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Resources Policy xxx (xxxx) xxx–xxx

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Resources Policy
journal homepage: www.elsevier.com/locate/resourpol

Review of cut-off grade optimisation from Southern African mines. Student


assignment based observations
Clinton Birch
School of Mining Engineering, University of the Witwatersrand, South Africa

A R T I C L E I N F O A B S T R A C T

Keywords: Mines classify their resource as ore or waste in various manners. A common approach is to apply a cut-off grade.
Cut-off grades How this cut-off grade is optimised, has been extensively researched and there are thousands of academic papers
NPV covering this topic in the public domain. The question for this paper is if mines are actually considering these
Optimisation various techniques in practice. The background to this research paper is the MSc (Mineral Resource
Southern Africa
Management) at University of Witwatersrand student assignments where this has been a topic for 2014, 2015,
Lerchs-Grossman algorithm
Lane's algorithm
2016 and 2017. The focus of the students’ research is: “Is it ore or is it waste?”. This question was posed to the
students to research it on their operations where they are employed.
45 Student assignments representing 39 individual mines were reviewed. These include gold, platinum, coal,
diamond, iron ore, manganese, copper and zinc mines. These mines are in South Africa, Namibia, Botswana,
Zimbabwe, Lesotho and the Democratic Republic of the Congo.
Some commodities and mining methods lend themselves to cut-off grade optimisation. However, it is noted
that many mines focus on determining the cut-off grade just on the basic break-even grade and Lane's algorithm
and do not optimise the cut-off considering other factors like volume or net present value. There is some evi-
dence of optimisation considering the volume/cost relationship to identify the ‘hill of value’. The Whittle
Optimiser as well as the Lerchs-Grossman algorithm is applied for some of the open pit mines reviewed and the
optimisation is focused on the NPV. Few, if any of the latest optimisation approaches, are found applied on the
mines at operational level reviewed by this exercise.

1. Introduction (Hall, 2014)), stage of the mine's life (Lane, 1988) or net present value
(NPV) like the Whittle Optimiser (Whittle, 2015).
Mining companies calculate a cut-off grade to determine what The two week long Mineral Resource Management Module forms
portion of the mineral deposit can be mined economically. Many part of a 50/50 MSc degree in Mining Engineering at the University of
companies apply the break-even grade as the cut-off grade. The break- the Witwatersrand. This course is intended to enable the student to
even grade takes into account the price of the commodity, the expected understand the role of a Mineral Resource Manager and develop a
mine recovery factor, the unit cost to mine the ore, as well as the fixed Mineral Resource Management system on their own operations. On
costs for the mine. By using the planned extraction rate, expected re- concluding the module, the student should have a better understanding
covery factor and production costs, the variable to break-even then of how Mineral Resource Management is developing into Mineral Asset
becomes the in-situ grade of the material being sold. As long as the Management. This is due to the changing environment of the mining
grade is higher than the break-even grade in a particular mining block, industry. The student will then be better positioned to link all the ele-
the block will be mined profitably. The estimation of the grades for each ments of the mining value chain with the focus on the overall return on
mining block is determined from sampling the mineral deposit and invested capital rather than traditional measures of value.
projecting the values into the area to be evaluated. Various techniques The background to this research paper is the student assignments
are used to do this - including nearest neighbour, inverse distance identifying how mines evaluate their mineral resource and classify it
squared and kriging. To determine if a mining block is classified as ore into ore or waste and has been a topic for 2014, 2015, 2016 and 2017
or waste, the estimated value is used for this classification. classes. The question posed to the students to research on the operations
The most common cut-off grade optimisation techniques consider where they are employed, is as follows:
the break-even grade and then adapt this to volume (‘hill of value’
“Discuss how the delineation of ore and waste is determined on YOUR

E-mail address: clinton.birch@wits.ac.za.

http://dx.doi.org/10.1016/j.resourpol.2017.10.004
Received 31 July 2017; Received in revised form 19 September 2017; Accepted 5 October 2017
0301-4207/ © 2017 Elsevier Ltd. All rights reserved.

