The optimization of coal mine production schedules using linear programming: An example that determines the effects of reclamation costs and interest rates

Abstract

Reclamation expenditure on coal mine properties is now a fundamental business expense for that industry. A mine owner or manager will attempt to keep this expense to a minimum subject to a given level of production. One of the most important variables that can be manipulated to help keep costs down is the production schedule. Production schedules can be shifted forward or backward depending on the current economic situation. A common method of determining optimal production schedules is to utilize a linear-programming model. These models simultaneously take into account all the variables associated with a project so that an optimal production schedule can be derived. This study involves work with a computerized linear-programming model to examine how optimal production schedules will change for a typical small coal mine due to reclamation requirements and a variable discount rate. The purpose of this paper is: (1) to demonstrate how linear programming can be used to incorporate nonlinear relationships in a profit maximization problem involving mining; (2) to show how, through the use of a heuristic model involving reclamation cost requirements, linear programming can contribute worthwhile information to the mine planner; and (3) to examine how interest rates can (a) be used to estimate future uncertainty, and (b) be used as a policy tool to promote conservation.