The Kencana underground gold mine comprises two world-class epithermal vein deposits located in the North Maluku province of Indonesia on Halmahera Island._x000D_
The K1 deposit has a recent extensive mining history, whilst development of the K2 deposit is in progress. Kencana epithermal vein zones have a relatively simple planar geometry dipping 25 to 45 towards the East and extend 400 to 600 m along strike and down dip. True width ranges from 1 m to 20 m. Economic gold grades are generally associated with two distinct mineralisation styles: Main Zone - continuous material characterised by classic epithermal vein textures including crustiform/colloform chalky white quartz- adularia sulfide banded and brecciated veining typically grading 10 to 40 g/t Au. Bonanza Zone - semi-continuous identifiable zones within the Main Zone. Characterised by brecciated quartz-adularia sulfide banded vein ginguro' material typically grading 80 to 200 g/t Au. Associated with this Bonanza' zone are gold grades averaging around ten times higher than the surrounding Main Zone._x000D_
At the resource evaluation stage, these deposits are typically drilled on approximately 25 m by 25 m spacing. This drilling density is usually adequate to allow robust estimation of global resources, including the lateral definition of Bonanza' style mineralisation. It appears intuitive at the resource definition stage to separately model the Bonanza Zone' using deterministic methods such as manual interpretation and wireframing. Inevitably, however, such deterministic methods result in a simplified version of reality. Whilst the geologist's interpretation of the overall vein volume and lateral extent of Bonanza' mineralisation has proven to be remarkably accurate, close-spaced sampling and mapping of the K1 orebody has shown that this style of mineralisation exhibits extreme short-scale geometric and spatial variability. A consequence of this short-scale geometric and grade variability is the significant uncertainty with reporting these Resources and Reserves at relatively small reporting time periods such as monthly production periods._x000D_
The mining method employed at Kencana often involves extracting the full width of the mineralised vein with multiple mining passes over several months._x000D_
In the past it has proven difficult to achieve accurate production budgets and forecasts at Kencana as any given mining schedule based on the resource model is acutely sensitive to the quantity and location of Bonanza' material. Moreover, the degree of uncertainty or risk associated with a mining schedule significantly increases as the reporting time period becomes smaller._x000D_
A further deficiency of deterministic methods for geometric modelling is the inherent lack of ability to derive confidence intervals for quantifying uncertainty and risk. The use of conditional simulation techniques can help overcome this deficiency._x000D_
Geostatistical conditional simulation techniques have been applied at Kencana in an attempt to model and quantify geological and grade variability in the upcoming K2 orebody based on the experience to date with mining the K1 orebody._x000D_
At Kencana, conditional simulation has provided a successful means to quantify uncertainties and risks associated with various data densities and reporting time periods. The results of this project have provided managers and planners with a clearer understanding of the likely variances and risks associated with predicting gold metal production at key reporting time periods based on data at the resource model level of resolution._x000D_
With corporate requirements to adhere to mining budgets/quarterly schedules, this type of analysis allows a more scientific approach to estimating grade uncertainty in the mining schedule. Until now this has been difficult to quantify due to the extreme gold metal variability. The availability of this type of analysis allows a time-efficient rationalisation on redesigns of the mining shapes and effective communication of the likely uncertainties involved._x000D_
FORMAL CITATION:Coupland, T, Sims, D, Singh, V, Benton, R, Wardiman, D and Carr, T, 2009. Understanding geological variability and quantifying resource risk at the Kencana Underground Gold Mine, Indonesia, in Proceedings Seventh International Mining Geology Conference 2009, pp 169-186 (The Australasian Institute of Mining and Metallurgy: Melbourne).