Recognition of Lost Production at a Gold Mine

With any loss measurement, we must understand how the incident impacted operations.  In mining losses, this is no different, we need to understand both mining and milling operations.

So, when there is an incident at a mine, how does this impact production and where do we measure lost production?  Do we measure the loss based on when the ore is inputted to the mill, when gold is produced and ready for pouring, when gold is poured in dore form or when gold is shipped?

The most accurate way to measure lost production is to consider what ore would have been inputted into the mill and the corresponding ounces that would have been produced had the incident not occurred.

Detailed discussions with the mine and mill operators along with a detailed analysis of mining and milling plans/forecasts, are a key component which enables the preparation of a forecasted production model based on the ore available.  The forecasted production model would consider any potential adjustments to the mine plan, ore stockpiles available, and the tonnage milled with the corresponding grades and yields.

When comparing the forecasted to actual results, it is important to have a detailed understanding of actual results as the insured may have changed their mine plan post-incident and, if so, how did the change impact the results.

Once a comprehensive understanding of the forecasted and actual results is achieved, we are able to determine a production shortfall.

Determining lost gold production based on the ore inputs into the mill ensures an accurate measurement of the time period when operations are impacted including any applicable waiting period, deductible, or daily value.  We need to keep in mind that gold is a commodity product and can be sold immediately when it is produced, however, subject to delivery time periods.

There are factors that can result in an inaccurate loss measurement when determining lost production based on when gold is poured into dore form.  For instance, gold is normally held in circuit for a period of time, usually a few days to a week; it is not poured every day.   In a gross earnings policy wording, the indemnity period would end when repairs are completed subject to any period of time upon resumption of operations. Therefore, a measurement based on pouring can be challenging if there is a delay or modification to the pouring cycle.  If a change to the pouring schedule overlaps the end of the indemnity period, it can result in either an overstatement or an understatement of the production shortfall.

If the loss was measured based solely on the sales or shipment of gold, there could be non-loss-related delays in loading and shipping lanes which would lead to an inaccurate measurement.  This measurement methodology also runs the risk of not considering the impacts of changes in mine plans, throughput rates (tonnage milled), yields and grades.  All of the above would impact the loss measurement including any potential waiting period, which would result in an inaccurate loss measurement.

As with any loss measurement, it is imperative that one understands operations and how they were impacted due to the incident.   In determining lost production at a gold mine, the loss measurement should typically be based on what ore was to be inputted into the mill and the corresponding gold production, as this accounts for the various factors that would impact gold production.

The statements or comments contained within this article are based on the author’s own knowledge and experience and do not necessarily represent those of the firm, other partners, our clients, or other business partners.