Please cite this article as: Birch, C., Resources Policy (2017), http://dx.doi.org/10.1016/j.resourpol.2017.10.004
C. Birch Resources Policy xxx (xxxx) xxx–xxx

operation, or an operation you are familiar with. What are the para- expressed as follows:
meters used for this and how are these determined? Is this optimised and
Total Fixed Cost(R/tonne)
how does this optimisation occur? In your opinion, is this method ef- Unit Total Cost($/tonne) = ( )
Volume(tonnes)
fective and how could it be improved.”
+ Unit Variable Cost($/tonne
The wording for the 2016 and 2017 classes individual assignment
was altered to include consideration of the Theory of Constraints (TOC) TFC ⎞
i.e. UTC = ⎛ + UVC
and if optimisation occurs with the view to improve flow of ore through ⎝ X ⎠
the system. This aspect has however not been considered for inclusion
in this review which is focused on delineation or ore and waste, par- Unit Revenue ($/g ) = Grade (g /tonne)*Mine Recovery Factor (%)
ticularly the application of cut-off grade optimisation. The assignments *Price ($/gram)
have been reviewed to identify current trends and effectiveness of cut-
off grade optimisation on various Southern African mining operation. i.e. UR = Grade*MRF*Price
The author has used this approach to research previously. The ad- Thus
vantage of using student assignments for gathering information is that
TFC ⎞
numerous countries and commodities can be compared quickly and Grade*MRF*Price = ⎛ + UVC (since unit revenue
with no real costs to the university (Birch, 2017). ⎝ X ⎠
A total of 45 assignments were analysed representing students from = unit total cost)
South Africa, Zimbabwe, Namibia, Botswana, Lesotho and the TFC
Democratic Republic of the Congo. The commodities are gold, pla- (( X
) + UVC)
Grade =
tinum, diamonds, coal, copper, iron ore, manganese, zinc and chrome. (Price*MRF)
Only the assignments which received a passing grade were included in
A more advanced method for determining the cut-off grade is to use
the assessment.
the block listing for each individual ore body. The block list contains
gold grades in grams/ tonne (g/t) or centimetre grams/tonne (cmgt),
2. Cut-off grade optimisation the channel width, stoping width and area of the blocks. From the area,
stoping width and specific gravity, the tonnes can be determined for
2.1. Commonly applied methods each individual block. The ratio of tonnage from stope faces compared
to all the tonnage milled, is determined from a simple ore flow. This ore
For decades the idea of optimising the cut-off grade to maximise flow considers face tonnage, gully dilution and other sources of dilu-
financial return has been researched. The advent of computers allowed tion, historic discrepancies and how much development waste will be
far more refined models to be established cutting the time and man- hoisted and milled with the ore. The ore flow also uses the historic MCF
hours associated with manual calculations. The resource could be di- and PRF to calculate the planned MRF for use in the financial model.
vided into smaller blocks representing the smallest mining unit (SMU). Revenue is derived from the recovered gold, the planned gold price and
Halls et.al approached the question of determining the optimal ore the expected exchange rates. The mining costs can be estimated con-
reserves and plant size by conducting incremental financial analysis in sidering the fixed and variable costs for the mine considering the ex-
1969 (Halls et al., 1969). pected production rate, and the resultant profit for each block can be
Lane, in his book “The Economic Definition of Ore”, describes the determined (Birch, 2016). Fig. 1 shows the relationship between the
economic principles of how cut-off grades are derived and how cut-off tonnage from the ore resource blocks, the cut-off grade and the average
grades can be optimised at various stages of a mine's life (Lane, 1988). grade of the blocks above the cut-off grade. The average mining grade is
The algorithm considers three main constraints, which are mining, then determined and this is then the grade which the overall reserve is
concentrating and refining. Economic factors (selling price and unit mined at.
costs) and technical factors (the grade distribution and the various ca- The costs that are included in the cut-off grade calculation are
pacities of the mine) are included in the algorithm with the aim of subject to much debate and often change through the life of the project.
maximising either the profit or NPV. The NPV is usually considered the Whilst a company is still recovering the initial capital costs, a budget
dominant economic criterion because it takes into consideration the cut-off grade can be used. This will include the costs, as well as an
time value of money (TVM) (Lane, 1988). additional percentage to recover the initial capital costs quickly. In the
The basics of the cut-off grade theory are described in Hall's “Cut-off final stages of the mine, development costs are minimal and certain
Grades and Optimising the Strategic Mine Plan” (Hall, 2014). This book areas can be mined that were previously considered below cut-off grade
is a comprehensive study of the various techniques currently used in the (Border, 1991). This is called a marginal cut-off grade (Lane, 1988).
mining industry. It includes various measures of value including opti- Minnitt looked at how Lane's cut-off grade calculations were being
mising the discounted cash flow (DCF) and NPV (Hall, 2014). adapted to Wits-type gold mines in 2004 (Minnitt, 2004) and found that
The operational cut-off grade calculation is essentially very simple. the application of the net present value (NPV) criterion for determining
It determines the grade required for a unit of ore to return a profit. It is and optimising value in mining operations was limited. He considered
essentially a break-even volume calculation where the volume is known NPVs at various points in the value chain (mining, processing and
(usually limited due to shaft capacity, mill capacity or some other marketing) to determine a balanced cut-off grade. Both Lane and
physical constraint), and the unknown is the in-situ grade of the com- Minnitt consider the NPV calculated over the life-of-mine rather than
modity. The other parameters required are total fixed cost and unit short-term profitability as the primary measure of value. The cut-off
variable cost. From these the total unit cost can be obtained (typically grade optimised for NPV is higher than that obtained when optimised
expressed in Rands/tonne). Other factors required for the cut-off grade for profit. Due to discounting, the NPV optimisation model favours
calculation is the mine recovery factor (MRF) - which is the mine call high-grading mining. These results in shorter life-of-mine and less ex-
factor (MCF), multiplied by the plant call factor (PCF). The commodity traction of the mineral resource (Birch, 2016). The discount rate used
price in Rands/gram is obtained by the commodity price in US$ for the calculation of the DCF and resultant NPV are critical to the cut-
(usually quoted in troy ounce for gold and platinum) and the exchange off grade calculation. This discount rate is essentially the cost-of-capital
rate. These are all estimates and subject to variation throughout the and it is usually calculated by the weighted average cost of capital
period which the cut-off grade is to be used - and thus add to the fi- (WACC). This considers all the sources of capital required for a project
nancial risk to the investors if they change significantly. This can be (equity and debt), the portion of the total each source makes and its

