Underground Development Rates, What’s reasonable?

Imagine you’ve got a gold deposit that’s 500 meters underground. It’s marginal, 5 g/t, 90% recovery, and a fairly expensive mining method. US$400M in capex is alot and your IRR is probably getting stretched. You’re building a 12% ramp so we’re looking at ~4.2km of decline length. 

You’ve already pushed the limit on every other variable, so what can you do to juice up that IRR. Well, what about the underground development rate. Get to the ore 6 months earlier, increase the IRR by 5%. This could be the difference between a stalled project or one that receives financing. 

I can see the motivation to push the limit with this variable. And you can certainly justify a rate that the average investor won’t be able to question because they won’t know any better. Heck, unless you’ve been on the ground at an UG mine most, people in the industry won’t understand what a reasonable underground development rate looks like.

I found a paper called “Selecting an Appropriate Decline Development Advance Rate” by S.M. Rupprecht that summarizes some information on development rates in South Africa.

Repprecht started off talking about the impacts of accelerating cash flow and the NPV benefits. Ok, nothing unexpected there. 

The most useful/interesting component of the article was the development rate/month for South African operations. It’s unclear if these are FS parameters or actuals. In any case, I think this is a pretty useful chart that presents the ranging assumptions that companies could feasibly use. 

High Level:

  • Standard Dev – 70/80 meters per month, anything more should make you ask questions.