Simulation Analysis for Mining Project Risk Mangement

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Proceedings of the 2009 Winter Simulation Conference M. D. Rossetti, R. R. Hill, B. Johansson, A. Dunkin and R. G. Ingalls, eds.

USING SIMULATION ANALYSIS FOR MINING PROJECT RISK MANAGEMENT Undram Chinbat Soemon Takakuwa Furo-cho, Nagoya University Chikusa-ku Graduate School of Economics and Business Administration, Nagoya University Nagoya, 464-8601, JAPAN ABSTRACT As a result of the current economic crisis, which led to metal prices fall, mining company managers have been encouraged to cut costs. Thus, improvement projects to reduce cost has become major interest in the Mongolian mining industry. Mining projects are subject to high risk because of their size, uncertainty, complexity and high cost. This paper focuses on the development of a simulation method which provides an engineering tool for managing risks associated with the development of open mining improvement projects. The study will demonstrate the advantages of using simulation analysis for mining project management and how it reduces associated risks. The research was based on a case study of an optimization project of a mining plant based in Mongolia. 1 INTRODUCTION

Mining operations represent an economic activity with plenty of decision problems involving risk and uncertainty. As resources in such a sector are finite, mining project managers frequently face important decisions regarding the best allocation of scarce resources among mining ventures that are characterized by substantial financial risk and uncertainty. At present, Mongolian economic growth is highly encouraged by the mining industry. In 2007, according to the Mongolian Statistical Yearbook, Mongolia’s GDP grew by 8.4 percent in real terms and the growth in the mining sector reached 2.7 percent. High international gold and copper prices has led to new mine exploitation and increased production in this sector. However, many projects fail due to a lack of project management (PM) know-how and high risks. There are a lot of activities involved in the modern mining projects. Tasks range from exploration process, resource calculation, human resource planning, drilling, transportation and closure. In this paper, we focus on using simulation analysis for estimating the suitable quantity of workers needed for the drilling process, without an extension of the mining operation process lead time (PLT); that is, once the exploration and resource calculation processes has been completed and while planning the human resource of the mining operation. The human resource planning process is critical because it is associated with process quality, which is costly and uncertain. Estimating the suitable quantity of workers for such activities as drilling engineers and workers can be calculated using simulation analysis. Simulation is a process of designing a model of a real system and conducting experiments with this model for the purpose of understanding the behavior of the system and evaluating various strategies for the operation of the system (Shannon 1998). Simulation can help mining project managers understand the behavior of the system and optimize the system through various strategies in a virtual reality. One example of a mining project includes oil and gas field development. Jacinto (2002) noted that oil and gas companies need extensive studies to evaluate their projects before spending money, and to quantify the benefits of proposed projects prior to their implementation. The limited knowledge about the characteristics of the geological formation, technical facilities, and human behavior, results in considerable uncertainty about the oil and gas – well drilling operations. The virtual optimization and decision making associated with human resource can be an optimal solution to reducing certain risks associated with cost and time.

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Chinbat and Takakuwa Furthermore, the reason for this study can be attributed to the continuously growing mining...
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