Exploring strategy optimization in mining
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Exploring optimization

27 May 2021 (Last Updated June 17th, 2021 12:03)

Sponsored by AMC Sponsored by Visit Company

Optimization has become a buzz word in the mining industry, but it is often misunderstood. When incorporated intelligently into business strategy, optimization can unlock huge latent value. We speak to experts from AMC Consultants (AMC) about what optimization means and how it can be applied in practice.

The idea of optimization has become a popular one in the mining industry in recent years, but its definition is often misunderstood or confused. AMC Director and Advisory Lead Strategy Optimization, Daniel Kahler emphasises the importance of taking a big-picture approach to optimization.

“The optimization we’re talking about here is holistic and covers the entirety of the system,” he explains. “That means everything from the accounting and costs and capital right through to geology.” Kahler adds that this also helps move away from the pervasive industry tendency towards technical siloing.

Knowing what to optimize

Kahler and AMC principal mining engineer Brian Hall further disambiguate the term in their paper Business Optimization Using Flexible Models, distinguishing component optimization, which deals separately with individual areas of an operation, from comprehensive business or strategy optimization, which concerns all the components and the relations between them.

In this way, strategy optimization does not seek out a single answer in a single scenario but rather aims to understand what drives the business and where value is affected. One of the defining features of AMC’s approach is the breaking down of silos to consider the integrated system.

The key target of strategy optimization is the enormous amount of latent value that is left behind on many projects. Using its process for strategy optimization (the Hill of Value or HoV process), AMC has identified value-add to its client’s assets of $1m per day, every day AMC has been involved.

And this is repeatable across many projects and over time – $1m is the average for the last six years. It’s a significant return on investment in consulting fees. And with this kind of potential available, the incentive for businesses is clear. But the process requires an understanding of how a range of diverse and interacting factors impact business value. These factors include uncertainty or risk, which Kahler says is essential to optimization.

Taking the long-term view

The perspective taken should also be long-term. Hall points out that on-site goals and key performance indicators (KPIs) are often short-sighted, adding that such misjudged targets can have a counterproductive effect.

“People do things that are demonstrably moving away from the optimum for value optimization because they’re being measured against a sub-optimal targets like reducing costs or maximizing the reported reserve,” he explains.

Identifying and operating within the framework of a comprehensive optimal strategy can have substantial benefits over an operation driven by short-term goals and tactics. “But,” Kahler says, “AMC’s Hill of Value process for strategy optimization can help clients clearly identify the value lost in pursuing those flawed KPIs. Further, through the HoV process they have a powerful decision-making tool – AMC can provide our clients with the information to make better informed decisions, including KPI’s that are better aligned with the corporate strategy.”

Think about all stakeholders

Another central characteristic of the scope of an optimal solution is that it considers the interests of all the stakeholders involved. As an example, Hall describes a project involving a large open pit in a developing country, which concerned three companies in a joint venture, each with different goals, and three levels of government, each receiving benefits in various ways, and transferring these amongst themselves by various formulas.

Overall, the project also impacted half a dozen different categories of landholder. The project demonstrated that there was little need to trade off stakeholders’ goals against each other but rather that an optimal strategy which took account of all of their priorities created a bigger “pie” for everyone.

One of the distinguishing things about AMC’s approach, according to Hall, is “intentionally looking at multiple goals for multiple stakeholders and trying to identify a good solution for everybody”. This will not always be a single solution but often “a range of options”.

AMC’s Hill of Value

AMC’s approach to optimization is based on its Hill of Value, a visualisation of an operation designed as a “robust way to uncover and assess all available opportunities”.

This methodology is based on unique IP and can accommodate more different inputs and scenarios than other approaches, offering the most comprehensive process for reducing risk and extracting value.

Other approaches claim to have identified the optimum strategy for a set of base assumptions but tend to consider only the theoretical “top of the hill”. This perspective produces “a precise solution to a problem that doesn’t exist,” according to Kahler, since it abstracts away from the unique complexities faced by each site and often overly simplifies a site’s unique challenges to fit into off-the-shelf software. As Kahler summarises, “the shape of the hill is more important than the top of the hill”.

A major challenge for this kind of systemic optimization is the industry’s perception of it. Kahler emphasises that “the ideal time to do one of these [studies] is at the pre-feasibility study stage”.

However, according to Andrew Hall, companies are often tempted to get the project up and running first and worry about optimization later. This means that a significant portion of value is already “locked out”, and too many processes have been put in place for it to be unlocked without a great deal of difficulty and potential public fallout.

Putting optimization first

It is far more value additive to establish the optimal strategy in advance. AMC sees the greatest opportunities as recognizing the value of optimization early in the project life cycle and understanding the shape of the hill and not just the summit.

Optimization cannot be properly understood or practically implemented without being approached from a specialist perspective. Another misconception in the industry is that optimization can be addressed mathematically, or that the right software or application can do the job. “This is a deep domain knowledge problem,” says Kahler, “not only a maths problem.”

An overly mathematical approach to optimization reduces relationships to mathematical equations and struggles to account for complex deposits and systems, risk and uncertainty. “You can do all the data science,” AMC’s principal geologist Ian Lipton summarises, “but unless you have the domain expertise to actually make sense of it in a practical mining sense, you’re not going to get very much out of it.”

This also involves shifting the focus away from the software tools. Unlike many of its competitors, AMC is not beholden to any particular software. “We’ve got to stop focusing on the tools,” says Kahler, “because the tools are there to help us generate a solution. It’s in the hands of the expert builder that tools make a difference.”

The value of expertise

He traces the problem back to a far wider devaluation of expertise on a cultural level, due to the broad accessibility of information. For him, it’s important to understand that the systems used for optimization “are expert systems, they’re not software”.

As well as being practical, some of the tools AMC uses are fully flexible. Unlike mathematical programming strategy optimization software, it is able to be built to honour the particular challenges of an individual site, regardless of its mathematical formulation.

While there remains a danger that the industry buzz surrounding the concept of optimization may attract the attentions of less expert general consultants and software houses, Kahler remains confident that AMC, with its deep domain expertise, is playing its part in educating the industry on the genuine importance of a proper strategy optimization programme, which brings with it the promise of increasing returns to all industry stakeholders.

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