Integrated system dynamics modeling and optimization for artisanal and small-scale gold supply chains

Abstract

We address artisanal and small-scale gold mining in Peru. Using the data collected through field visits, we develop a System Dynamics (SD) model to examine the current operations of the gold supply chain, and its interplay with mercury and gas suppliers. The current mining operations cause potential health and environmental issues, due to high mercury usage, and other issues (e.g., safety issues). As a potential solution to overcome such problems, we consider incorporating a cyanide processing facility into the SD model, where we examine the amount of ore that a miner would be willing to sell to the facility under several payback scenarios. We formulate a mixed-integer programming model that prescribes the optimal transition plan of a miner from local production to selling their ore to the facility within a time horizon that maximizes a miner’s profit. The optimal solution provides a 22% improvement in the miners’ profit over that of their current operations. We also conduct a sensitivity analysis to test the sensitivity of the optimal solution to the changes in several input parameters. We discuss that the solution is most sensitive to the gold price changes and the least sensitive to the local production cost changes.