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C. Birch Resources Policy xxx (xxxx) xxx–xxx

Fig. 1. Typical grade-tonnage curve with a cut-off grade of 5 g/t.


The resultant tonnes above 5 g/t are 10.2 million tonnes and the
average mining grade is 8.1 g/t (Birch, 2016).

cost. The various sources are then weighted by their proportion and an Metallurgy Presidential Address, reviewed commonly applied optimi-
average is calculated. According to Smith et al. (2007), real discount sation techniques for underground mines. He noted that the needs for
rates of 9–12% for mining projects are appropriate for South African the development integrated stochastic optimisation that can be applied
mining projects. This is equivalent to 14.5–17.6% at a 5% annual in- on a real-time basis (Musingwini, 2016). Other researchers have also
flation rate for WACC in nominal terms (Smith et al., 2007). Optimising identified shortcomings in the current approach to optimising mine
on NPV can drive decision making to focus on the short-term gains at planning, including in the field of determining the cut-off grade.
the expense of the longer term and, thus, companies often use the total There have been numerous academic studies into this field and
undiscounted cash flow (Hall, 2014). By looking at optimising cut-off application of various innovative methods aimed at increasing value
grade in three dimensions (cut-off grade, value and production rate) from mines. Napier looked at the effect of cost and price fluctuations
rather than the traditional two dimensions (cut-off grade and value), and how these have an effect of the determination of the optimum cut-
Hall identifies the ‘hill of value’. This gives mine planners an additional off grades (Napier, 1983). In 1997, Wood looked at how the cut-off
parameter to consider in the determination of the optimal cut-off grade grade impacts on the risks associated with mineral exploitation in the
(Alford and Hall, 2009). South African Platinum Industry (Wood, 1997). Lane, et.al have con-
The Lerchs-Grossman algorithm uses a graph-theoretic technique to sidered the ‘hill of value’ and applied dynamic financial analysis (DFA)
optimise the pit shape and limits to maximise profit (Lerchs and which aims to consider the risk element of the assumptions made for
Grossmann, 1965). Whittle has expanded on this concept and brings in considering volume versus cut-off grade decisions (Lane et al., 2010).
time-value of money (TVM) and focuses on optimising the NPV (Whittle These address one of the main short-comings of traditional approaches
and Whittle, 2007). The Whittle Optimiser is predominantly applied in to cut-off grade determinations in that the planning estimations of
the open-pit environment but Whittle is developing underground mine costs, grades, recoveries and price can be very different to the actual
optimising. In the underground environment, bottlenecks are present. values when mining takes place.
These can be in the form shaft or decline volumes, plant volume, de- The development of complex computer modelling has allowed
velopment meters, haulage limits, ventilation, traffic or working face greater sophistication in determining cut-off grades. Azimi, et.al list
congestion (Whittle, 2015). There are numerous examples in the lit- operational control theory, stochastic dynamic programing, non-linear
erature of how this method is applied and it is well understood by programing, linear programing, genetic algorithm and other artificial
mining engineers around the world (Akisa and Mireku-Gyimah, 2015). intelligence methods (Azimi et al., 2011). However, it is questionable if
The optimisation of the cut-off grade with the view of optimising the these approaches have been widely applied on the mining operations
NPV has been established by A. Bascetin and A. Nieto using Visual Basic themselves. It is recognised that a single cut-off grade for the entire
within Excel (Bascetin and Nieto, 2007). It is relatively simple to con- mine is very limited and developments in geometallurgy (Turner-Saad,
struct a cut-off grade optimiser model using Excel based mixed integer 2011) and area costing have given rise to optimisation of cut-off from
linear programing (the Solver) function. This type of model can link the various areas of the mine, as well as from various geological domains.
