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By Ralph van Rijswick, Erik Vlot

"Anglo American operates 18 Weir GEHO piston diaphragm pumps (PD) in the two pump stations of the 52-km (32-mile) long Minas Rio iron ore concentrate pipeline. The pipeline is designed to transport 26.5 Mt/a (29.2 million stpy) of concentrate from the mine to the export terminal at the coast.During the commissioning of the pipeline in the fall of 2014, high pressure pulsation levels were experienced, with peak-to-peak levels as high as 20 bar. Based on pressure readings it was concluded that hydraulic resonances were present in the system, which were excited by the third and sixth harmonic of the flow pulsation generated by the pumps.Based on this observation, Weir Minerals Netherlands, manufacturer of GEHO PD slurry pumps, recommended installing a phase shift controller that controls the phase shift between the crankshafts of the individual pumps, thereby minimizing the effect of the hydraulic resonances.GEHO piston diaphragm pumps and pressure pulsation analysisPiston diaphragm pumps are used worldwide to transport abrasive and/or aggressive slurries against high discharge pressures in the mining, mineral processing and power industries. The basic operating principle of a piston diaphragm pump is shown in Fig. 1.A crankshaft is driven by an external electric motor via a gearbox. The crank mechanism transfers the rotating motion of the crankshaft into a reciprocating motion of the piston. The piston displaces a hydraulic fluid, called the propeling liquid, which displaces an elastic rubber diaphragm. When the piston moves to the right, the pressure in the pump chamber drops below the suction pressure and the nonreturn valve on the suction side will open, allowing the pumped fluid to flow into the pump chamber. When the piston moves to the left, the fluid is compressed, and when the pump chamber pressure rises above the pipeline pressure, the nonreturn valve on the discharge side will open allowing a displacement of fluid into the discharge line. The main objective of the diaphragm is to isolate the piston and the drive mechanism from the abrasive and/or aggressive fluid and create a hermetic seal between the pumped fluid and the ambient environment. Piston diaphragm pumps as shown in Fig. 1 are among the largest positive displacement pumps in the world and have been produced with stroke volumes of up to 100 L (26 gal) per pump chamber for flow rates up to 800 m3/h, discharge pressures up to 250 bar and hydraulic outputs over 2 MW per unit (van Rijswick et al., 2010)."

Jan 9, 2017

By M. E. Rossi

In mineral resources, geologic and mining data are acquired, processed, analysed, interpreted and modelled, eventually serving as basis to generate predictions and production plans. This is a complex process, and the resulting predictions are impacted by uncertainties related to the data itself and the processing methods and techniques used. They are also impacted by the subjective decisions made by the modeler(s) at each step of the way. Knowledge, biases, skills, and prior experience come into play in the long mineral resource evaluation development workflow. It is meaningless to discuss uncertainties without evaluating the associated risks that those uncertainties imply. It is important to quantify and assess uncertainty, and to evaluate and mitigate its consequences. This paper discusses (1) conceptual and practical sources of uncertainty; (2) the utopia of an “objective” uncertainty; and (3) the quantification and public reporting of uncertainty using geostatistical conditional simulations. The objective of this paper is to postulate that the industry is running out of reasons and excuses to ignore uncertainty and risk in project evaluation. This is done in two parts, with this, the first one, presenting a more conceptual discussion. Part 2 will present case studies from different types of mining projects and operations showcasing the impact that risk assessments can have in a mining project.

Feb 22, 2026

By K. Bunney

A high-pressure laboratory elution rig was commissioned to simulate industrial Zadra and AARL elution conditions for the stripping of gold, silver and mercury from loaded activated carbon. It was found that cyanide was essential for the efficient elution of both mercury and silver, while gold was found to elute most effectively in hot, low-ionic strength solutions. Therefore, the standard AARL-type elution, which implements a cyanide soak and water elution, results in a lower recovery of mercury and silver from the carbon. No single set of conditions was found whereby gold, silver and mercury can all be effectively eluted in a single step. However, sequential elution conditions can efficiently recover all metals and provide a potential approach for separating these metals.

