Natural Resources Research, Vol. 18, No.

1, March 2009 (Ó 2009)

DOI: 10.1007/s11053-009-9088-y

A Test and Re-Estimation of TaylorÕs Empirical

Capacity–Reserve Relationship

Keith R. Long1,2

Received 21 April 2008; accepted 14 January 2009

Published online: 30 January 2009

In 1977, Taylor proposed a constant elasticity model relating capacity choice in mines to
reserves. A test of this model using a very large (n = 1,195) dataset confirms its validity but
obtains significantly different estimated values for the model coefficients. Capacity is
somewhat inelastic with respect to reserves, with an elasticity of 0.65 estimated for open-pit
plus block-cave underground mines and 0.56 for all other underground mines. These new
estimates should be useful for capacity determinations as scoping studies and as a starting
point for feasibility studies. The results are robust over a wide range of deposit types, deposit
sizes, and time, consistent with physical constraints on mine capacity that are largely inde-
pendent of technology.
KEY WORDS: Mine capacity, mine planning, feasibility studies, scoping studies, TaylorÕs rule,
HotellingÕs rule.

INTRODUCTION 0.77 among his models using a sample of 15 mines.

Taylor (1977, 1986) introduced an empirical
relationship between mine capacity and reserves,
informally known as TaylorÕs Rule, as an aid to
determining installed capacity in mine planning.
Based on his experience in mine design, Taylor
suggested that installed mine capacity is roughly
proportional to the three-quarters power of esti-
mated tonnage of reserves. He later confirmed
this with a sample of nearly 30 mining projects.
McSpadden and Schaap (1984) obtained the same
result with a sample of 45 open-pit copper mines.
Lasserre (1985), in an econometric study of some
North American metal mines, likewise found that
mine capacity increases proportionately less than
reserves. LasserreÕs (1985) estimated elasticities for
capacity with respect to reserves varied from 0.58 to
1
U.S. Geological Survey, 520 N Park Ave, Ste 355, Tucson AZ
85719, USA.
2
To whom correspondence should be addressed; e-mail: klong@
usgs.gov
Long and Singer (2001) tested a sample of 45 open-
pit copper mines with a result not significantly dif-
ferent, at a 5% level, from TaylorÕs three-quarter
power hypothesis.
The U.S. Geological Survey is developing
up-dated mining and mineral processing cost models
according to the general pattern of Camm (1991).
These cost models use TaylorÕs Rule to estimate
mine operating rate from a given reserve estimate. It
was thought prudent, some 20 years hence, to
re-estimate TaylorÕs Rule using a much larger sam-
ple covering the full range of mining methods used
in modern mining. Taylor (1986) noted several rea-
sons why certain underground mines might have a
capacity proportional to significantly less than three-
quarters power of reserve tonnage. These reasons
have to do with capacity constraints imposed by
limited access and the need to keep a large pro-
portion of reserves in place during operations to
maintain roof support. Thus, an examination of the
capacity–reserve tonnage relationship for under-
ground mines is likewise long overdue.

57
1520-7439/09/0300-0057/0 Ó 2009 International Association for Mathematical Geology
58 Long