mine ore flow, resource block listing and cash flow models. The output Future developments in mine planning, which could also be applied to
to optimise is either the profit or NPV by changing the cut-off grade. cut-off grade optimisation, include multi-criteria decision analysis
This alters the resultant tonnes above cut-off grade and average mining (Mahase et al., 2016).
grade that are fed into the cash flow model (Birch, 2016).
All of the current approaches to cut-off grade optimisation identify 3. Student findings
value as either profit or NPV. Fig. 2 shows the relationship between cut-
off grade and optimisation for maximum profit. Students from many African countries attend the University of the
Witwatersrand School of Mining Engineering to complete certificate,
2.2. Recent advancements in cut-off grade optimisation undergraduate and post graduate programs. The 50/50 MSc program
entails completing six modules that account for 50% of the credits, and
Musingwini, in the 2016 Southern African Institute of Mining and then a research report, which accounts the other 50% of the credits.

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C. Birch Resources Policy xxx (xxxx) xxx–xxx

Fig. 2. Typical grade-profit curve. The peak of profit is at a cut-off


grade of 5.3 g/t. The total profit is $7150 and the average mining
grade is 8.2 g/t. There has been no consideration of optimisation
for NPV in this type of cut-off grade determination (Birch, 2016).

Delegates who wish to gain a specific skill may also complete each Two non-Wits type gold mines were reviewed, one in Namibia and
individual module as a short course. The two week Mineral Resource one in Zimbabwe. For the mine in Zimbabwe, a geological cut-off is
Management Module (code MINN7050) is typically attended by 30 applied. The cut-off grade approach is thus not used and ore is identi-
students of which about 25 would be doing it as part of the MSc pro- fied as being within the ‘ore zone’ based on the lithology. The gold
gram. Delegates attending the module as a short course could be values are highly erratic resulting in very short geostatistical ranges.
credited for the module if they choose to register for the MSc program For the mine in Namibia, the cut-off grade is based on Lane's algorithm
at a later stage. Mining companies employ the majority of the students. (Lane, 1988) with the focus on optimising profit.
The individual assignment is due four weeks after the completion of the
classes and is limited in length. It counts 30% towards the total mark of 3.2. Platinum mines
the module (20% for a group assignment completed during the two-
week class period and 50% for the written examination). The students Nine Platinum mines were reviewed. These included mines from
can select the one that they are most interested in from two separate both the Eastern and Western Bushveld Igneous Complex Limbs. Both
individual assignment topics. Merensky Reef and UG2 are mined on seven of the eight mines, with
For this review, 45 individual assignments from six Southern one mining just UG2. There is little cut-off grade optimisation observed.
African countries are reviewed. These include the following commod- On one of the mines, Lane's algorithm is applied to maximise profit over
ities: the life-of-mine. For the rest, a geological cut-off is applied by which all
the Merensky Reef and UG2 are considered economical to mine.
• Gold (South Africa, Namibia and Zimbabwe); The grade distribution for the economical commodities (platinum,
• Platinum (South Africa); palladium, rhodium, gold, copper and nickel) tends to be more evenly
• Coal (South Africa); distributed in both the Merensky Reef and UG2. There is the application
• Diamonds (South Africa, Botswana and Lesotho); of an optimal stoping width on some of the mines where the UG2 is very
• Iron Ore (South Africa); thick on one of the mines. The practice of scalping (passing the material
• Manganese (South Africa); through a grizzly underground and stripping off the coarser material,
• Copper (South Africa and the Democratic Republic of the Congo which tends to be lower grade) is also noted for the UG2. This low-
(DRC)); grade material is packed underground in the mined out areas and not
• Uranium (Namibia); transported or processed.
• Chrome (South Africa);
• Zinc (Namibia). 3.3. Coal mines

