Is your operation struggling to fill its mill due to current commodity prices and the rising costs of processing medium- to low-grade material? Is there a small operation near your mine that could take advantage of increased processing capacity, but can’t afford to build its own mill? Then it might be worth taking a look at purchasing their operation. Let’s look at a hypothetical situation where this is the case.

Ralph’s Situation

Ralph is the senior mining engineer at a gold mining operation. Prices have fallen, processing costs are on the rise, and profits are no longer looking good when Ralph sends medium grade material to mill. They struggle to fill the mill on a monthly basis and it may end up only half full soon unless something changes. Ralph’s boss had a meeting with him today and told Ralph that he needed to figure out a way to fill the mill. He said, “It costs too much to have that mill operating at 65% capacity; we have to do something.”

Bob’s Situation

Bob works at a small operation with only a leach pad. The mine is doing fine, but they end up putting high grade material on the leach pad because the operation isn’t large enough to support a small mill and they have no plans building one. Bob watched a decent amount of high grade go on to the leach pad and he thinks about how much more gold could be recovered if they owned a mill. What makes it worse is that they will be hitting another large pocket of high grade in the near future and purchasing a new mill facility is out of the question at the moment.

Two Engineers Walk Into a Bar…

Ralph and Bob are old high school buddies. One Friday night, they catch up at the bar and order a couple of beers to finish their week. After a couple more beers (each…) they talk about the problems they are facing at their respective jobs. Then they look at each other, and the wheels start turning… They grab a couple napkins and start looking into what it would take to get Bob’s ore to Ralph’s mill, and if there is any extra profit to be found.

The Plan

The mines are 75 miles apart and although it would be possible to truck the material that far, it would be very expensive on a tonnage basis and require increased hauling capacity. They start discussing how they could make the transportation costs lower. They realize they can look into building a gravity separation circuit and shipping the concentrate. This option would require greater initial capital expenditure, but would cut the transportation costs substantially. They realize that if the leach-only mine sends all of its medium grade or better material through the gravity separation circuit, enough concentrate will be created to fill 25 to 35% of the larger mine’s mill capacity. What’s more, if the gravity separation rejects are of a similar grade to the low grade material that goes on to Bob’s leach pad, they can send the rejects to the leach pad and recover more gold there as well. Bingo! The extra recovery more than pays for the extra processing and transportation costs and would pay off the capital expense in under a year.

The Following Week…

Ralph and Bob tell their managers about their idea. The lawyers draw up terms and figure out the profit sharing for the transported material. Ralph and Bob get raises and go back to the bar to celebrate.

Summary

Now the above may seem ridiculous, but there are opportunities out there for mines to collaborate and share infrastructure for the betterment of both mines. These mines could be owned by the same company, or by competitors. In the example above we looked at the benefits of sharing ore between the two operations, but if two operations are owned by the same company there may be other opportunities for cost savings. Do the two operations need two HR departments and two accounting departments or could they make do with one larger one of each? Between personnel, equipment, facilities, and the sharing of material; two mines can generally operate more efficiently and make a larger profit if they work together than if they work independently. Situations similar to that of Bob’s and Ralph’s mines do exist and if Ralph had figured out the possible solution to his problem on his own it would have been worthwhile for the company to look into the purchase of the neighbouring mine in its entirety.