Jan 1, 2010

By W. G. Stevenson

The centennial celebration of the AIME provides an opportunity to review some aspects of developments in mineral exploration since 1871 and to reflect on the changes that have occurred. During this period seven Factors have fundamentally altered the procedures, techniques and philosophy of mineral exploration. Although most of these developed gradually, and unheralded, they have drastically altered the art of exploration and discovery. 1. ADVANCES IN MINING AND MILLING The development of huge shovels, draglines, trucks and track-mounted drills, to replace the wheelbarrow and single Jack has drastically expanded the rate of production for both underground and surface mining. The development of selective flotation has had a far-reaching affect on mineral exploration and has made it possible to extract metals from the metallurgically complex deposits discovered years before. These developments have reduced the costs of mining and treatment, and have transformed material into ore that was considered waste one hundred years ago. These advances have permitted exploration for progressively lower grade and larger mineral deposits.

Jan 1, 1971

By J. Bilant, B. Carlson, N. Gow

"High-pressure grinding roll (HPGR) technology was evaluated to replace tertiary cone crushing at Coeur Rochester operations (Coeur Rochester Inc.) as an opportunity to improve silver recovery. In 2016 and 2017, onsite and third-party pilot programs were initiated to evaluate the impact on metallurgical recovery and heap leach performance of crushed product generated by an HPGR. In 2018, Forte Dynamics evaluated the HPGR laboratory metallurgical data from Coeur Rochester and all third parties to develop field-scale leach curves based on new crushing scenarios. The laboratory recovery test work data were consolidated and scaled to field conditions to determine projected heap leach performance. Based on the metallurgical testing conducted, the replacement of current tertiary cone crushers with HPGR technology has the potential to increase Coeur Rochester’s silver recovery rate by 8 percentage points, from 61 percent to 69 percent, and shorten the overall timing of silver recoveries from 20 years to just more than two years.The Rochester Mine, and associated valley fill heap leach facilities is an openpit silver and gold mine located in Pershing County, NV, approximately 42 km (26 miles) northeast of the city of Lovelock. In 2017, Rochester produced approximately 4.7 million oz silver (Ag) and 51,000 troy oz gold (Au). Ore mined at Rochester is either fed directly to the primary X-Pit crusher, crushed at an in-pit crusher system, or placed directly onto a heap leach pad as run-of-mine (ROM). Both crushing circuits are comprised of three stages of crushing to produce a nominal 3/8 in. ore. Primary crushing consists of jaw crushing while secondary and tertiary crushing are composed of varying cone crushers.Historical recovery rates of crushed Rochester ore averaged 61.4 percent Ag and 95.9 percent Au over a period of 20 years (Robinson et al., 2018). These rates were derived from third-party verification of in-house metallurgical test results, crusher production and heap leach production results from 1986 through 2004 in a private report for Rochester produced by KD Engineering Co., Inc. Recovery rates are regularly verified by compositing daily samples of ore delivered to each leach pad from the X-pit crusher, in-pit crusher and/ or ROM. A proportionate split of each sample is used to generate monthly composites for metallurgical analysis utilizing column leaching and bottle roll leaching. These tests are run in a manner analogous with production conditions and deliver test results that provide expected heap leach performance. As the Rochester oxide deposit has been mineralogically and metallurgically consistent, the gold and silver recovery trends have also been consistent over the life of the project."

Sep 1, 2019

By Matthew T. Mowry

As the mining industry continues to hire young professionals to supplant the growing number of retirees, a well-developed engineering curriculum, coupled with practical, real-world training, can prepare mining engineering graduates to make meaningful contributions in the industry. Successful companies can be measured not only by their reserve base and annual production but also by their retention of mining engineering graduates with zero to five years of operational experience. My personal experience in the industry during the last five years has been varied and rewarding. The knowledge and experience I have gained have taught me valuable lessons that prepared me for my current role.

Nov 1, 2013

By A. Nieto

Rare earth elements (REEs) are crucial to green technology such as hybrid-electric vehicles, wind turbines and fluorescent light bulbs. As of 2011, China dominates the global production of REEs and is reducing its export quotas. To predict the supply of rare earths in the United States based on future supply scenarios, a web-based database and geographic visualization tool was built. Five case scenarios with varying levels of REE demand were created by varying several economic conditions including (1) international trade policy, (2) greenhouse gas regulations, (3) environmental mining regulations and (4) tech applicability ratio of REEs. The most likely scenario, which is based on current international demand levels, indicates the importance of expediting the development of extractive operations of current REE resources within the United States. The results of the different case scenarios are supported by using dynamic geographic maps indicating the location of rare earth ore (REO) resources.