3.1. Gold mines The determination of economic coal is based on a number of factors,
including calorific value (CV), ash content, sulphur content, stripping
Four South African Wits-type gold mines have been reviewed. It was ratio (for open cast mines) and seam thickness. Seven South African
found all of them apply the break-even grade as the cut-off grade. On coal mines were reviewed (by eight students) and each one considered
one of the mines, there is some consideration of the cost-volume re- deferent aspects in their optimisation strategy. Fig. 3 shows the loca-
lationship i.e. Hall's ‘hill of value’ (Hall, 2014) with the aim of max- tions of the various coalfields of South Africa.
imising profit rather than NPV. No cut-off grade optimisation was The two mines from the Waterberg Coalfield applied a geological
identified on the other three mines. All the Wits-type mines reviewed cut-off. The coal seam was extracted fully and upgraded by applying the
optimise on cmg/t rather than g/t. The cmg/t is a measure of content principles of yield curves (Horsfall, 1980). The two mines from the
and allows comparison of ore bodies with a very wide range of channel Witbank Coalfield were mined with the same strategy. These mines
widths, from a few cm to meters in width. The g/t grade for the ore were opencast mines. Geotechnical criteria were the chief consideration
body is then determined by dividing by the expected stoping width. for two anthracite mines reviewed from the Nongama and Kangwane

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Fig. 3. Coalfields of South Africa (South African


Council for Geoscience, 2017).

coalfields. For the underground mines from the Witbank coalfield, with the blocks being scheduled to provide an optimum grade dis-
customer specifications regarding CV and ash were the primary focus. tribution. All kimberlite is however considered economical.
These two mines were being mined for coal-fired power stations and the
coal was not undergoing further upgrading. The seam thickness was 3.5. Iron ore mines
also a consideration for one of these mines. The underground coal mine
from the Witbank coalfield producing coal for the export market is Four assignments from three individual South African mines were
upgrading the coal using the yield curve principle (Horsfall, 1980). reviewed. On all three mines, the primary cut-off is based on the
geology. One the one mine, the strategy is focused on splitting the plant
3.4. Diamond mines feed into higher-grade material that is sent directly to the density media
separation (DMS) circuit, and lower-grade material that passes through
Seven assignments from three individual diamond mines were re- a jip plant for upgrading prior to the DMS circuit. The company also has
viewed. These are in South Africa (block cave), Lesotho and Botswana an in-house ‘maximiser’ program that enables the optimisation of their
(both opencast mines). The block cave mining method allows very little profit based on their blending of their available ore to fit the criteria of
scope for grade optimisation and the focus is on minimising waste at the various product streams. The other two mines follow a similar strategy
draw points. For the mine in Botswana, a geological cut-off is applied with the focus being on producing saleable products that fit their cus-
with all kimberlite being considered ore. There is consideration given to tomers various specifications.
the grade/volume relationship with the price dictating a dynamic
mining volume strategy. Mining is not selective but stockpiling of 3.6. Manganese mines
lower-grade material takes place for later processing.
A geological cut-off approach is followed at the mine in Lesotho Three South African manganese mines were reviewed. The one mine

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Table 1
Summary of the cut-off grade optimisation methods identified on the various Southern African mines.

