Simulation Analysis for Mining Project Risk Mangement

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

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SOEMON TAKAKUWA is a Professor in the Graduate School of Economics and Business Administration at Nagoya University in Japan. He received his B. Sc. and M. Sc. Degrees in industrial engineering from Nagoya Institute of Technology in 1977, respectively. His Ph.D. is in industrial engineering from The Pennsylvania State University. His research interests include optimization of manufacturing and logistics systems, management information systems and simulation analysis in these systems as well as in hospitals. He has prepared the Japanese editions of both the introduction to simulation using SIMAN and Simulation with ARENA. He has been serving concurrently as a senior staff member of the Department of Hospital Management Strategy and Planning at Nagoya University Hospital. His email address is . 2623