difficult if the view is five to ten years

Book reviews in the future. Forecasts of this length

are certain to be less reliable. While
the author considers the question of

Clear, easy reading ore reserve estimation beyond

scope of the book, there is a question
the

of practical selectivity in mining and

cut off for a specific deposit. The the accuracy of estimates of ore grade.
THE ECONOMIC DEFINITION OF
formulae described by the author, and Here, also, the author makes the im-
ORE CUT-OFF GRADES IN
a hand calculator, suffice to determine portant point that cut off is an oper-
THEORY AND PRACTICE
cut off at a given point in time but ational criterion at the point of min-
Kenneth F. Lane computer support is essential where ing, not a criterion for deciding
long-range planning is the objective. whether an area should be mined. The
Mining Journal Books Ltd, London, The principles developed in the first latter involves a separate economic
1988, 149pp seven chapters include the ideas that analysis.
the value of a mine is derived from the
This book is an excellent balance of future project cash flows summarized Mine expansions
the theory and practice of cut off in present value of internal rate of The fundamental formulae lead to a
grade analysis, and its role in defining return. But the valuation of a deposit cut off grade decision at a single point
the difference between that material is complicated by the special consid- in time; yet long-term planning re-
we call ‘ore’ and the material we call erations in valuation of exhaustible quires a sequence of optimum cut off
‘waste’. It is clear, easy reading for the rpsources. The cash flow model is grades over an extended period. The
non-mathematically oriented student based on three main components of a planner must develop an optimum ex-
or professional, but the fundamental mining operation: mineralized mate- ploitation track for the entire mineral-
algebraic formulae are included. The rial, the development component; ized body. It is then that the computer
author draws on thirty-five years of ore, the treatment component; and becomes essential to meet modelling
literature on the subject of cut off mineral, the marketing component. objectives. There are more complica-
grade, including his own pioneering Thus, there are mathematical formu- tions when the cut off is parametric ie
work with the RTZ Consulting Group lae to determine the mine limiting cut only indirectly related to the grade
over the last twenty years. There are off; the treatment limiting cut off; and distribution. Examples include situa-
18 chapters covering the theory and the market limiting cut off. The au- tions where metallurgical recovery,
application of cut off grade, sup- thor’s case studies provide examples the presence of minor minerals, or
plemented with 7 case studies to illus- of determination of limiting cut off inaccuracies in grade control affect the
trate points made in the text. For the grade. The problem gets more compli- cut off grade. There are also problems
academic, the book might function as cated when several components in the in finding a check for actual versus
supplementary reading in a minerals ore limit the throughput of the mining predicted grades, easy conceptually
valuation course. For the mine execu- system. Then a ‘balancing’ cut off but complicated by the ore and waste
tive it provides the ‘basics’ of cut off grade must be the objective. In the handling process that is likely to mix
grade without a lot of mathematics. search for the optimum cut off grade material before and during mining and
the author defines three limiting eco- processing.
Determining cut off nomic cut off grades and three balanc- Optimum cut off policy generally
The natural companion to the text ing cut off grades; then the problem is indicates a decline in cut off grade
would be RTZ Consultant’s computer to select one of these as the optimum. over the life of the mine. Grades
program OGRE (Optimum Grades The first seven chapters develop the uneconomic in the early years may be
for Resource Exploitation). OGRE is concepts that show that the economic economic later. This introduces the
the program used by the author to definition of ore depends on current possibility of a stockpiling strategy
perform the calculations needed for prices, costs and performance. These with accompanying problems in logis-
the case studies. To the student of cut variables are judged by the criteria of tics, additional cost and the possibility
off grade it would provide the present value and rate of return. that the stockpiled material may de-
mechanism for experimenting with the Chapters 8 to 16 introduce several teriorate over time. It also raises the
ideas presented in the book. complications into the fundamental question of possible price changes that
The fundamental concept of Lane’s formulae. There is first the problem of may make today’s waste economic in
Economic Definition of Ore is that ore the need for long-term forecasts of the future.
is distinguished operationally from prices and costs, subject to differences The author introduces the questions
waste by cut off grade. Ore above cut of opinion on how to best model fu- of mine expansions and the develop-
off can be treated and sold at a price ture cash flows. Then long-term plan- ment of new mines. Expansion has the
equal to or above ‘break even’. Mate- ning requires information on ore advantages that it may involve margin-
rial below this cut off is waste. The grade distribution, often easy to find al expenditure, less risk, and a known
problem is to determine the particular for the short term, but much more and stable market. On the other hand,