Jan 1, 2012

By Donald D. Murphy

My first contact with underground, bolt conveyors came when I was hired as a draftsman by the La-Del Conveyor & Manufacturing Company in 1935. At that tine relatively few nines were using haulage belt conveyors. Wore they were in use, they were usually loaded by chain or shaker type room conveyors which in turn were hand loaded at the working face. Duo to the low room tonnage, a gathering belt might receive who output of from six to eight rooms. For several years belts 26 and 30" in width were the favorites for coal mine use. Belt speeds very seldom exceeded 200 ft. per mm. at that time. Conveyor lengths for the majority of units lay between 1.000 and 2000 ft. For a number of years 25 H.P. drives were adequate for those conveyors. From 1940 until about 1950 loads and speeds went up slightly and 40 H.P. drives became the standard. Since the majority of mines were then using direct current power systems, we were able to use controllers with 3 or more steps of starting resistance. The slow belt speeds coupled with relatively long starting cycles kept the rate of acceleration low and gave us smooth, easy starts.

Jan 1, 1963

By Gordon J. Hughes

The ldaho Cobalt Belt represents a unique geologic environment containing some of the largest known reserves of cobalt in the United States. Stratabound cobalt-copper-gold deposits formed within a sedimentary basin that was generated by the rifting of an Archean cratonic block. Host rocks for these deposits are the Early to Middle Proterozoic Yellowjacket Formation comprising a suite of clastic sediments, volcaniclastics, and mafic tuffs that accumulated in the intracratonic rift basin about 1.7 b.y. ago. Rifting was probably initiated during a regional heating and doming event that may date back to 1.8 b.y. ago. During this time, other rift basins were likely to have formed in the region. They probably represent the precursors of a much larger depositional environment having characteristics of an Atlantic- type or passive continental margin where younger formations of the Belt Supergroup were deposited. The Yellowjacket Formation has been subdivided in the Idaho Cobalt Belt into three genetic units representing various subenvironments of a deepwater clastic fan complex. A northwest- trending deep-basin structural trough accumulated fine-grained muddy sediments that were periodically interrupted by distal turbidites of the subaqueous fans. Subsequent progradation caused the deposition of coarser-grained clastics of the more proximal portions of the fan complexes. Submarine fan lobes were built across northwest-trending tectonically active basin growth faults. These in-basin structures caused a great deal of penecontemporaneous deformation within the Yellowjacket sequence. Northeast-trending fault zones formed an orthogonal set of fractures that controlled the shape and size of sub-basins, and were also an influence on lateral migration of dominantly fine-grained clastic material. The eruption of mafic tuffs at about 1.7 b.y. ago added a new component to the Yellowjacket sedimentary sequence. Around the Blackbird mine area these tuffs commonly occur either near the base or within some of the sandier sequences. Since most of the sand influxes were largely controlled by basinal tectonism, the tuffs were probably erupted during tectonically active periods of basin development. The dynamic nature of the sedimentary environment probably caused much of the tuffaceous component to be mixed with other clastics and even resedimented as volcaniclastic material. In time, the change to a higher energy sedimentation regime resulted in such a dramatic clastic dilution of the tuffs that they could not survive in the areas of the vents, and, if present, they must have been distributed elsewhere in the basin.

