Geostatistical Determination of Production Uncertainty: Application to Pogo Gold Project

Geological uncertainty is an unavoidable characteristic of all mining projects since only limited information is available from sampling. Mine planning and development decisions with significant economic consequences are made when the geological heterogeneity is inherently uncertain. Geostatistical simulation is preferred over kriging because the methodology provides alternative property realizations that can be combined into a model of geological uncertainty. Geological uncertainty can be transferred into production uncertainty, which can help characterize the economic risk of the project. This paper presents a case study for the Pogo property, being prepared for development near Fairbanks, Alaska. The exact dimensions, grades and production predictions have been modified; however, the methodology is illustrative. The geostatistical methodology consists of (1) assembling the relevant drillhole data and establishing a suitable coordinate system, (2) calculating the target distribution, (3) creating a model of spatial correlation, (4) generating multiple realizations at a small scale and (5) linearly averaging all the realizations to the chosen selective mining unit (SMU) support size. The geostatistical model is then used to calculate production uncertainty.