Commodity Geological/Geotechnicalcut- Break-even Grade/volume optimisation (Hill Lane's algorithm Whittle Pit Lerchs-Grossman
off grade of Value) optimiser algorithm

Gold 1 3 1 1
Platinum 8 1
Coal 5 2
Diamonds 2 1
Iron ore 3
Manganese 1 2
Copper 1 2
Uranium 2
Chrome 1
Zinc 1

applies the Lane algorithm (Lane, 1988) but considers maximising for considered for this review.
NPV through the various mining phases. Both the other utilise the It is noted that the basic break-even cut-off grade and Lane's algo-
Whittle Pit Optimiser (Whittle and Whittle, 2007) with the focus being rithm are widely applied predominantly to maximise profit. The Lerchs-
on maximising the NPV. Grossman algorithm and Whittle Pit Optimiser are also widely utilised.
Some of the mines using these methods optimise for NPV. Some mines
3.7. Copper mines have in-house optimiser programs that have not been discussed in detail
by the students (either lack of understanding of the approach or con-
Five assignments representing one South African (two assignments) sidered proprietary by their companies).
and three individual copper mines from the DRC were reviewed. The The findings are summarised in Table 1:
South African mine uses the block cave mining method and the focus is There is no evidence from the mines reviewed that they are using
on draw point control to minimise waste entering the ore stream. The the latest optimiser approaches as found in the literature at operational
block cave itself is delineated primary on lithology but the waste is from level. It would appear that these remain the domain of academic re-
sidewall failure from the original open pit mine. search, although they may be included in some of the in-house opti-
The three mines in the DRC each follow their own cut-off strategy. miser models used. Most mines optimise primarily with profit being the
The first two mines consider both the value of copper and cobalt and main value driver. NPV optimisation is also found on some operations.
use pit shape optimiser to maximise financial value based on the Lerchs- No mine considers a multi-criteria approach for optimisation con-
Grossman algorithm (Lerchs and Grossmann, 1965). These models sidering other stakeholders besides the owners (i.e. employees, the
consider the pit slope angles to optimise the final pit shape to maximise State, local communities). This could become a major consideration to
the NPV. The third mine utilises the Whittle Pit Optimiser to achieve a mines in the future where the social license to mine is becoming a major
similar result (Whittle and Whittle, 2007). factor in the success of mining ventures.

3.8. Uranium mines 5. Recommendations

Two Namibian uranium mines were reviewed from the assignments. The recommendation from this research is that some mines could
Both utilise Lane's algorithm and optimise on profit. No further opti- add financial value by adopting one of the cut-off grade optimisation
misation considering the NPV takes place. approaches presented in this revue if they are not currently optimising
their cut-off grades. However, it was noted during class discussions with
3.9. Chrome mine the MSc students that personal on the mines that are responsible for
determining the cut-off grade strategies are often not aware of the
The South African chrome mine reviewed follows a geological cut- various recent advancements in this field. The dissemination of these
off approach with all the available resource of the LG6 orebody con- methods is usually through academic journals. These are often a
sidered economical. No further cut-off optimisation takes place. daunting read by those whose background does not include a higher
degree, or a significant mathematical component in their qualifications.
3.10. Zinc mine The Journal of The Southern African Institute of Mining and
Metallurgy (SAIMM) is widely distributed throughout Southern Africa
A zinc mine in Namibia was reviewed. The ore zone is based on on the mining operations, The SAIMM Journal lists only two articles
identification of massive sulphide, which is all considered economical. over the past ten years if a search is conducted for “cut + off + grade
Little further financial optimisation takes place. + optimisation” on the OneMine.org online library. When the search is
includes all the journals available through the OneMine.org library, 26
4. Conclusions articles are noted over the same period. Most of these additional jour-
nals are not available to non-subscribers to the OneMine.org library or
This study aims to review the cut-off optimisation strategies fol- the specific journals. It is felt that the distribution of these newer cut-off
lowed by a selection of Southern African mines. 45 Student assignments grade optimisation methods and approaches need to be made simpler
completed as part of the MINN7050 Mineral Resource Management and easier to adopt for the mine personal.
Module of the University of the Witwatersrand School of Mining
Engineering were reviewed. These modules form part of the MSc pro- References
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