Introduction to Mining and Critical Minerals Course  

Introduction to Mining and Critical Minerals Course  

Overview

Build a mining project financial model from scratch. Develop a best-practice financial model and optimize it for both debt and equity investors for a project finance mining deal.

This course is currently offered to organizations as on in house training.

Pivotal180 offers best in class financial modeling, transaction execution & project finance courses and training in renewable energy, infrastructure & tax equity.

Video

Video Transcript 

This lesson will provide you with a high-level overview of a mining project. We’ll focus on the project once it starts operating. The purpose of this is to understand some physical movements of materials throughout the operations of a mine. If modeling mining projects, you must become familiar with some of the key terms that we will use in this video. And in this video we will use a copper mine as our example.

Big picture, there are often three main phases of a production cycle. We start with mining, extracting materials out of the ground. We process the material into a product that we sell and we transport that product to a buyer. The mining phase entails extracting materials out of the ground. If we took a cross section of a mine, it contains both ore and waste. Waste is applied broadly to what we can sell, such as dirt. The ore is valuable as this contains product that we can process and sell. Extracting material is not a form of high-precision surgery. Tons of both ore and waste will be transported to the surface. As an example, if we mine 300 tons of total material, perhaps 100 tons of that is considered ore. The remaining 200 tons is waste material. We put the waste in stockpiles, which will be used to backfill the mine at the end. The ore is placed in other stockpiles for processing. Using our copper mine example, know that the ore isn’t pure copper. We don’t dig out copper wires ready to be installed in your home. Only a small proportion of the ore is copper, let’s say 2%. 2% is what we call the grade. The ore has a 2% grade, meaning that in the 100 tons of ore, we believe we have two tons of recoverable copper. A higher grade means more copper is contained in the ore. Returning to our production chart, out of 300 tons of material, 100 tons represents ore to be processed. We estimate two tons of copper available at the end of processing, given in our grade of 2%.

We process the ore into a copper product. The processing approach is tailored based on the type of ore and the desired end product and there may be multiple processing phases. Although the ore contains two tons of copper, we can’t extract all of that copper. Perhaps the processing plant ultimately extracts 85% of the copper. The processing phase has what we call an 85% recovery rate. 100 tons of ore with two tons of contained copper is processed, but we only produce 85% times two tons, or 1.7 tons of copper. That leaves 98.3 tons of waste material from the ore. The processing stage creates different copper outputs, one such example being copper cathode. Think of it as a sheet of pure copper that can be used to manufacture wires. In the processing phase, we move from 100 tons of ore containing two tons of copper to 1.7 tons of copper after the recovery rate is applied. These 1.7 tons of copper are then transported to a buyer, often leaving the site by train.

And then loading the copper onto a cargo ship or an airplane to the buyer. There will also be stockpiles of material at a train station or port, so we have some material available when the trains or ships arrive. The point is that you need to have a grasp of the physical process of your mine, tons of waste, and a final product that can easily become a logistical headache. You don’t need to be an expert. That is the job of engineers and geologists, but you need to know enough to ask the right questions and to create a financial model.

Hopefully that gives you a high-level understanding of a general mining process. And before we wrap up, note that we don’t 100% know what is underground or what that grade of material actually is. We make educated guesses, but you can imagine that mining may be a little riskier investment than, say, a toll road.