Department of Mining Engineering, University of Liberia Cutoff grade Policy • Background • Inputs to cutoff grade calculation • Cutoff grade calculation techniques – Breakeven analysis – Optimal cutoff grade policy • Lane’s approach – Difference between breakeven and optimal cutoff grade analysis Background • Cutoff grade – Classifies ore and waste • Ore – material above cutoff grade – Destination - processing plant • Waste – material below cutoff grade – Destination - waste dump – Categorizes ore for distribution among multiple processing streams – Defines potential ore Background • If cutoff grade is 0.35% Background • Quantities of ore and waste – Can we mine, process, and refine the identified quantities of material, ore, and metal? • Mining, processing, and refining capacities – Production schedule • Cutoff grade policy – Identifies the life of operation production schedule in terms of cutoff grade, quantity mined, processed, and refined • Cash flows – discounted and undiscounted Input parameters • Economic parameters – Price of metal, mining cost, processing cost, refining/selling/marketing cost, fixed/period cost, recovery, discount rate • Geological parameters – Grade-tonnage curve inside the ultimate pit limit or pushbacks Input parameters • Economic parameters – Period/year indicator (t) – Cash flow in period t (CFt) – Metal price (p), $ per gram or tonne of metal – Refining cost (r), $ per gram or tonne of metal – Mining cost (m), $ per tonne of material – Processing cost (c), $ per tonne of ore – Period cost (f), $ per year – Metallurgical recovery (y), % – Discount rate (d), % Input Parameters • Geological parameters – Optimum cutoff grade (G), grams per tonne or % – Average grade of ore ( ), grams per tonne or % – Quantity of material corresponding to a particular grade in the grade-tonnage curve (q), tonnes – Total quantity of material inside the pit or pushback (Q), tonnes – Quantity of material to be mined in period t (Qmt), tonnes of material – Quantity of ore to be processed in period t (Qct), tonnes of ore – Quantity of metal to be refined in period t (Qrt), grams or tonnes of metal Input Parameters • Production capacities – Mining capacity (M), tonnes of material per year – Processing capacity (C), tonnes of ore per year – Refining capacity (R), grams or tonnes of metal per year Breakeven cutoff grade Breakeven cutoff grade
• Constant throughout the life of operation
• Maximizes undiscounted cash flows • Ignores the grade-tonnage curve of the deposit and production capacities Breakeven cutoff grade – case study Breakeven cutoff grade – case study Breakeven cutoff grade – case study • Cutoff grade policy – Step 1: determine cutoff grade – Step 2: determine quantity of ore (qo) and quantity of waste (qw), stripping ratio (SR), and average grade ( g ) of ore – Step 3: determine Qm, Qc, and Qr Breakeven cutoff grade – case study – Step 4: determine cash flow for year t, CFt Breakeven cutoff grade – case study Breakeven cutoff grade – case study Breakeven cutoff grade – case study Breakeven cutoff grade – case study Breakeven cutoff grade – case study Optimal cutoff grade – Lane’s approach • Maximizes net present value (NPV) of future cash flows • Satisfies – Production capacities constraints • Accommodates – The grade-tonnage curve • Dynamic – Higher during early years and lower during later years of operation Optimal cutoff grade – Lane’s approach Optimal cutoff grade – Lane’s approach • Problem solution – Determine optimum cutoff grade that maximizes NPV • Limiting economic cutoff grades – gm , gc , gr • Balancing cutoff grades – gmc , gmr , gcr • Optimum cutoff grade G is chosen among balancing and limiting economic cutoff grades Balancing cutoff grades • Mine and process balancing cutoff grade – Mine and process are in balance if quantity of ore per unit of material mined equals C÷M Balancing cutoff grades • Mine and refinery balancing cutoff grade – Mine and refinery are in balance if quantity of metal per unit of material mined equals R÷M Balancing cutoff grades • Process and refinery balancing cutoff grade – Process and refinery are in balance if recoverable metal content per unit of ore equals R÷C Limiting economic cutoff grades • If it takes time t to mine next Qm of material, the cash flow realized at the end of time t is CFt CF = (p r)Qr + cQc + mQm + ft Limiting economic cutoff grades Limiting economic cutoff grades Limiting economic cutoff grades • Mine limiting economic cutoff grade – Opportunity cost is distributed per tonne of material mined Limiting economic cutoff grades • Process limiting economic cutoff grade – Opportunity cost is distributed per tonne of ore processed Limiting economic cutoff grades • Refinery limiting economic cutoff grade – Opportunity cost is distributed per gram of metal refined Optimum cutoff grade Optimum cutoff grade – case study • Cutoff grade policy – Step 1: Calculate balancing cutoff grades – Step 2: Calculate limiting economic cutoff grades, assume initial V = 0 – Step 3: Calculate optimum cutoff grade – Step 4: Calculate quantity of ore (qo), quantity of waste (qw), average grade of ore, and stripping ratio • Cutoff grade policy – Step 5: Calculate Qm, Qc, and Qr – Step 6: Calculate cash flow for period t, CFt – Step 7: Calculate life of operation (T) – Step 8: Calculate new V • Check for convergence of V, if converged go to next step, otherwise, go to step 2 and recalculate limiting economic cutoff grades using new value of V Calculate balancing cutoff grades Mine and process balancing cutoff grade Mine and refinery balancing cutoff grade Process and refinery balancing cutoff grade Limiting economic cutoff grades • Cutoff grade policy – year 1 Choosing the optimum cutoff grade Choosing the optimum cutoff grade Optimal cutoff policy – case study Optimal cutoff policy – case study Optimal cutoff policy – case study • Cutoff grade policy – year 1 Optimal cutoff policy – case study • Cutoff grade policy – year 1 Optimal cutoff policy – case study Optimal cutoff policy – case study Optimal cutoff policy – case study Optimal cutoff policy – case study • Cutoff grade policy – year 2 – Calculate balancing cutoff grades – new grade- tonnage curve – Repeat all steps as in year 1 Optimal cutoff policy – case study Difference between breakeven and optimal cutoff grade policy • Higher NPV • Life of operation • Dynamic cutoff grade – Decline in NPV with depleting reserves, higher cutoff grade during early years and lower cutoff grade during later years – Stockpile – potential ore • Increase in life of operation • What if only processing plant limits the operation?