DATA Table 1. Number of Mines Used in This Study Listed According

to Mining Method and Primary Commodity
Data on reserves, capacity, mining method, and Primary Commodity Open Pit Underground Total
related information were obtained from a proprie-
Copper 94 31 125
tary database, the Mining Operations Report,
Gold 226 93 319
developed by Geomineinfo of Tucson, Arizona. The Molybdenum 5 3 8
database contains comprehensive technical and his- Nickel 1 3 4
torical information on more than 800 operating or Niobium 0 1 1
recently operating mines, principally in Americas Platinum group elements 1 2 3
Silver 7 9 16
and Australia. A total of 539 mines were used in this
Tin 0 1 1
study, of which 342 are open-pit and 197 are Zinc and lead 8 54 62
underground mines. The distribution of these mines Total 342 197 539
according to primary commodity is shown in
Four of the underground mines are block-caving operations
Table 1. Most of the mines (59%) are gold mines,
which, as explained in the text, were included in the open pit-
followed by copper (23%) and zinc-lead (12%). model.
Many of the mines in the database have
undertaken at least one significant expansion in
capacity during the life of the mine. On the Table 2. Number of Mines Used in this Study Undergoing One or
assumption that any expansion in capacity must More Expansions in Capacity to Date
correspond to an expansion in reserves, individual Expansions Number Open Pit Underground Total
data points for this study were defined as a capacity
None 157 83 240
and its corresponding reserve for a newly opened
1 93 41 134
mine or an expansion thereof. The total number of 2 47 27 74
data points used in this study, over 1,200, thus 3 31 17 48
exceeds the number of mines from which data were 4 14 12 26
obtained. Generally, the reserve figure used was the 5 12 3 15
6 9 3 12
latest reported prior to completion of new capacity
7 4 3 7
or an expansion. In a very few cases, the appropriate 8 2 2 4
reserve estimate was reported well before or some- 9 3 2 5
time after new capacity was installed. 10 3 0 3
A few open-pit gold and copper mines treated
higher and lower-grade ores, or oxide and sulfide
ores, by different methods in different facilities and tons per day in 1993. From this single mine, 10 data
reported separate reserves for each ore type. These points can be obtained, six for the mill and four for
mines, totaling 29, were treated as ‘‘two mines in the heap-leach operations, assuming no missing or
one,’’ thus increasing the number of open-pit problematic data.
‘‘mines’’ used from 342 to 375. Table 2 shows the
distribution of the total number of mines used in this
study by mining method and number of capacity MODEL ESTIMATION
expansions.
These methods of handling the data may be TaylorÕs original model (Taylor, 1986, Eq. 3)
illustrated by the Sleeper gold mine in the Awak- Tonnes per day ¼ 0:014
ðExpected tonnes)0:75
ening Mining District, Humboldt County, Nevada,
USA. The mine was opened in 1986 as an open-pit, can be re-written as
heap-leach operation with an initial processing C ¼ bT a ð1Þ
capacity of 1,800 metric tons per day. The heap-
leach operation was subsequently expanded three where C is capacity in metric tons per day, T is
times to an ultimate capacity of 14,900 metric tons reserve tonnage in metric tons, and a and b are
per day. A vat-leach mill was installed in 1987 to coefficients to be estimated. Note that the point
treat higher-grade oxide ores with an initial capacity elasticity of this function is a, thus the elasticity of
of 900 metric tons per day. The mill was subse- capacity (proportionate change in capacity with
quently expanded five times, reaching 2,500 metric respect to a given change in reserves) does not vary
Re-Estimation of TaylorÕs Rule 59

Table 3. Model Estimation Results

Model Observations R2 Coefficient Estimate 95% Confidence Interval

Lower Upper

Open pit + block cave 796 0.870 a 0.649 0.631 0.666

b 2.093 2.392 1.794
Underground 400 0.821 a 0.563 0.538 0.589
b 1.214 1.603 0.824

