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SUBSTANTIATION OF CONDITIONS FOR MINERAL RAW MATERIALS



General principles

        Procedure of development and substantiation of indices and parameters of mineral feedstock conditions for calculation of solid mineral reserves and resources in subsurface and determination of geological-economic evaluation indices for deposits submitted for state expert examination and evaluation is established by the “Regulation on Procedure of Development and Substantiation of Mineral Feedstock Conditions for Calculation of Solid Mineral Reserves in Subsurface”, approved by the Order of the State Commission on Mineral Reserves of Ukraine no. 300 of December 7, 2005.

       КThe conditions shall be developed for each deposit or area of subsurface resources in the course of their geological-economic evaluation taking into account rational utilization of all minerals, as well as commercial components contained in them. Optimal indices of conditions shall secure comprehensive geological-economic evaluation and the most exhaustive, rational and safe utilization of mineral deposit reserves.

       Feasibility study (FS) of conditions shall be completed based on a Customer’s technical assignment, in which special terms of general organizational management of a future operation shall be defined: sources of power and water supply, selection of equipment and infrastructure facilities, ways of transportation, approval of excessively environmentally hazardous engineering solutions by state supervision and control bodies, forms of title to property and marketable products, sources of funding.

       Design solutions as to process flowsheets of minerals mining and processing, arrangement and support of production process adopted during substantiation of conditions, shall be in line with modern technical achievements, tested in industrial or semi-industrial conditions. For mineral deposits of local importance explored for development of raw material bases of operating enterprises, FS of permanent conditions can be of a simplified form, in which:

  • • indices and parameters of conditions shall be determined in accordance with requirements of the State and Industry Standards and Customer’s technical specifications;
  • • economic substantiation of adopted conditions shall be fulfilled based on analysis of technical and economic indices of a Customer’s enterprise operation over the past few years, adjusted for organizational/technical, geological and mining circumstances at a mineral deposit subjected to evaluation.
During fulfillment of a FS of conditions for reserve calculation and resource estimation for solid minerals, the following sequence of works, which is the most rational, shall be adhered to:
  1. Analysis and generalization of geological, hydrogeological, mine engineering, metallurgical testwork and other studies data on a deposit and estimation of total mineral reserves.
  2. Marketing research of sales markets capacity for the commercial output, possibilities of mining equipment acquisition, levels of prices, taxes and compulsory payments, wage conditions, availability of labor and power resources, environmental and social circumstances of production.
  3. Substantiation of a mining operation annual capacity, method and systems of productive horizons mining, expected mineral losses and dilution.
  4. Substantiation of an optimal flowsheet for comprehensive processing of minerals to marketable products, their technical-economic indices.
  5. Determination of a conditions indices list, required for contouring, calculation and classification of calculated mineral reserves and resources.
  6. Determination of conditions parameters based on geological, hydrogeological, mine engineering, metallurgical testwork and other substantiations, and, for indices requiring substantiation of parameters based on consideration of different options (cutoff grade, etc.), fulfillment of appropriate reserve calculations basing on the different options and estimation of technical/economic indices of commercial deposit development for each such option.
  7. Determination of an optimal option for commercial development of a deposit, as well as indices and parameters of conditions corresponding to the option.
Conditions indices
  1. Conditions for reserve calculation at deposits of ferrous, non-ferrous, rare and noble metals, diamonds, phosphorite, apatite, boron, sulfur, mine salt, fluorite, barite, graphite, talc and asbestos shall include the following main indices:
    • minimum economic grade (economic cut-off) of a commercial (equivalent) component;
    • cut-off grade of a commercial component or grades of several commercial components reduced to a grade of an equivalent component in a peripheral sample;
    • minimum grade of a commercial (equivalent) component in a peripheral intersection;
    • prerequisites for singling out of commercial (processing) types or kinds of a mineral and methods of their reserves calculation;
    • coefficients for reduction of grades of accompanying components to a grade of a main equivalent component in complex minerals;
    • maximum allowable content of hazardous admixtures in a mineral;
    • minimum thickness of mineral accumulations (beds, veins, etc.) or respective minimum grade-meters (gram-meters);
    • maximum allowable thickness of rock and off-grade ore interlayers included in a contour of reserve calculation;
    • minimum factor of ore-bearingness (productivity) in a block of explored reserves where calculations are fulfilled;
    • minimum reserves of distal mineral accumulations;
    • maximum allowable stripping ratios in a peripheral and inner sections;
    • contours of reserves calculation.
  2. Conditions for coal (combustible shale) reserves calculation establish the following indices in addition to the above:
    • minimum true thickness of coal (combustible shale) beds in a coal intersection, which is determined as a sum of thicknesses of coal beds, intrabed rock interlayers and coaly rocks, occurring directly in roof or floor of a bed and being inevitably involved in mining;
    • minimum true thickness of intrabed rock interlayers, which divide a bed into separately mined seams in zones of branching;
    • maximum ash content in coal within a coal intersection taking into account dilution with intrabed, cover and floor coaly rocks inevitably involved in mining;
    • minimum length of an unbroken extraction pillar;
    • boundary stripping ratio.
  3. Conditions for reserves calculation at deposits of non-metallic minerals (carbonate rocks, magnesite, dunite, quartzite, sandstone as fluxing feedstock, ceramic, molding and refractory clays, molding, building and glass sands, facing and building stones, cement feedstock), as well as for mineral reserves of local importance, the following main indices are established:
    • boundary indices of mineral quality, which take into account requirements of standards in force, technical assignments and technical specifications of subsurface resource users to quality of marketable products or quality indices of mineral raw materials subjected to metallurgical testwork with obtaining of positive results;
    • minimum commercial yield;
    • minimum thickness of mineral accumulations in a peripheral intersection;
    • maximum allowable thickness of host rock and off-grade mineral interlayers included in a reserve calculation contour;
    • prerequisites for singling out of commercial (processing) types or kinds of minerals and methods of their reserves calculation;
    • allowable levels of natural radionuclides activity;
    • contours of reserve calculation.
  4. Conditions for reserves calculation at mineral deposits mined with methods of in-situ leaching or melting establish the following indices in addition to the above:
    • maximum allowable percentage of carbonates in a mineral;
    • maximum percentage of clay-siltstone fraction in a productive interval included in reserve calculation;
    • minimum filtration coefficient in productive accumulations.
  5. Conditions shall be established based on comprehensive mining-and-geological, mine-engineering, metallurgical and economic substantiations.
        Conditions indices connected with geological structure of productive accumulations within deposits, their occurrence, minerals contouring and choosing of reserve calculation methods are subjected to geological substantiation.
Mine-engineering substantiation of conditions includes grounding of deposit development method and system, operation capacity and life, kinds of mining equipment, mechanical means, other design solutions and parameters. That shall be carried out with methods applied for designing of mining operations applying the industrial sector norms for process design and state construction standards in force, designs of similar enterprises in operation and data of scientific and technological researches. Development of economic substantiation of conditions shall be performed in accordance with principles of investment project planning generally accepted in world practice, including as follows:
  • Efficiency of commercial development of a deposits shall be determined for the entire cycle of a mining enterprise activity: from the evaluation stage to liquidation;
  • Modeling of cash flows shall be performed taking into account all money receipts connected with commercial development of a deposit, including investments, and all expenses for planned works on geological studying of subsurface, deposit mining and restoration of the natural environment on a yearly basis;
  • Calculations shall be carried out as of the date of mineral reserves evaluation with discounting of future cash flows;
  • For calculation of operating performance indices of a mining enterprise, only future (relative to the date of evaluation) expenses and incomings shall be taken into account. Both standard and commercial versions of geological-economic evaluation can be completed. The standard version is compulsory for all appraisal objects, submitted for state expert examination. In that version, calculations shall be performed in accordance with standard conditions fixed by the regulatory documents, including:
  • discount rate applied for determining of reserves and resources value shall be taken equal to an official discount rate of the National Bank of Ukraine as of the time of geological-economic evaluation;
  • investments in a project of deposit development and marketing of salable manufactured products shall be taken as made at the expense of own funds of a subsurface resource user without utilization of borrower or share capital;
  • minerals mining and their processing into salable products shall be contemplated with conventional technologies and systems mastered in the world.
        A commercial version shall be developed as an additional if it is stipulated by a technical assignment of a subsurface resource user. Technical-economic calculations in that version may take into account circumstances which contribute to more comprehensive utilization of minerals if compared with the conventional ones, including such facilities, which can be provided by a specific subsurface resource user, as follows:
  • utilization of available fixed assets for deposit mining thereby cutting capital expenditures;
  • application of higher consumer prices to salable products of a mining enterprise, including cases when it is possible due to cooperation with an enterprise which manufactures more technologically sophisticated products;
  • use of tax privileges, subsidies, grants and other kinds of support to mining enterprises;
  • introduction of modern highly productive minerals mining and processing techniques, as well as of new fields of salable products utilization;
  • application of a higher or lower discount rate than the discount rate of the National Bank of Ukraine.
        Technical-economic calculations shall be fulfilled relative to ultimate marketable products of a mining enterprise, which meet requirements of the appropriate standards or technical specifications and are sold by a subsurface resource user.
For substantiation of optimal options of conditions for mineral reserves calculation and an option of commercial development of a deposit (geological object) under evaluation, the following indices shall be employed:
  • balance mineral reserves;
  • annual capacity of an enterprise;
  • unit prices of marketable products;
  • incomings from marketable products sale;
  • operating costs (including depreciation deductions);
  • profit from production (operational) activity of an enterprise;
  • capital investment;
  • net cash flow;
  • discount rate;
  • net discounted cash flow;
  • profitability index;
  • internal rate of return;
  • payback period;
  • profitability of a mining enterprise production activity;
  • income of a subsurface resources owner.
        In the course of determining optimal options of conditions for mineral reserves calculation and, correspondingly, an option of commercial development of a geological object under evaluation, preference shall be given to the option, which secures maximum cumulative net cash flow and income of the state as owner of subsurface resources in case of positive value of net discounted cash flow.

        *“Regulation on Procedure of Development and Substantiation of Mineral Feedstock Conditions for Calculation of Solid Mineral Reserves in Subsurface”.


 
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