Title: Open Pit Optimization using Software for Design and Cutoff Grades

Author: Juan Pablo Moriamez, MSc

Company: LQS Latin America
Position: Technical Manager
Address: Avenida Luis Thayer Ojeda 0130, Oficina 304, Providencia,
City: Santiago
Country: Chile
Postal Code: 751-0008
Phone: 56-2 657 3898
Fax: 56-2 657 3897
Mobil: 56 099012 9933
Email: jpmoriamez@lqsla.com

SUMMARY

The purpose of this report is optimization by looking the best net Present value for a given open pit
mine project. This is relevant to the mining business, especially in the mining sequence with cutoff
grade policy. To do that, it is used a software to calculate phases and mining sequence and another
for cutoff grade policy

Using an iterative process between these software’s it is found an optimizing solution for the
scheduling including the cutoff sequence for the life of the mine and also how to find the best
ultimate pit.

To support this report, it is used a 3D block model from a given mine. The best NPV of the project
is reached after the use of a Cutoff Grade Optimizer.

There is a contradiction between Lerchs and Grossman and NPV. Meanwhile the metal price is
higher the Lerchs and Gorssman pit is growing because of the low grades are considered as ore and
the pit is considered to be extracted instantly. The Lane criteria used in a Cutoff Grade Optimizer is
the tool that effectively increases the NPV extracting high grades first years.

The price of copper is very important to define the ultimate pit limit. The ultimate pit just gives a
limit for the search of the best mining sequence. The most important conditions to increase the NPV
are the consideration of a Mine Plan with declining cutoff grade policy.
1. INTRODUCTION

Each Mine has to be developed in the best way. This means take into account technical and
economics parameters. A mine involves millions of dollars for a company and a critical questions
need to be made: What, How, when and where to extract the material. So there is not a correct
answer. Every engineer thinks his mine plan is the best can obtain. Actual software reduces
information from original blocks model because the computer technology is not capable to solve the
full problem with millions of blocks.

The best we can do now is to use several tools to maximize our profits.

Every mine needs to be scheduled in order to determine the extraction sequence for ore and waste
and the material quality is one of the main considerations today

Considering this reason and the importance to maximize the extraction of ore considering the
quality of the ore, calculations are made using in a three-dimensional mine block model. The 3D-
block Model is created with geologic information obtained from drill holes performed in the
exploration step. Once a 3D block model is obtained, it is necessary to design the pit limits for this
block model and after that the schedule for a open pit mine, additionally to this step it is very useful
to incorporate a cutoff optimization.

1.1 Objective of the Research

There are thousands ways to extract the ore from a deposit but to find the best way is the focus on
this research. This research looks to maximize the net present value of a strategic Mine Plan. A
secondary objective is to find the ultimate pit that matches with the maximization of the NPV for a
given project.

2. METODOLOGY
2.1 STRATEGIC MINE PLANNING

To develop an open pit mine, it is necessary to use a strategic planning. In figure 1, it is proposed an
approach to maximize the net present value of a project. This figure will be used to explain in detail
all the steps.
 Scheduler
Cutoff Grade
Optimizer

Figure 1. Relation between a Scheduler and Cutoff grade Optimizer

A geologic block model contains information about dimension of the blocks, grades, topography,
slope angles, etc.

Using the information of a block model it is calculated a new variable called “value”. This variable
represents the economic evaluation to mine each block contained in the 3d block model. Value is
calculated in the following way:

Block Value = Bv = [(price – sale cost) gb ⋅ Recovery – Process cost – Mine cost] ⋅ tons

Block grade = gb
Block cutoff grade = gc
Breakeven cutoff grade = gbr

Always gbr ≤ gc

If gb < gbr then

Bv = -Mine cost* tons

If gbr < gb < gc then

Block value depends of the future value of gc in time. First years are governed by high cutoff
grades, blocks goes to stockpile until the cutoff grade decrease in time until gc < gb. Finally, blocks
are considered waste the first time (Bv = -Mine cost) then it will be considered as ore:

Bv = [(price – sale cost) gb ⋅ Recovery – Process cost – Mine cost] ⋅ tons

If gc < gb then, block is considered ore:

Bv = [(price – sale cost) gb ⋅ Recovery – Process cost – Mine cost] ⋅ tons

With these considerations an engineer can optimize a mine plan using a cutoff policy to decide the
destination of a given block to a waste dump, stockpile or mill.

With the economic value of blocks saved in “Bv”, it is created the ultimate pit limit with Lerchs and
Grossmann (LG) algorithm. LG algorithm guaranties the best possible solution to get the mineable
reserves from ore deposit. The use of nested pits by the increase of price gives great flexibility to
develop the mine. The engineer has to consider that small pits include high grades and big pits have
low grades.

Once the nested pits are defined with LG algorithm, it is necessary to calculate the reserves by pit.
See figure 2.