with the magnitude of reserves. Known as constant
elasticity of scale, this is a fairly restrictive assump-
tion about the technology of mining.
For estimation the model, Eq. 1 was trans-
formed by taking natural logarithms of each side of
the equation to:
ln C ¼ ln b þ a ln T ð2Þ
so that ordinary least-squares methods for estimat-
ing the coefficients a and b could be used. The large
size of the database led to a prolonged effort in
outlier detection and exploratory analysis. Outliers
were investigated and found to comprise a handful
of data errors, some reporting problems, and a few
mines with unique circumstances. An example of the
latter was the Morenci copper mine in Arizona, an
open-pit mine-for-leach operation where about 93%
of the material mined in 2006 was treated by
leaching of run-of-mine or crushed ore. The large
capacity of this mine, wholly out of proportion with
its reserves, is thought to reflect the unique mining
and processing method used and a conservative
approach to reserve estimation. Most importantly, it
was found that underground mines, with the excep-
tion of block-cave mines, form a distinct group
which was estimated separately from open-pit plus
block-cave mines. Estimation results are shown in
Table 3.
All of the coefficients are highly significant
(Table 4) and residuals are normally distributed with
no apparent inhomogeneity of variance. Note that
the coefficient of greatest interest, a, in each model, is
significantly less than a = 0.75 value originally esti-
mated by Taylor (1977). As expected, the value of a
for the underground model is significantly less than
that for the open-pit plus block-cave model. These
coefficients are <1, hence the capacity–reserve rela-
tionship is relatively inelastic, or in other words,
there are decreasing returns to capacity with
increasing reserves. The good fit of the equation
suggests that the restrictive technological assump-
tions of the model, constant elasticity of scale, are not
Table 4. Tests of Significance of Model Results
Model Observations F Coefficient Standard t
Ratio Error Ratio
Open pit + 796 5334 a 0.009 73.03
block cave b 0.152 13.75
Underground 400 1824 a 0.013 42.71
b 0.198 6.12
at great deviance from reality. These models are
valid for estimation over the range of the data for the
independent variable, reserve tonnage, which was
from 82,000 to 2,584,000,000 metric tons of reserves.
MODEL EVALUATION
The models are subject to criticism in at least
two ways: (1) a possible lack of homogeneity due to
the mixture of many types of mineral deposits, and
(2) the assumption of constant elasticity. The two
objections are not unrelated. The data include mines
developed from 1908 to 2007, thus there might be
technological changes over time that result in tech-
nology-dependent values for the model coefficients.
Unique geologic characteristics of certain deposit
types may require unique technological solutions
that could also affect the value of the estimated
model coefficients. If these considerations are sig-
nificant, subdividing the data by deposit type and
other criteria might result in better models.
The data for the open-pit plus block-cave and
underground models were first divided between
newly developed mines and expansions of mines.
The object was to test for significant differences in
the estimated parameter a between the open-pit plus
block-cave and underground mine models and
four new models derived by separating new and
expanded mines. No significant differences at the
5% level were found (Table 5). The full models are
applicable to new as well as expanded mines.
60 Long

Table 5. Test of Ho : a^ ¼ am Against the Alternative Ho : a^ 6¼ am ,
where ^
a is the Estimate of the Parameter a for a Subset of New or
Expanded Mines and am is the Estimate of the Parameter a for the
Full Models; am Equals 0.649 for the Open-Pit Plus Block-Cave
and 0.563 for Underground Models
Table 7. Test of Ho : a^ ¼ am Against the Alternative Ho : ^a 6¼ am ,
where ^a is the Estimate of the Parameter a for a Particular
Quartile of the Full Model and am is the Estimate of the
Parameter a for the Full Models; am Equals 0.649 for the Open-Pit
Plus Block-Cave and 0.563 for Underground Models

