Economic valuation of coal deposits – The value of geological information in the resource recognition process

Abstract

Resource and economic assessment under uncertainty and risk is quite a difficult process. Many geological, mining, technical and economic aspects should be taken in to consideration simultaneously. The assessment process is also subject to errors, including measurement and interpretation errors and errors resulting from lack of knowledge or over-optimism. Uncertainty about the true value of the geological parameters is reduced as the recognition process and the knowledge about deposits improve. Especially at the first stages of mine development, the information available is insufficient and can lead to incorrect interpretation.In this paper, the impact of geological information on key economic parameters was examined, using the example of a hard coal deposit in mine X in Poland. A scenario analysis was performed, based on a Monte Carlo simulation. The simulation was conducted using ogive distributions and copulas (empirical copulas) binding six geological parameters (coal and waste rock thickness, coal density, coal calorific value (LHV) and sulfur and ash content). To achieve the research purposes, the most popular economic measures (indicators), i.e., IRR, NPV and EBITDA, were used. Finally, differential distributions of these parameters were built and commented upon.The three analyzed scenarios were elaborated considering the data from the geological 3D model of coal deposit X. A polygon (testing) area was defined in the coal field, where complete geological information was available. The first data set (scenario 1) incorporated only information from deep surface boreholes (drillings), the second included data from surface drillings and channel samples and the third used only channel sampling. To interpolate the geological data between boreholes, the inverse distance interpolator was applied.Significant differences in the values of selected economic parameters were obtained; the largest in scenario 1. The average value of the IRR difference distribution (overestimation) was 6.4%; for NPV it was up to 213.7 million PLN and for EBITDA up to 678.6 million PLN in comparison to the reference scenario, or possibly even more. The results achieved are influenced by optimistic estimates of the thickness of coal partings, the amount of coal impurities and finally, lower costs of waste rock handling and coal production, despite the unfavorable values of the coal-quality parameters. The total cost of waste rock management underground and coal processing should be of special interest in the assessment process. These observations led to the general conclusion that interpretation of the geological information at the early stages of the exploration based only on surface boreholes, can lead to overestimating the potential value of the coal reserves and hence to significant errors.It is worth mentioning that the aspects of geological appraisals presented above are commented upon in the professional literature, but elaborations regarding the influence of geological information in the resource economic evaluation are very limited. To strengthen the results achieved, there is a need to continue the research and verify the results obtained on other examples of coal mines.