and mining cost estimation such as royalties,
depreciation, depletion, exploration cost and income tax etc., the prototype
dynamics decision making model of coal mine planning is proposed.
The simple process of using the prototype SD model calculation shows below
(Fig. 3).

Fig. 3 Simple process of using the prototype SD model for calculation

1480 P. Sontamino and C. Drebenstedt

4.1 Case Study Condition and Base Scenarios Simulation

The prototype SD model was tested and verify how it work with a real data. In this
case, the data from Mae Moh Lignite Mining in Thailand was used such as, the
reserves of Mae Moh Lignite Mining has 461 million tons remain, Thailand average
inflation rate 4.63% and average interest rate 2.49%, the lignite price around 17
dollars/ton, and all of lignite production (100%) used for power plant which
annually consume 16 million tons of lignite and produced waste around 100 million
BCM/year (stripping ratio 6.25 cu.m./ton). The lignite production was used in 2,400
MW power plant, the power plant produced about 18,000 million units/year (about
12% of demand of electricity consumption) [5]. Price of electricity around 0.123
dollars/unit [6]. The royalties charge at 4% and income tax charges of 30% of
earnings.
The base simulation uses detail of the case study condition, and focusing on
analyst mining economics criteria including, (1) net cash flow, (2) net present value,
(3) internal rate of return, (4) payback period, and (5) discount payback period of
the case study condition.

4.2 Sensitivity Analysis Condition

The condition of sensitivity analysis were test how distributed of net cash flow and
net present value while 3 important parameters that mining company uncontrollably
changing such as, royalties, price of ore, and stripping ratio. By assuming the
behavior pattern of parameters are normal distribution. See details conditions on the
below table (Table 1).

Table 1 Sensitivity analysis condition of example case study

Parameters Minimum Value Average Value Maximum Value S.D.

(1) Royalties (%) 1 4 10 2
(2) Price of ore (dollars/ton) 15 17 20 1
(3) Stripping Ratio 3 6.25 10 1
(cu.m./ton)

4.3 Optimization Condition

In this case, the optimum condition value of the objective variable by using the
prototype SD model with an optimize function of Vensim Software, was searched,
by the 3 important parameters, that mining company's controllable, were varied for
finding the optimum result in the objective variable, the parameters are included (1)
production rate, (2) working day planning, and (3) depreciation time, and the
objective condition is a maximum value of net present value (NPV). See detail
condition on the below table (Table 2).
A Prototype Decision Making Tool of Coal Mine Planning 1481

Table 2 Optimization condition for example case study

Objective Maximum net present value (NPV)

Parameters Conditions criteria
(1) Production rate (million tons/year) 10<= Production Rate <=20
(2) Working day planning (days/year) 280<= Working day planning<=350
(3) Depreciation time (years) 1<= Depreciation time <=5

5 Results

5.1 List of Variables

The prototype SD model has total 344 variables, which including 191 input
variables, and 153 outputs and auxiliary variables.

5.2 Model Structure and User Interface

The prototype SD model structure has 2 sub-models, (1) mining economics analysis
model, and (2) mining cost estimation model. Both sub-models were connected
with variables such as production rate, unit operating cost etc. The example
prototype model structure of mining economics analysis is shown below (Fig. 4).

overburden density (tons/cu.m.)

overburden planning
(tons/day)

overburden planning
(tons/year)
working day planning (days/year) overburden rate
(tons/year)
total material mined
(tons/year) Overburden in
production should be done dumping area
when fix operating years overburden planning overburden rate (cu.m.)
(tons/year) (cu.m./year) (cu.m./year)
production planning
(tons/day) market share (%)

switch control mine life

striping ratio (cu.m./ton) check reserves
were mined
<pre+exploration & (tons)
construction period>
production planning ore order require
init. production planning (tons/year)
(tons/year) (tons/year) <unit capital costs
<mine closure period> (dollars/year)>
operation & mine control mine life (years) init. reserves (tons)
closure period operation period
pre+exploration &
construction period ore demand (tons/year) <unit G&A cost
operating time Mine Reserves vary capital cost (dollars/year)>
(years) (tons) (dollars/year)
new reserves mining production <investment on new
Total mining total mining time (years)
<operation period> (tons/year) (tons/year) equipments (dollars/year)>
period fix capital cost
construction (dollars/year) <pre+exploration
<(1/year)>
period mine closure period>
pre+exploration &
construction time (years) period fix mine closure cost (dollars/year) <construction
pre+exploration period>
pre+exploration & new reserves found (tons/year) <overburden planning
construction & operation period (tons/year)> capital cost (dollars/year)
period unit price of ore (dollars/ton) pre+exploration cost
(dollars/year)
mine closure time (years) gross revenue <Time>
mine closure cost
(dollars/year)
(dollars/year)
<(1/year)>
construction time (years) operating cost
fix operating cost (dollars/year) (dollars/year)
pre+exploration time (years)
net revenue Net Present
(dollars/year) Value (dollars)
<Operating costs per pv (dollars/year) unit pre+exploration cost (dollars/year)
production (dollars/ton)> unit mine closure cost (dollars/ton)
<Total mine equipment costs (dollars)>
% sarvage value (%) cash flow after-tax
<pre+exploration &
(dollars/year) discount payback
construction time (years)>
<operation period> discount rate (%) period (years)