Model Observations â t Ratio Model â t Ratio

Open pit + block cave—new mines 338 0.624 1.71 Open pit + block cave—first quartile 0.547 2.19
Open pit + block cave— expansions 459 0.641 0.71 Open pit + block cave—second quartile 0.793 1.68
Underground—new mines 157 0.556 0.36 Open pit + block cave—third quartile 0.551 1.06
Underground—expansions 243 0.551 0.72 Open pit + block cave—fourth quartile 0.677 0.70
Underground—first quartile 0.484 1.30
For a t\ j1:96j, we accept the null hypothesis at the 5% level. Underground—second quartile 0.476 0.70
Underground—third quartile 0.304 1.94
Underground—fourth quartile 0.571 0.14
Table 6. Test of Ho : a^ ¼ am Against the Alternative Ho : ^a 6¼ am ,
where ^
a is the Estimate of the Parameter a for a Subset of Mines For a t\ j1:96j, we accept the null hypothesis at the 5% level.
Working a Particular Deposit Type and am is the Estimate of the
Parameter a for the Full Models; am Equals 0.649 for the Open-Pit
Plus Block-Cave and 0.563 for Underground Models Table 8. Test of Ho : a^ ¼ am Against the Alternative Ho : ^a 6¼ am ,
where ^a is the Estimate of the Parameter a for a Particular Time
Model Observations â t Ratio
Period Within the Full Model and am is the Estimate of the
Open pit + block cave—porphyry 291 0.668 1.13 Parameter a for the Full Models; am Equals 0.649 for the Open-Pit
Open pit + block cave—epithermal 331 0.636 0.65 Plus Block-Cave and 0.563 for Underground Models
Open pit + block cave—low-sulfide 83 0.656 0.23
Au–quartz Model Observations â t Ratio
Underground—volcanogenic 87 0.564 0.03 Open pit + block cave—1900–1969 51 0.583 1.91
massive sulfide Open pit + block cave—1970–1979 63 0.640 0.35
Underground—low-sulfide 132 0.506 1.97 Open pit + block cave—1980–1989 198 0.658 0.48
Au–quartz Open pit + block cave—1990–1999 241 0.612 2.02
Underground—epithermal 31 0.601 0.89 Open pit + block cave—2000–2007 59 0.637 0.33
Underground—1900–1969 51 0.584 0.80
For a t\ j1:96j, we accept the null hypothesis at the 5% level.
Underground—1970–1979 45 0.565 0.06
Underground—1980–1989 87 0.530 1.00
To test for differences between mineral deposit Underground—1990–1999 81 0.536 0.86
types, data for some of the better represented min- Underground—2000–2007 28 0.518 1.00
eral deposit types were extracted and tested inde- For a t\ j1:96j, we accept the null hypothesis at the 5% level.
pendently. From the open-pit plus block-cave
model, three new models were derived: (1) porphyry relative to other deposit types, possibly explaining
deposits, including porphyry copper, porphyry the significantly lower estimate for a of 0.506.
molybdenum, and porphyry gold deposits; (2) epi- The assumption of constant elasticity was tested
thermal gold deposits, including the related hot by dividing the data into quartiles based on the
spring gold, gold telluride, distal-disseminated gold, independent variable, reserves. Eight new models
and detachment-fault-related gold deposits; and were generated in this fashion, representing the
(3) low-sulfide gold–quartz veins. From the under- quartiles for the open-pit plus block-cave and
ground model, three additional models were underground models. A significant difference at the
derived: (1) volcanogenic massive sulfide deposits; 5% level was only found for the lowest quartile
(2) low-sulfide gold–quartz veins; and (3) epithermal (smallest reserves) of the open-pit plus block-cave
gold deposits. Deposits were classified according the model (t = 2.19; Table 7). Changes in the parameter
system of deposit models used by the U.S. Geolog- a over time were evaluated by dividing the data into
ical Survey (Cox and Singer, 1986). Table 6 gives the five time intervals, 1900–1969, 1970–1979, 1980–
results of testing the estimated parameter a for the 1989, 1990–1999, and 2000–2007. Ten models were
six new models against that estimated for the two generated by this subdivision of the open-pit plus
original models. A significant difference, at the 5% block-cave and underground models, none of which
level, was found only for the underground low- generated a significantly different value for a except
sulfide gold–quartz vein model. These are narrow the period 1990–1999 for the open-pit plus block-
veins that pinch-and-swell, which may limit capacity cave model (t = 2.02; Table 8). Taken together, this
Re-Estimation of TaylorÕs Rule 61

