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Due diligence study on a complex mining operation in Southern Africa

SRK recently completed a comprehensive Due Diligence (DD) study on a complex mining operation in Southern Africa. The copper mining operation consists of a complex array of surface and underground ore production operations together with primary and secondary beneficiation facilities. SRK’s approach to DD studies is to involve professional staff in an integrated multi-discipline approach. The presence of water affects the geotechnical design, both surface and underground, and further complexity is added if several end products require different process routes and different markets. Smelting and refining add more environmental requirements. Particularly on the African continent, the continuous supply of electrical power and the need for emergency power are important for continuous operations.
SRK put together a multi-disciplined team of 18 engineers and scientists to complete the DD in time; the team would have few parallels in mining consultancies worldwide.

As part of the DD a multi-discipline risk assessment workshop was held, with client participation to identify key obstacles in reaching planned production commitments. The geologist and process engineer, the rock engineer and geohydrologist and the tailings and waste disposal engineer were amongst the diverse disciplines represented.

The workshop, a marathon session, covered the operations from exploration through mine design and development to production and transportation of the finished metal products. The client, taking on the residual risks, put together a program for mitigation to be managed on an ongoing basis to reduce the operation’s risks.

The size of the Environment and Social team (5) reflects the importance of compliance with the Equator Principles and Performance Standards. Once, converting Mineral Resources to Mineral Reserves was settled between the Geologist and the Mining Engineer but today, compliance with environmental and social requirements is paramount.

Logistics and communication proved to be a challenge. However, the technical team met each evening to discuss issues; this interaction proved invaluable in understanding the interdependencies involved.

Translating the technical issues into a financial model is key. The SRK team put together an interactive model that reflected two business cases – one including Inferred Resources and one excluding them. The model showed how changes at any stage of any of the interlinked processes affect net present value (NPV) and cost per unit of production.

Roger Dixon:

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