Jan 1, 2013

By S. Managi, M. C. Williams, N. H. Behling

Particle processing is a key to using solid particles in fuel cell applications. Selectivity with regard to reactivity, impurities, etc. is important feature and the treatment of particle surfaces could greatly impact the performance of direct carbon fuel cells. Solid fuel particles will become increasingly important in the future. Present energy conversion systems for solid fuels are too inefficient. New energy conversion systems for solid fuels with higher energy conversion efficiencies are possible. Fuel cell technology is a key-technology in these new conversion systems. The direct carbon fuel cell (DCFC) operates on carbon particles obtained from a variety of solid fuel feedstocks. The DCFC is the only fuel cell designed to directly oxidize carbon particles in a special anode chamber. The particles are generally graphite structure with high purity. The electrolyte used is the high temperature solid oxide, molten carbonate or hydroxide electrolyte. Since a pure stream of CO2 is produced the stream can easily be sequestered and disposed. Pure carbon dioxide produced as a by-product would also have a market in many industries. A well-defined technology roadmap identifying key research and development (R&D) issues is necessary to provide a framework for the development of these systems and to prevent entrenchment in inherently inefficient technologies. This review paper describes the direct carbon fuel cell and its system, how it works, the developmental status, the characteristics of the carbon particles needed, and the research and development issues for the technology. INTRODUCTION The DCFC has been under development for many years. It was researched as early as 18961), but an intense research and development is necessary to realize its potential. William W Jacques, a US electrical engineer and chemist, described a DCFC in 1896 in US Patent 555511 for a “Method of converting potential energy of carbon into electrical energy”. Jacques used coke electrodes in a molten NaOH electrolyte. Molten carbonate fuel cell (MCFC), solid oxide (SOFC) or hydroxide electrolyte (AFC) technologies can be used as the basis for the DCFC technology. A schematic of the direct carbon fuel cell in the MCFC mode is shown in Figure 1. The molten carbonate fuel cell operates at approximately 650°C (1200°F). The high operating temperature is needed to achievesufficient conductivity of the carbonate electrolyte, yet allow the use of low-cost metal cell components. A benefit associated with this high temperature is that noble metal catalysts are not required for the cell electrochemical oxidation and reduction processes. For the hydrogen reaction the half-cell electrochemical reactions are

Jan 1, 2019

By Randy Reed, Barbara J. Arnold

Respirable crystalline silica poses a significant health risk, with the American Lung Association estimating that 2.3 million workers are exposed to silica in the workplace. This includes mine workers as well as those in many other industries. Reducing dust formation is sometimes not possible so other methods to reduce exposure are critical. These methods include the use of surfactants to reduce airborne dust particles. However, it is the proper selection and application of surfactants that leads to reduced dust exposure. A discussion of how surfactants work, especially for silica dust, leads to guidance for surfactant selection followed by a review of technologies for their application.

Feb 1, 2024

By S. K. Palm

The commercial life of a mineral product can be long, but like hitech electronic and software products that soar in sales one day to become obsolete and forgotten a few months or years, mineral products have a life cycle. They are invented, commercialized and eventually decline and disappear from commerce. Diatomite and perlite are produced from mined minerals, but almost none of the products in these industries spring from the earth in finished form. Straight calcined diatomite was invented over 100 years ago and flux calcined diatomite just a few years later. The expansion properties of perlite were discovered and first exploited about 75 years ago. Some applications for diatomite have disappeared or currently face competition from newer products. Dry cleaning was once the second-largest application for diatomite but disappeared over 30 years ago. Both the beer and wine filtration markets for diatomite face increased competition from membrane filters. A pipeline of new, proprietary products is critical to the future of the industry.