is fairly good evidence for the robustness of the Table 9. Extended Model Estimation Results
open-pit plus block-cave and underground models, Model Observations R2 Coefficient Estimate t
despite the assumption of constant elasticity and
mixture of deposit types. Epithermal 162 0.824 a1 0.544 18.593
Au—X1, X2, X3 a2 0.342 5.736
a3 0.725 2.841
b 3.651 3.014
Epithermal 162 0.815 a1 0.563 19.302
ALTERNATIVE MODELS
Au—X1, X2 a2 0.352 5.776
b 0.484 0.998
Equation 1 can be extended to several variables Epithermal 162 0.777 a1 0.649 23.589
as follows: Au—X1 b 2.021 4.543
Porphyry 53 0.849 a1 0.572 11.486
X
N
Cu—X1, X2, X3 a2 0.560 3.960
C¼b Xnan ð3Þ a3 0.070 0.541
n¼1 b 1.248 1.549
Porphyry 53 0.848 a1 0.586 13.615
where Xn is an explanatory variable, such as reserves Cu—X1, X2 a2 0.576 4.181
or grade. Taking the natural logarithm of both sides b 1.204 1.513
of Eq. 3 yields Porphyry 53 0.795 a1 0.650 14.214
Cu—X1 b 2.046 2.337
X
N Carlin 79 0.726 a1 0.565 12.497
ln C ¼ ln b þ an ln Xn ð4Þ Au—X1, X2, X3 a2 0.315 2.971
n¼1 a3 0.207 0.838
b 1.545 1.312
which can be estimated by ordinary least-squares Carlin Au—X1, X2 79 0.723 a1 0.578 13.612
methods. Lasserre (1985) found that, aside from a2 0.345 3.463
reserve tonnage, reserve grade, cost of capital, and b 0.755 1.073
Carlin Au—X1 80 0.679 a1 0.573 12.853
cost of labor, were significant determinants of the
b 0.983 1.343
demand for capital for a mine. In terms of capacity,
if two deposits with the same reserve tonnage were All models are of open-pit mines in the United States. The
of a different grade, a higher capacity may be justi- extended model includes the explanatory variables X1, reserve
tonnage, X2, reserve grade, and X3, a capital cost index (Bureau of
fied for the lower-grade deposit to obtain an annual
Labor Statistics Index 112).
metal output comparable to that of the higher-grade
deposit. Everything else held equal, higher capital
costs might result in a lower capacity than otherwise covering most of the mines in the data. To avoid
would be chosen. Higher labor costs should, as issues of differing capital costs between countries,
Lasserre (1985) observed, increase demand for only US mines were used.
labor-saving capital, indirectly increasing capital Three extended models were tested (Table 9),
costs. Given that relative labor and capital costs all open-pit mines, corresponding to three deposit
affect the composition of capital, and not capacity, types, carbonate-hosted gold (Carlin-type), epither-
an extended model composed of reserve tonnage, mal gold, and porphyry copper. All three models
grade, and a capital cost index was tested. show an improvement in R2 of about 0.04–0.05 by
The data show multiple populations in terms of adding grade to reserve tonnage as an explanatory
grade. Gold deposits are of very low grade, con- variable (Table 9). The capital cost index had
ventionally measured in grams per metric ton (parts explanatory power only in the case of epithermal
per million), whereas base metal grades are mea- deposits, adding 0.009 to R2. Clearly, reserve ton-
sured in percent (parts per hundred). Hence, the nage is the most significant explanatory variable.
extended model was tested according to deposit type Capital costs play little or no role in determining
to ensure homogeneity in grade. The mines in the capacity in these models. Whether it is worth adding
data date from 1908, well before the start of any grade is a practical matter. For the original purpose
capital cost index known to the author. To test the of TaylorÕs Rule, a rough capacity estimate to serve
extended model, the U.S. Bureau of Labor Statistics as a starting point for a feasibility study, the original
Index 112, for construction machinery and equip- open-pit plus block-cave and underground models
ment, was used as a proxy for capital costs because it should be sufficient. At the U.S. Geological Survey,
is available for the period 1965 to the present, we will likely use deposit-type specific models that
62
incorporate at least grade to simulate the cost dis-
tribution of known and undiscovered deposits.
DISCUSSION
There have been many attempts to derive
optimal mine capacity by various methods, including
modifications to the Hotelling (1931) model of
extraction from a finite resource (Cairns, 2001), net
present value criteria (Smith, 1997), and marginal
analysis (Sabour, 2002). None of the models obtains
results consistent with actual practice as empirically
observed in studies such as this one. All of the
proposed methods tend to specify optimal output
rates far in excess of observed capacity choices. This
is not surprising in that none of these methods
impose restrictions based on technology, which
suggest that there could be diseconomies to scale if
too large a capacity is selected.
The history of the mines examined for this study
show that, for sufficiently large deposits, reserves are
not fully delineated prior to commencement of
production, and that these mines often undergo
several phases of capacity expansion as reserves are
expanded over time. This phenomenon is consistent
with the hypothesis of technological and capital cost
constraints that limit actual capacity to levels much
lower than otherwise optimal. For a very large
deposit, fully exploring that deposit and developing
a mine to match, prior to realizing any revenue, is
probably too costly. Capacity expansions may also
be justified by an increase in metal prices or a
decline in costs such that lower-grade ores are added
to reserves. Cost-saving technical innovation is a
significant long-run factor in adding to reserves
(Long, in press). Capacity may also be expanded to
maintain a given metal output if grade is declining.
This study does not isolate the relative contributions
of these various factors, but does establish that