RESOURCES POLICY December 1989 351

Book reviews

a new mine is likely to offer the best RTZ Consultants. A program logic teresting discussion of the increased
opportunity of controlling the econo- diagram gives the reader an idea of competition among producers in some
mics of a specific mine: the main ele- how the analyses are run and a better metal markets. Although this reason-
ments of exploitation strategy, understanding of the seven case stu- ing is not incorporated into the main
method, scale, and cut off policy are dies that follow. Case studies of econometric model, the author con-
decided when a new mine is opened. underground tin, lead/zinc, and gold cludes that the recent break up of the
When the deposit involves more than projects and open pit uranium, strong oligopolies in aluminium, nick-
one mineral there are accepted ways copper/molybdenum, copper, and el and molybdenum has reduced the
to model for a cut off grade decision. uranium/copper projects support and price levels of these metals by 5%,
The author briefly describes three illustrate the concepts developed in 20% and 2&30% from where they
other economic models. These intro- the text. would otherwise have been.
duce tax considerations, variations of The model exercises, together with
mill recovery and variations in system the verbal discussion, yield the conclu-
throughput. Alfred Petrick Jr sion that the inflated exchange rate of
Chapter 18 is reserved for OGRE, Colorado School of Mines the US dollar along with excessive
the computer program developed by Golden, CO, USA inventory levels and more competitive
market structures constitute the major
explanations for the metal price de-
pression of the early to mid-1980s.

Flawed analysis These findings are employed to pre-

dict the future. MacAvoy believes that
sequence of events is simply not borne prices may increase within a limited
EXPLAINING METALS PRICES:
out by the econometric relationships. range till 1990 and beyond, but that
ECONOMIC ANALYSIS OF METALS
Instead, MacAvoy proceeds to the high prices of the 1970s are unlike-
MARKETS IN THE 1980s AND
formulate a very simple model in ly to be seen again. The author argues
1990s
which the nominal dollar price of a his case by referring to the ample
metal is seen to depend positively on availability of low cost capacity in the
Paul W. MacAvoy the concurrent levels of industrial LDCs, and to the permanently de-
activity and wholesale prices, and pressive effect of fiercer competition,
Kluwer Academic Publishers, Boston, negatively on the coincident rate of of the dollar exchange rate and of
NE, 1988, 130~~ exchange of the US dollar and on inventory levels. Why the last two
lagged metal inventories. The model factors should have a permanently de-
Between 1980 and 1987, the prices of performs satisfactorily in explaining pressive impact on metal prices is not
major metals were severely depressed. producer price levels, when applied on clear.
The purpose of the present book is to data for aluminium, copper, lead,
explain the depression, and to point to molybdenum, nickel, steel and zinc in Inflation
the likely price developments in metal the 1960-86 period. Further improve- The book covers valuable ground and
markets in the 1990s. Producer prices ments of the model fit to actual price presents many interesting insights.
in the USA are the focus of the inves- data are obtained by incorporating a Yet, in my view, the analysis is defi-
tigation. Econometrics is the major purported downward shift in the metal cient in important respects, and in-
tool of analysis. demand function in the 1980s reflect- complete or unclear in others. For
Work on the book was completed ing the falling intensities of use during instance, producer price quotations
early in 1988, so there is no reference the decade. are chosen as the important depen-
to the exceedingly strong and MacAvoy demonstrates the speedy dent variable but there is no mention
persevering metals boom that started expansion of LDC production capac- of the substantial but unpublished re-
about that time, and that has taken all ity and output in the 198Os, but waffles bates to these prices, regularly offered
metals analysts by surprise. between the view that the investments when metals markets are weak. Most,
had little economic justification and but not all, of the price analysis is
Producer price levels were prompted by a desire to create carried out in nominal terms. This is
The author refutes the frequently for- employment and generate foreign ex- confusing and surprising. Surely it is
warded claims that the metals depress- change, on the one hand and the view the real and not nominal metals price
ion in the first half of the 1980s was that the overvalued US dollar and that influences supply and demand?
caused by disequilibrium price be- superior resource base of the LDCs The role of inflation is unclearly
haviour in which an initial price fall made speedy expansion highly econo- treated. I do not understand the logic
reduces demand by inventory contrac- micacl, on the other. The model fit of the claim that ‘higher inflation rates
tion and adds to supply by unecono- does not improve when the share of open up profit opportunities, gained
mic state enterprise behaviour, which, LDCs in total supply is substituted for from accumulated inventory’. Nomin-
in turn, depress prices even further. the dollar exchange rate. al metals prices may rise during infla-
His attempt to verify this dynamic There is an extended and very in- tionary periods, but to make metal

352 RESOURCES POLICY December 1989