Mar 2, 2022

By G. Plenge, M. Brittan

"Plant design parameters for gold extraction, leach residence time and cyanide consumption are generally determined from standard bench-scale bottle roll or agitation leach tests. The application of laboratory data to process design has essentially evolved from the testing of oxide or low cyanide-consuming ores. Such scale-up factors may not be appropriate for ores that deplete cyanide and oxygen since this interferes with gold extraction kinetics. High cyanide-consuming ores also exacerbate the differences between the conditions applicable to small batch tests and large continuous operations. Testing a reactive high-sulfide South American ore deposit necessitated the re-evaluation of conventional bench-scale cyanidation procedures. Pulp density can be a major factor affecting the results for plant design purposes and should be treated as a test work variable. As with high clay-bearing ore, where pulp viscosity can hinder mass transfer, minimizing the influence of test equipment on gold extraction kinetics may require low pulp densities. This introduces interpretative complexity since cyanide consumption changes as a function of pulp density. Activated carbon also consumes cyanide, so its effect has to be accounted for in the case of carbon-in-leach (CIL) or carbon-in-pulp (CIP) plant flowsheets. Since cyanide is an expensive reagent, often a major component of plant operating costs, it is important that the scale-up of cyanide consumption from laboratory to plant be representative. The traditional method of reporting cyanide consumption in bench-scale testing is questioned since it takes credit for residual free cyanide in leach tails. The projected plant consumption may be better estimated by using the total cyanide addition in a laboratory test. We propose a test work protocol that categorizes the cyanide consumption into its components but requires more extensive testing to generate design data. The ultimate validation of scale-up factors used by project engineers requires rigorous bench-scale versus commercial plant comparative data. Such data are not readily available.IntroductionMajor factors in the design of a gold processing plant are gold recovery, leach residence time and cyanide consumption. These parameters are important determinants of project revenue and costs and, thereby, potentially of project financial viability. Estimates of the associated design criteria for a commercial plant are normally generated from laboratory cyanidation, carbon-in-leach (CIL) or carbon-in-pulp (CIP) tests using standard procedures (Angove, 2005). The key question is whether the standard laboratory test work procedures developed historically for low reagent consuming ores are appropriate for ores that are highcyanide and oxygen consumers.The present paper examines test procedural factors that can influence the test work results and, therefore, their interpretation for design scale-up purposes. The study refers in particular to a high cyanide-consuming sulfide ore. The ore was being tested to develop scoping level engineering design criteria for a proposed project in South America."

Jan 1, 2015

By George L. Atwood

The Monsanto Company's Henry Mine is located 17 miles northeast of Soda Springs, in the southeast corner of Idaho. Ore being mined is phosphate rock which lies in the Permian Phosphoria formation. The ore is the raw material for Monsanto's three furnace elemental "P" plant near Soda Springs. The finished product from the furnaces is elemental phosphorus which is subsequently used in the manufacture of detergents, food preservatives, fire retardants and other consumer items. Mining is by open pit methods using 0-9 crawler tractors to rip and push-load rubber tired scrapers in stripping and mining operations. The equipment spread consists of six D-9G crawler tractors, four Caterpillar 6578 scrapers, eight Euclid S-24 scrapers, one Reich T750 drill and one Caterpillar No. 16 patrol plus various support equipment. Stripping is performed on a 12-month basis, two shifts per day. Mining is performed mainly in the summer months on a one shift basis. The hauling season begins May 15 and ends November 1 due to freezing weather and snow conditions. Annual production is 1,000,000 tons of phosphate rock and 2,500,000 to 3,000,000 yards of stripping. Stripping, mining and hauling is performed for Monsanto by Dravo-Soda Springs, a mining contractor. Dravo-Soda Springs owns, operates and maintains all equipment used in stripping, mining and hauling. The contractor is paid for stripping by the bank yard and for ore mined and hauled on a tonnage basis. The Monsanto elemental phosphorus plant began production in 1952 with ore being trucked to the plant from the Ballard Mine. Haulage was over public roads in 15, 24-ton semitrucks. A private haul road was constructed from the Ballard Mine to the Monsanto Plant in 1958 and 1959 to accommodate trucks with two twenty-yard trailers. This 11/ mile road was first used in the 1959 hauling season. In 1965, five new Kenworth tractors with two, 'forty yard trailers were introduced into the haulage system. These units carried 120 ton payloads and were used until

Jan 1, 1972

By Todd Minoski, Matthew McElhinney, Mark Mazzella, Morgan Sears, Craig Compton

The National Institute for Occupational Safety and Health (NIOSH) is staffed with Engineers, Geologists, and Field Technicians conducting a variety of ground control research. The mission of the ground control teams within the Mine Systems Safety Branch (MSSB) is to eliminate ground failures leading to mineworker injuries and fatalities. Advancing the science behind ground control relies heavily on conducting mutually beneficial research at participating mines which is detailed in specific references throughout the paper. The ground control teams have several types of field instruments at their disposal to measure the ground response in underground mines. These include borehole pressure cells (BPCs), vibrating wire stress meters (VWs), hollow inclusion cells (Hi-Cells), roof and rib extensometers, load cells, and convergence meters. These instruments are used to measure changes in pressure, strain, and displacement within the underground environment. Instrumentation data is collected automatically using intrinsically safe or MSHA permissible dataloggers if required. Information is transmitted to the dataloggers using approved cable to distances of 200–1,000 ft. depending on the type of datalogger being used. Once mining is completed, the dataloggers are retrieved and brought to the surface, providing in-mine data to mine management and engineers for the conditions currently being encountered in a particular mine. This data, in conjunction with geologic data and stress mapping, can be used to validate numerical models. The practical application of these models is extremely important for mine management and engineers, particularly when faced with more challenging mine environments. Insight gained from applying these models can be used to make better engineering-based judgments for areas that will be mined in the future. The impact of such applications can result in a reduction of ground-fall accidents and injuries as well as generally safer working conditions.