reserve additions and capacity expansion are com-
mon features of metal mining.
This study does show that TaylorÕs empirical
relationship holds across time, deposit type, and
deposit size, with little or no significant variation in
the estimated coefficients. This remarkable fact
requires explanation. Taylor (1986) opined that
physical limitations on working a deposit are at
work. In the case of an open-pit mine, access can
only be from one direction, from the surface down,
and the amount of ore extracted from a pit is limited
by geometry of the ore body and other factors that
Long
affect pit design, such as rock strength. These factors
work together to require significant mining of rock
not of ore grade in order to access the ore. In the
case of an underground mine, with the significant
exception of block-cave mines, a large portion of the
ore reserve must be left in place during the main
phase of mining for roof support, and if ever
recovered, is removed only in the last stages of
mining. The depth and geometry of the ore put
limits on the number of working faces that can be
maintained at a time as well.
There may be a myriad of geotechnical factors
at work here, which bear further study. Comparison
with a better understood deposit type—petro-
leum—is useful to understand this phenomenon.
Adelman (1993) and Cairns and Davis (2001) have
demonstrated that petroleum reservoir pressure
places practical limits on extraction rate or capacity.
Pressure declines as production advances, hence
individual well production declines over time,
regardless of any economic factors. Thus reservoir
pressure, a physical rather than an economic vari-
able, is the limiting factor on production. A ÔTaylorÕs
ruleÕ for initial oil well capacity would have to
account for reservoir pressure as well as initial
reserves. We can infer from the results of this study
that physical factors governing access to ore limit
capacity for metal mines as well.
As Cairns and Davis (2001) show in the case of
petroleum, these physical limitations are the
‘‘scarce’’ factor, not the size of the resource being
extracted. Hotelling (1931) proposed that the equi-
librium price of an exhaustible resource, net of
marginal extraction costs, would rise at the rate of
interest. Such a phenomenon has not been empiri-
cally observed nor does it figure into the conscious
decision making of mine planners. HotellingÕs model
has a number of restrictive assumptions that, when
relaxed, often result in models that better fit with
observed reality. As Cairns and Davis (2001) show, a
physical constraint on production capacity substi-
tutes a different kind of scarcity, reservoir pressure,
that completely changes the dynamics of pricing
mineral resources. Consistent with Adelman (1993),
Cairns and Davis (2001) show that the value of
petroleum reserves is only about half that predicted
by HotellingÕs model. This study shows that metal
mine capacity will increase proportionately less than
reserves, due to physical limitations on mine
capacity. Under HotellingÕs model, capacity would
ultimately be governed by the interest rate, there
being no physical limitations at play. Thus, we would
Re-Estimation of TaylorÕs Rule
expect the value of metal reserves to be less than
that predicted by HotellingÕs model as well.
The original data collection for this study did not
consider measures of physical limitations to mining.
For the future, such data will be collected and the
overall database extended to include unrepresented
and under-represented deposit types, particularly
nonmetallic deposits. Aside from developing useful
predictive tools, these efforts should shed more light
on the physical limitations to mining capacity.
CONCLUSIONS
TaylorÕs Rule relating capacity to estimated
reserves has been re-estimated using a large sample
of mines representing many countries with free-
market economies and several mineral commodities.
The empirical data were found to divide into two
groups, open-pit plus block-cave mines versus all
other underground mines, which were estimated
separately. TaylorÕs three-quarter percent rule was
found to be too large in each instance, the propor-
tional coefficient being 0.65 for open-pit plus block-
cave mines and 0.56 for all other underground
mines. The good fit of the data to the model, and
several tests of alternative models, supports the
model assumption of constant elasticity of scale,
over the range of the data.
These new estimates, based on a large dataset
including underground mines, should be more reli-
able and have wider applicability than previous
estimates. For feasibility studies, the appropriate
model can be used to estimate an initial capacity
from which an iterative search for an optimal
capacity may begin. For scoping studies and other
rough calculations of probable mining costs, the
appropriate model can be used outright to estimate
capacity. The 95% confidence intervals estimated
give a useful range in capacity based on past and
current mining practice.
The constancy of the coefficient a over a range
of commodities, deposit types, deposit sizes, and
time, are consistent with TaylorÕs intuition that
physical factors limit mine capacity. Put simply,
63
mine capacity can only grow about half to two-thirds
of the rate of increase in reserves, which is signifi-
cantly less than what mine planners, using net
present value calculations, would likely choose. This
observed limitation on capacity renders HotellingÕs
rule irrelevant for mineral resources, just as it does
for petroleum. A better understanding of these
physical limitations to mine capacity will help
explain observed capacity choices, mineral pricing,
and the valuation of mineral deposits and mines.
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