Question 2 of 29: Mine/No-Mine and Open Pit vs. Underground Decision Process

Question 1.2: Mine/No-Mine and Open Pit vs. Underground Decision Process (6 marks)

Question text not reproduced: the examination questions are © Engineers and Geoscientists BC. Open the official past paper (linked at the top of this page) to read the question, then follow the worked solution below.

The decision is made in staged studies of increasing precision – conceptual/scoping study, preliminary economic assessment (PEA), pre-feasibility study (PFS) and finally a bankable feasibility study (FS) – each stage spending more money to narrow the cost/grade/geometry uncertainty before the next capital commitment. At every stage the test is the same: does the project generate a positive NPV, an IRR above the corporate hurdle rate, and an acceptable payback, using a resource that is classified (measured/indicated/inferred under NI 43-101) to a standard appropriate for that stage of spend.

Whether the deposit is mined at all turns on whether ANY extraction method can deliver ore at a cost below its NSR at the assumed price deck, after covering capital recovery, operating cost, taxes/royalties and closure liability – essentially, whether the deposit clears its break-even cut-off grade at a scale large enough to justify the fixed capital.

Given that a deposit is economic, open pit vs. underground is chosen primarily by geometry and depth. Open pit is preferred when the deposit is near-surface, large and either tabular/blanket-shaped or bulk-disseminated (e.g. a porphyry), because pit mining achieves low unit cost through high-volume, low-selectivity extraction with mechanized shovel/truck fleets, at the price of removing overburden and waste rock at the pit's economic stripping ratio. The break-even stripping ratio (tonnes of waste that can be justified per tonne of ore, given ore value net of mining/milling cost vs. incremental waste-mining cost) sets the pit's ultimate economic limit, generated numerically via Lerchs–Grossmann or a Whittle-style incremental pit-limit optimizer run across a range of revenue factors. Underground mining is preferred once the deposit becomes too deep, too steeply dipping, too narrow, or too discontinuous for pit slopes to remain economic – the crossover depth depends on strip ratio economics, pit slope angle (itself set by rock-mass geotechnical strength), and the deposit's own grade/geometry, but commonly falls in the 200–500 m range for a moderate-grade deposit. Underground method selection then follows from ore-body geometry, dip, ground competency and grade continuity (e.g. block/panel caving for large low-grade bulk deposits, cut-and-fill or long-hole open stoping for narrower higher-grade veins).

Overlaying the purely technical/economic analysis, permitting timelines, social licence and Indigenous consultation, financing availability, and market/price-cycle timing all influence the final go/no-go and method decision – a technically superior but unpermittable or unfinanceable project will not proceed regardless of its NPV.