Feb 1, 2024

By Lawrence A. Engel

The idea of using apron feeders for in directly feeding crushers is not a new one, it has been used for many years. To the best of our knowledge, the first apron feeder was used for bulk material handling in 1893. Since that time many design innovations have been introduced, with perhaps the most effective one being, the application of crawler tractor components in the feeder construction. This design was first introduced to the mining industry in 1954 by, national iron company. These feeders were used in the handling of run-of-mine iron ore on the Minnesota iron range, at the rate of 1,000 ltph. The material was fed over a grizzly to a jaw type of crusher. The crusher output was also handled by an apron feeder. Today, the apron feeder is being used in hard rock surface mine operations feeding crushers at rates of 5,500 ltph and over.

Jan 1, 1983

"The Ohio River Bridge East End Crossing Tunnel requires a 75-year service life of its cast-in-place reinforced concrete lining. This twin-tube 3-lane (each tube) highway tunnel is about 55-ft wide and 30-ft high. Since unified tunnel service life prediction methodology does not exist in the US, challenges occurred during the design-build phase of this project. These challenges include the methodologies in determining the reinforced concrete’s degradation mode, the lining’s surface chloride concentration level, the reinforcing steel’s critical chloride threshold value for corrosion, how to verify the concrete’s diffusion coefficient, and the durability impact from concrete crack width. This paper presents a methodology in verifying the proposed concrete mix can achieve the service life requirements. This methodology can be adopted for service life prediction for future tunnels to be built in the US. INTRODUCTION The Ohio River Bridge East End Crossing (ORBEE) Tunnel is part of a Public Private Partnership project, which connects transportation network between Louisville, Kentucky and southern Indiana. Located in Louisville, Kentucky, the twin-tube highway tunnel provides northbound and southbound lanes of the Kentucky approach to a new bridge across the Ohio River. Tunnel lengths are approximately 1,675-ft and 1,685 for the northbound tube and the southbound tube, respectively. Connected by two cross-passages, both tubes have a roadway width of 40-ft, for 3-lane traffic, and a vertical clearance of 26.5-ft.The tunnel was constructed by drill and blast method with shotcrete and rock dowels as initial ground supports. The final tunnel lining system includes: •,Nominal 16” cast-in-place reinforced concrete lining, with 2” and 3” concrete covers over reinforcing steel for its extrados and intrados, respectively. •,20” cast-in-place reinforced concrete invert slab, with 4” and 3” concrete covers over reinforcing steel on its top face and bottom face, respectively. •,PVC waterproofing system around tunnel perimeter, excluding invert slab. •,Perforated PVC groundwater collection pipes on both sides of the tubes and one below the invert slab of each tube."

Jan 1, 2016

By Jaroslav Briancin, Katarína Gáborová, María Florencia Márquez-Zavalía, Marcela Achimovičová, Ol’ga Šestinová, Pavel Škácha

Naumannite (Ag,Se), a silver selenide mineral, was first discovered in 1828. This study investigates the structure, morphology, chemical composition, and leaching kinetics of naumannite. Mechanical activation in a planetary ball mill increased its specific surface area, enhancing the leaching rate of silver in nitric acid (HNO3). The study found that mechanical activation significantly improves silver recovery.

Jul 1, 2023

On Feb. 16, 2012, the Polish coal mining company Lubelski Wegiel Bogdanka S.A. set the world record for daily production from a plow-equipped longwall, with an output of 24.4 kt (26,900 st) of coal from a single face. The company commissioned the first Cat longwall system at its Bogdanka Mine, near Lublin in eastern Poland, in March 2010 and within six months had raised the bar to nearly 17 kt/d (18,700 stpd) of cut coal. Since then, Bogdanka has continued to increase its daily output with a plow face that began mining in the new 7/VII/385 panel last October, taking the world record to new levels. In addition to the record output achievement, the plow face advanced more than 27 m (89 ft) at a 1.63-m- (5.3-ft-) cutting height. ?We thought this achievement would be impossible for any shearer in seam heights as low as this,? said Zbigniew Stopa, vice president of Bogdanka.