Pit 1 reserves

Pit 2 reserves

Figure 2. Reserves by pit

Pit reserves are required to do a long and short term Schedule. A Scheduler will decide What, How,
when and where are mined the reserves contained in each pit or pushback.

Starting with a decreasing cutoff grade in time will give the advantage of the time value of money.
First years in a project produce more impact in the cash flow than last years. Small pits are mined
first because they include the richest ore zone with high grades. The scheduler simulates the
extraction conditions of the mine, so, more precise data will lead to a better simulation of the open
pit material extraction. Sometimes a scheduler does not find a feasible solutions because constrains
are very complicates to accomplish, in this case it is necessary relax constrains such as waste
tonnage, stockpile or waste dump capacity etc. In conclusion, a scheduler offers a solution for a
long and short term scheduling considering: Trucks, Shovels, Destinations and Economics.

After Scheduler is used, a Cutoff Grade Optimizer (CGO) must be used to improve cutoff grades
and project NPV. Figure 3 illustrates this procedure. A CGO can be defined as cutoff grade
optimizator with stockpiles to Maximize the project NPV. This iterative process between Scheduler
and CGO to increase the cutoffs can take up to 10 iterations in same cases depending of the number
of pushbacks and the size of the ore deposit. CGO will help to find the optimal cutoff policy for any
mine considering the economics scenery, mining and processing constrains to perform the
optimization. Figure 4 shows the interaction.
 CGO

Figure 3. Circular Analysis between CGO and a Scheduler

CGO

Figure 4. CGO Interaction

The iteration finish when the cutoffs do not add more value and a feasible solution is found for the
selected cutoffs.

2.2 Open Pit Mine Case Study

Copper Mine Example. The mineral is sulfide and the main product is copper and molybdenum
concentrate. Figure 5 shows the tonnage grade distribution for Copper using the Geologic reserves.

Figure 5. Tonnage Grade Curve

Block model size is shown in table 1, also description of the 3d block model in figure 6.

Block Dimension
Block # size
East 116 15
North 210 15
Elevation 69 16
Table 1. Geologic Block Model limits

Figure 6. Geologic three-dimensional block model

2.2.1 Strategic Open Pit Optimization

Nested pits are created with increasing Cupper price from 60 cUS$/lb to 120 cUS$/lb, with an
increment of 2 cUS$/lb. The thirty nested pits are created with Lerchs and Grossmann algorithm
and slopes angles in table 2.
Azimuth Slope angle
0° - 10° 53°
10° - 135° 55°
135° - 210° 47°
210° - 300° 58°
300° - 360° 53°

Table 2. Slopes angles

The minimum distance between pushbacks is calculated considering:

• 30 m ramp size
• Working bench width
• At least 2 times a ramp goes in a section
The total distance between to select pushbacks is 120 m. (This research does not include ramp
design but it is considered to select pushbacks). See figure 7.

Figure 7. Working bench width

Selected pits considering 120 m minimum distance are shown in next table 3.

Pits selected for scheduling

pit Price cUS$/lb
1 60
2 66
3 74
4 82
5 94
6 102
7 110
8 120
Table 3. Selected pits

To illustrate all steps incurred in the iterative process see figure 8 for a descriptive process:
 Ec. Block Value Calculation

PIT DESIGN
Lerchs & Grossman
Nested pits

ITERATIVE PROCESS Reserves by Pushbacks

Scheduler

Cutoff Grade Optimizer

Figure 8. Layout of the iteration

2.2.2 Iterative Process between Scheduler and Cutoff Grade Optimizer

For the initial seed in the iterative process, it is used the breakeven cutoff grade because no more
available information (physical locations of high grades blocks and also when to extract these
blocks.

Stockpile Material is resumed considering class material and tons. Then it is calculated the stockpile
total tonnage, Copper and Molybdenum average grade. The CGO will look how the cutoff changes
in time and the use of the generated stockpiles to increase the Net Present Value.

Steps Required for CGO:

1- Use a mining Sequence proportioned by a Scheduler

3- Read Economic Parameters
4- Run Optimization
5- Print Results

For the initial iteration CGO start with the breakeven o Marginal cutoff:
 Breakeven cutoff

Rehandling cost + proc Cost

Stock rec x Proc rec x Cu Price

0.51 US$/ton +8 US$/ton

100% x 90% x 19.84 US$/ton

0.48 % Cu

3 RESULTS OF THE ITERATIVE PROCESS

Table 4. summarizes all the iterations performed changing the number of pushbacks. It is used a
breakeven cutoff grade as initial grade, the cutoff grade moves to high values and then low values
until find the best cutoff sequence. In some cases a low cutoff the first years are related to high
average grades for these periods.

The created stockpiles consider a range of grade classes to give the possibility to CGO to decide
when and how stockpiles are used. Several stockpiles can be used depending of the physical space.
In this case it was used midgrade, lowgrade and subgrade but depending of the optimization can be
or not to be used in the mine life.