mining equipments Net Cash Flow

values (dollars) (dollars)
cash flow rate net profit <non-cash deductions
depreciation value depreciation (dollars/year) (dollars/year) (dollars/year)>
royalties rate (%)
buying new (dollars) sequence
equipment sequence gross profit
<Cost of gyratory crusher (dollars)> (dollars/year) tax rate (%)
payback period
<total mining time (years)
<(1/year)> income tax
equipment life cycle (Years) (years)>
(dollars/year)
investment on new
depreciation time (years)
equipments (dollars/year) depreciation taxable income
(dollars/year) (dollars/year))

commulative non-cash deductions

<operation period>
operation period
(dollars/year)

<mining licence cost (1/year)

(dollars/year)>
depletion
(dollars/year)
depletion value
(dollars/year) amortization (dollars/year) write-offs (dollars/year)

Fig. 4 System dynamics model structure of mining economics analysis

1482 P. Sontamino and C. Drebenstedt

Fig. 5 User interface summary control of the prototype SD model

Because of the system dynamics model structure can make general user confuse
and hard to use, then the prototype SD model was made easier for general users, by
using a user interface summary control page, see above (Fig. 5).

5.3 Simulation Result

From the real data on example site condition, the prototype SD model shows result
calculation of 4 economics criteria along period of mine life (45 years) including,
(1) net cash flow is equal 1,159 million dollars, (2) net present value is equal 187.85
million dollars, (3) internal rate of return is equal 10.604%, (4) payback period is
equal 10 years, and (5) discount payback period is equal 17 years.

5.4 Sensitivity Analysis Result

The result of sensitivity analysis of net cash flow and net present value is shown in
the sensitivity graph below. See more detail below (Fig. 6).
The sensitivity analysis shows that even though a simulation result in the base
condition is positive and can accept to invest in this example mining project, but in
some uncertainty case condition that was made in sensitivity analysis also return
result of calculation in negative and should reject the undertaking.
A Prototype Decision Makin
ng Tool of Coal Mine Planning 14883

Fig. 6 Sensitivity graph of neet present value and net cash flow

5.5 Optimization Analysis

A Result
The optimum condition frrom criteria shown that the optimal production rate in thhis
criteria is 20 million tons//year, working day planning around 300 days/year (actuual
calculation result is 299.7 days/year), and depreciation time around 2.5 years (actuual
calculation result is 2.500045 years), for the maximum net present value of 357.005
million dollars of the totall mining period 39 years.

Fig. 7 Comparison graph bettween optimum condition and base condition of net present valuue
and net cash flow

The comparison graph h show graph line number 1 (MPP_Opt) is an optimum

condition to achieve a maaximum value of net present value, and graph line numbeer
2 (MPP) is the base cond dition result that explained above (section 4.1). Althoughh,
the optimum condition haas a higher capital cost because it produces at 20 millioon
tons/year, but it return off payback period and discount payback period faster thaan
the base condition and also o give higher value of net cash flow, and net present valuue
at the end of mine life.
1484 P. Sontamino and C. Drebenstedt

6 Conclusion and Discussion

The prototype decision making tool for coal mine planning using system dynamics
model can help to estimate mining cost and economics criteria value rapidly. All of
result that shows in the example case study condition can calculate and change
value of variable rapidly, thus It’s can be an alternative tool that's fast and flexible
to change multiple value of input variables for finding optimal solutions.
The result in an example case study condition shows that the example mining
project along 45 years of mine life can be accepted with the net cash flow result at
1,159 million dollars, the net present value results at 187.85 million dollars, internal
rate of return at 10.6%, payback period of 10 years, and discount payback period of
17 years. However, the sensitivity analysis result shows more uncertainty result of
the example mining project could get negative or reject the project in any case. In
optimization result, the conditions that make a maximum net present value of 357
million dollars are, production rate 20 million tons/year, working day planning on
300 days/year, and depreciation time 2.5 years.
Hence, the prototype decision making tool for coal mine planning using the
system dynamics model is an alternative decision support system tool for mining
project planning. Although this is a prototype model, but It can help user to
calculate in many scenarios which previously show the ability of a fast and flexible
tool and can be used for decision making.

References
[1] Hustrulid, W.A., Kuchta, M.: Open pit mining planning & design, vol. 2, xv, 836 p. A.A.
Balkema, Rotterdam (1998)
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http://en.wikipedia.org/wiki/System_dynamics
(cited February 15, 2011)
[3] Ventana System, I. Vensim Software (May 24, 2011),
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Engineering Handbook, 3rd edn., vol. 2, xxiv, 1840, I-46 p. Society for Mining,
Metallurgy, and Exploration, Englewood (2011)
[5] Kittichotkul, A.: Mae Moh Lignite Mining 2011: PowerPoint Presentation. Maemoh
Mining Scenior Officer (2011)
[6] Annual Report, Thailand Energy Situation, Department of Alternative Energy
Development and Efficiency, Ministry of Energy (2010),
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