Jan 1, 2012

By R. J. Pindred

Discussion by R.J. Pindred In his paper, Davis presents an overview of risk. He also introduces the Capital Asset Processing Model (CAPM) as a foundation for selecting the appropriate discount rate for a mining project. While applying portfolio theory is more defensible than the ad hoc adjustment of discount rates, the CAPM is not a panacea. CAPM shortcomings [The CAPM, as Davis stated, is expressed in the equation: ri=rf+pi4) where ri is the project discount rate rf is the risk free interest rate (3i is the project beta, and 0 is the market risk premium (rm - rf)] Application of the CAPM is more difficult than Davis indicates. Valuation is prospective, while the CAPM parameters are historical. Beta is determined from a regression analysis of historical data, while the beta needed for valuation is the expected beta. Betas are known to be unstable and the regressions that generate them often have low explanatory power. The difficulty of estimating a "project" beta must also be considered. Thus, the beta that is used in the CAPM will be based on the analyst's judgment. Like Cavender's discount rate, this judgment can lead to different project NPVs. Subjectivity in valuation cannot be avoided by a mechanical application of the CAPM. The risk-free rate, which Davis identifies as a short-term real rate of 4%, is also subject to scrutiny. A mining project is not a short-term investment and no single risk-free rate is appropriate for all of the cash flows. The hypothetical mine discussed in Cavender's paper is a six-year project. One might argue for the application of a risk-free rate from the Treasury yield curve at the duration of the project (in a bond-duration sense). This, too, is inappropriate. The risk-free rate should be matched to the timing of the cash flow. These rates can be determined by calculating the implied forward rates from the yield curve using a procedure known as "bootstrapping." It is likely that each of the project's cash flows would be discounted at a different rate. Commodity prices Davis criticizes the "ad hoc adjustment to the discount rate." Yet, in his discussion of the value of stochastic simulation, he suggests that the gold price be modeled as a "random walk, with or without a trend." This is essentially an arbitrary modeling of price risk. Consider that a liquid market in gold futures exists. The futures' price curve, which is closely related to the market's estimate of future spot gold prices, should be used to provide inputs to the model. This is especially true of a relatively short six-year project. Alternatively, as Davis correctly points out, a risk-averse investor can sell the commodity short to hedge price risk. Is it any more correct, in the portfolio sense, to account for price risk at all ?? References Cavender, B., 1992, "Determination of the optimum lifetime of a mining project using discounted cash flow and option pricing techniques," Mining Engineering, Vol. 44, No. 10, pp.1262-1268 Fabozzi, F.J., 1993, Bond Markets, Analysis and Strategies, Second Edition, Prentice Hall, Inc. Higgins, R.C., 1992, Analysis for Financial Management, Third Edition, Richard D. Irwin, Inc. Solnik, B., 1991, International Investments, Second Edition, Addison Wesley Reply by G.A. Davis Pindred discusses two issues related to my paper, the shortcomings of the Capital Asset Pricing Model (CAPM) and which commodity price values to use in the valuation exercise. Even though these topics are not directly related to the use or misuse of Monte Carlo simulation, they are important points to take into consideration in valuation exercises. Since I do not appear to have addressed these issues satisfactorily in my original paper, I will comment on each here. Pindred agrees with me that applying portfolio theory, and specifically the CAPM, to the selection of project discount rates is more defensible than ad hoc methods. But he then points out that the application of the CAPM to project valuation is more difficult that I indicate. It is true that the CAPM is a difficult tool for project valuation in general,. But the application of the CAPM to mining projects is one of the easiest I can think of. The biggest problem with using the CAPM for project valuation is coming up with an expected project beta. I suggest a project beta for gold projects of 0.45. The "true" value might be 0.35, 0.55 or whatever. Pindred correctly notes that the selection of the appropriate project beta is based

Jan 1, 1996