ITERATION WITH SCHEDULER AND CGO

1 Pit 60 cUS$/lb
ITERATION 1 2 3 4 5 6
start end Cutoff Cutoff Cutoff Cutoff Cutoff Cutoff
1 1 0.48 0.80 0.60 0.87 0.60 0.87
2 2 0.48 0.52 0.52 0.52 0.52 0.52
3 3 0.48 0.48 0.48 0.48 0.48
Stockpile Cutoff
Lowgrade stock 0.52 0.52 0.52 0.52 0.52
Subgrade stock 0.48 0.48 0.48 0.48 0.48

2 Pits 60 and 66 cUS$/lb

ITERATION 1 2 3 4 5 6
start end Cutoff Cutoff Cutoff Cutoff Cutoff Cutoff
1 4 0.48 0.90 0.75 0.90 0.87 0.90
5 8 0.48 0.87 0.85 0.90 0.82 0.90
9 12 0.48 0.70 0.65 0.70 0.62 0.70
Stockpile Cutoff
Midgrade stock 0.87 0.75 0.8 0.82
Lowgrade stock .7 - .85 .65 - .72 .7 - .77 .62 - .8 0.7
Subgrade stock .48-.67 .48-.62 .48-.67 .48-.6 .48-.67
Table 4. Summary table of iteration

After doing the economic evaluation for each alternative considered, results are summarized in the
next figure 9 and table 5.
 NPV VS ULTIMATE PIT SIZE
300

250

NPV (MUS$)
200

150

100 Scheduler
opticut NPV
NPV (MUS$)
(MUS$)
breakeven NPV (MUS$)
50
50 60 70 80 90 100
CU PRICE cUS$/lb

Figure 9. NPV versus Ultimate pit

Cu price Number of Opticut Breakeven

cUS$/lb Pushbacks NPV (MUS$) NPV (MUS$)
60 1 73 70
66 2 213 201
82 4 220 206
94 5 265 227
102 6 211 206
Table 5. NPV versus Ultimate pit

When the size of the ultimate pit is increased, NPV also is increased until reach 90 cUS$/lb then
decrease. The effect is caused by the increasing of material removed from the six pits. More pits do
not imply bigger NPV.

This report was initially made with a copper price equal to 90 cUS$/lb and the best ultimate pit (94
cUS$/lb) was close to the copper price. So this is very important to find the final pit and the effect
of the price. (The today price suggest the final pit but the economic criteria says to used the best
grades today and delays costs like waste and low grades to end of life)

From figure 9 and table 5, differences between NPV optimized and NPV with breakeven are
increasing until reach the maximum at the evaluation price. In this case the difference is 38 million
US$.

4 CONCLUSIONS

The best NPV is reached exactly at 90 cUS$/lb that it correspond to the ultimate pit with 94
cUS$/lb.

CGO goes faster into deep to get high grades; this effect is produced because CGO maximizes the
cutoff grades the first years and also increase the NPV. The first years are more important in the
cash flow than last years. When it is used a flat cutoff grades per period there is no impact in Cash
Flow and NPV. Huge differences in NPV are in table 5
An iterative process between design, a scheduler and CGO (Figure 3) is the key to analyze what is
the real impact of the cutoff grades. There are also some considerations relative to the physical
location of the grades such as grades distributions into deep.

The use of stockpiles in the scheduling increases the final NPV because these materials are
available for the optimization with grades. CGO will help to decide when a stockpile will be sent to
the crusher.

5 RECOMENDATIONS

This study was developed just considering optimizing only Copper as cutoff, so it will be interesting
to include more elements in the analysis (contaminants)

It will be interesting to know how the number of stockpiles affects the NPV. In this example, it was
used 3 stockpiles.

6 REFERENCES

1- Cai, W.L. and A.F. Banfield, 1996 “Some Practical Aspects of Open Pit Mine Planning”,
26th APCOM. pp. 277-283.

2- Dagdelen, K “ Cutoff Grade Optimization”, 23th APCOM Symposium, SME, Littleton,

Colorado. pp 157 – 165. 1992.

3- Bradley, Julia C. “Microsoft Basic Using Modular Structure”, Wm. C. Brown Publishers,
USA, 1986.

4- Lane, Kenneth, 1997, “The Economic Definition of Ore” Second Edition, Mining Journal
books Ltd, London 1997.

5- Nickerson, Robert C. “Fundamentals of programming in Basic”, Little, Brown and

Company, USA, 1981.

6- Opticut, 1997 “OPTICUT, Whittle Cut-off Optimization Software”, User Manual.

Australia, 1997.

7- Proyecto De Expansion Division Andina – Codelco Chile, 1999, “Reformulacion del Plan
Minero Largo Plazo Rajos”.