Financial Modelling of Stockpiles in a Mining Project

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For many mining projects, the open pit/cut mining process often begins months or even years before the milling plant starts operating. The build-up of stockpile requires careful treatment to ensure the right grade of the ore milled is modelled and that the right value of this stockpile is reported on the balance sheets.

In this tutorial we will cover an approach to modelling stockpiles in mining projects. We will walk through:

• How to calculate contained gold from the mining schedule
• Creating the ore stockpile account with financial modelling techniques
• Calculating the milled ore from the ore mined
• Modelling the contained gold stockpile account

There are some things we suggest you put in your model from the outset to make the calculations transparent and easy to follow. Financial modelling of stockpiles is a common challenge in any mining project, and this tutorial is inspired by the contents of our training course in financial modelling for mining projects.

Mining schedule in inputs sheet – foundation for stockpile calculations

The mining schedule is a summary of the physical aspects of the mining process and is usually provided by the engineers. At its most basic level it should contain (screenshot 1) ore mined (tonne) and the corresponding ore grade (grams/tonne) for each type of ore.

You would also find either strip ratio or the waste mined (tonnes) in here as well. Waste mined is outside the scope of this tutorial, but you should know that it is a big driver for mining costs such as haulage and drill & blast.

Mining project calculations in the model

Calculating contained gold – additions to the mining stockpile

As a prerequisite, set up the period start dates, end dates and the binary flags signifying the development and milling phases at the top of the worksheet.

We will use the LOOKUP function to bring in ore mined and ore grade from the inputs sheet and the contained gold is the ore mined multiplied by the ore grade.

• Ore mined (H9) = LOOKUP(N$4,Inputs!$E$22:$AB$22,Inputs!$E23:$AB23)*SUM(N$5:N$6)/Thousand
• Grade (H10) = LOOKUP(N$4,Inputs!$E$22:$AB$22,Inputs!$E24:$AB24)*SUM(N$5:N$6)
• Contained gold (H11) = Ore mined (H9) x Grade (H10)

There will be two types of accounts tracking the stockpile movements, ore mined and contained gold.

Being an account it has an opening and a closing balance.

• Balance B/f (H24) = Balance C/f of previous period (G27)
• Balance C/f (H27) = Balance B/f (H24) + mined (H25) – milled (H26)
• Ore mined (H25) is calculated in the mining section (screenshot 2, H9)
• Ore milled (H26) is calculated in the milling section which will be discussed in the following section (screenshot 4, N82)

Milling calculations in the financial model – deductions from the mining stockpile

You now need to calculate the ore milled (see screenshot 4) to complete the ore stockpile account. Three factors determine the amount of ore going through the milling plant.

1. Plant capacity assumed at 70 kt per quarter
2. An assumed ramp up profile (row 42) in milling years
3. Amount of available ore in the stockpile (row 45)

The amount of milled high grade ore is the lesser of the available ore (row 45) vs. the applicable plant capacity (row 43). This is because if you have a higher plant capacity than available ore, you can only mill the available ore. Likewise, if you have more available ore than plant capacity, you can only mill up to the plant capacity.

Any excess capacity we can use to further process additional lower grade ores.

• Capacity (H43) = Full capacity (C43) x ramp up (H42)
• Available Ore (H45) = Ore stockpile opening balance (H24) + ore mined (H25)
• Throughput (H46) = minimum of available ore (H43) and capacity (H45)
• Remaining capacity (H48)= capacity (H43) – throughput (H46)

Model the ‘contained gold’- account in the mining stockpile

The final step is to complete the stockpile account for contained gold.

Similar to the ore stockpile account in screenshot 4, there is an opening balance and a closing balance for this account. Adding to the stockpile is the contained gold from the ore mined.

Depleting the account is the contained gold of the ore milled.

• Balance B/f (H30) = Balance C/f of previous period (G33)
• Balance C/f (I33) = Balance B/f (I30) + mined (I31) – milled (I32)
• Contained gold mined (H31) is calculated in the mining section (screenshot 2, H11)
• Contained gold milled (H32) = average grade (H26) x ore milled (H35)

Contained gold milled is based on the amount of ore milled calculated in the previous section. What we need is to figure out the average grade of ore milled to work out the contained gold.

The average grade of the stockpile is a good proxy of the grade if we are to mill the ore from the stockpile irrespective of the different parcels of ore grades that were added to the stockpile over different points in time in the past. It is calculated in row 35.

• Average grade (H35) = available contained gold (H30 + H31) / available ore mined (H24 + H25)

The stockpile calculations are a critical component of a mining financial model

Modelling stockpiles is a crucial component of a financial model in a mining project, because most likely mining companies are not able to mill all the ore that they mine. Further, this stockpile of contained metal has a monetary value which needs to be reflected on the balance sheet.

In our course; Financial Modelling for Mining Projects,  we do a live demonstration of the calculations discussed in this tutorial, as well as a best practice approach teaching you how to build features of a financial model that are specific to mining projects in a transparent and flexible way.

Corality Academy: Corality Financial Modelling Campus

There are numerous other tutorials and free resources related to financial modelling in the Corality Financial Modelling Campus.

Some of the more popular courses that relate to this topic include:

• Financial Modelling for Mining Projects
• Project Finance Theory: Concepts & Applications