BHP Billiton: The DICE Simulation Model Unlocks Significant Value for the Jansen Potash Project

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BHP Billiton plans to enter the bulk fertilizers market by developing its first potash operation, the Jansen Potash Mine, located in Saskatchewan, Canada. Jansen could be the world’s newest and one of the largest conventional potash operations after multiple stages of development. An investment like Jansen typically takes years to conceive, design, approve, and construct. During the design phase, BHP Billiton has made many significant value optimization decisions that impacted Jansen’s production and logistics operations. BHP Billiton engaged Amec Foster Wheeler to develop a model of the Jansen production and logistics chain to aid in understanding the drivers of production capacity to make informed design decisions.

The Detailed Integrated Capacity Estimate (DICE) model is a comprehensive discrete event simulation (DES) of the Jansen operation. DICE is broad, integrated, and complex, involving upstream production (mining, hoisting, and ore processing) and downstream outbound logistics (rail, port, and customer delivery). Capturing the entire production and logistics chain was a critical attribute of DICE. It employs multiple operations research techniques to provide an unprecedented combination of complexity, granularity, and scalability. Models as integrated and complex, and used as early as the design phase, are rare in the mining industry. 

Using DICE, the team examined various ways of configuring the Jansen operation with respect to the value drivers of capital cost, operating cost, production capacity, and ultimately, net present value (NPV). With respect to capital, DICE informed ore storage capacities, product sizing infrastructure, critical equipment redundancies, and by-passes. For example, DICE confirmed the deferral from the current budget of about $300 million in capital to equip the second of two hoisting shafts. With respect to operational mode, DICE confirmed the reduction of planned maintenance frequencies and increase of the degree of mining automation. 

Jansen’s projected annual production in Stage 1 increased by 15-20 percent from the start of the pre-feasibility study for which they used a conventional valuation approach, to the end of pre-feasibility study for which they used the advanced approach of DICE. Two thirds of this gain was credited to DICE. This additional production would translate into significant additional annual revenue, adding more than $500 million to the NPV of Jansen Stage 1. 

DICE also uncovered more hoisting capacity from the two shafts presently under construction. This would bring forward production scheduled for later in the life of Jansen, increasing the NPV of Jansen’s future stages combined by 12-16 percent. DICE significantly improved the appeal of the Jansen investment, increasing the probability of positive NPV by 30 percent for Stage 1. In consideration of this amongst other factors, the BHP Billiton Board of Directors approved the progression of Jansen from pre-feasibility study to feasibility study. 

DICE now extends into the feasibility phase as a tool to support detailed design decisions, which could yield further gains in production capacity and project value in addition to the optimization achieved during the pre-feasibility study.