526 Open pit mine planning and design: Fundamentals ‘Table 6.18. Incremental capital investments and annual cash flows, Scenario Capital investment ($108) ACash Now (610°) a mr ™ 76 aM 628 18 2666 402 14 4000 am 13 Repeating this process for the others one finds Scenario i TI>16 — D.1% T6475 18.6% T5>74 14.6% TASTR — 89% Now it can be seen that the optimum scenario is 7-4 rather than 7-3. The milling rate would be 15,300 tpd, 16. Examine all of the other scenarios with respect to the best current one. For pit 7, the best scenario is 7-4. For pit 6, seetariv 6-6 haya higher «otal ore tonnage than 7-4 with an acceptable rate of return on the additional capital expenditure, It thus becomes the best current alternative. Plan 6-5 is beter than 6-6 and 6-4 is better than 6-5. Plan 6-3 is not acceptable, Pit 5 alternatives are compated against 6-4. As can be seen from the table, the overall best plan is between Plan 5-4 and Plan 5-3. The economic cutoff (mill cutoff) for the pit is 0.34% Cu. This leads to the following operation Ore reserve = 253,000,000 tons. Mill rate = 33,580 pd Mining rate = 116,600 tpd Average ore grade = 0.864% Cu Mine life = 25 years Capital investment = $95,500,000 6.7 LANE’S ALGORITIIM 6.7.1 Introduction In 1964, K.P. Lane (Lane, 1964) presented what has become a classic paper entitled *Choos- ing the Optimum Cut-off Grade”. This section will describe his approach and illustrate it with au caainple. Ay hap been discussed earlier Cutoff grade 1s the criterion normally used In mining to discriminate between ore and waste in the body of a deposit. Waste may either be left in place o sent to waste dumps. Ore is sent tothe treatment plant for further processing and eventual sale.Production planning 527 Maximum Unit Material Capacity Costs MINE Mom ow GONCENTRATOR coe Concenirato REFINERY Roof Prowet | Markt thor Factors Fixed costs Soling prices Recovery Figure 6.21. The model described by the Lane algorithm (Lane, 1968). The choice of cutoff grade can directly affect profits. This chapter will examine the principles which determine the best choice of a cutoff grade under different circumstances. ‘A mining operation is considered to consist of three stages: mining, — concentrating, and = refining. Each stage has its own associated costs and a limiting capacity. The operation as a whole will incur continuing fixed costs. The three most important economic criteria which can be applied are: ‘Case I: Maximum present value. Case Il: Maximum total profits. Case II: Maximum immediate profit, ‘The maximum present value gives the economic optimum and is that generally applied lacking special circumstances. It is the one which will be used in this book. As has been shown by Lane (1964) the second and third correspond to the application of special discount rates in the first. Case Il, maximum total profits, corresponds toa discount rate of zero percent whereas Case IIT is for a high value In this chapter, attention is focussed on choosing a cutoff grade to maximize the present value of the cash flow from the operation 6.7.2 Model definition Figure 6.21 15 a diagrammatic representation of the elements and symbols used in the model. Definitions of the maximum capacities, unit costs and quantities involved in the evaluation are presented below.528 Open pit mine planning and design: Fundamentals 1, Maximum capacity: M is the maximum amount of material (ore and waste) that the mine can produce in a given time period (for example 1000 tons/year). Itis therefore a restriction ‘on the maximum rate of progress through the orebody. C is the maximum amount of ore which can be put through the concentrator in a given time period (for example 500 tons/year), assuming unrestricted availability of input ore from the mine. A concentrate of fixed grade is produced. Ris the maximum amount of final product produced in the time period (For example 500 Ibs/year), assuming unrestricted availability of concentrate from the concentrator. The maximum can be due to a restriction on refinery throughput or a market limitation. 2. Costs: m are the mining costs expressed in $/ton of material moved. These are assumed to be the same irrespective as to whether the material is classified as ore or waste, The unit mining costs include drilling, blasting, loading, hauling, tc. ‘care the concentrating costs expressed in $/ton of material milled. The unit cost c includes: crushing, grinding, floating, leaching, etc. It also includes some haulage if ore is trucked farther than waste (if not, this can become a credit item in calculating c) ‘rincludes all costs incurred at the product and selling stages such as smelting, refining, packaging, freight, insurance, etc, These are expressed in terms of $ per unit of product. For copper it would be $/I. J the fixed cost, includes all costs such as rent, administration, maintenance of roads, and buildings, etc. which are independent of production levels (within normal limits of variation) but which would cease were the mine to be closed. It is expressed in terms of a fixed cost over the production period considered (for example 1 year). Other costs such as head office charges, depreciation, etc. are not included. 5, the selling price, is expressed in terms of selling price per unit of product. Ibis @ gross figure provided all selling charges are included in r. If not they must be subtracted from s. Ys the recovery, isan overal figure for the concentrator and the refinery. Itis that proportion ‘of the mineral contained in the original ore feed retained in the final product. 3. Quantities: Tis the length of the production period being considered (for example I year); Qn is the quantity of material to be mined, Q. is the quantity of ore sent to the concentrator and Q, is the amount of product actually produced over this production period 6.7.3. The basic equations Using the definitions given in the preceding section, the basic equations can be developed. ‘The total costs T- are mQn + eQ. + 1Q, + fT 62) ‘Since the revenue K 1s R=s0, (68) the profit P is given by P=R-T. = 30, — (Qn +60. +10, +f) 69) Combining terms. vields P=(s=1)Q,~cQ. ~mQy — fT (6.10) This is the basie profit expression. It can be used to calculate the profit from the next Oy of material mined.Production planning 529 6.19. Initial mineral inventory for the Lane example Grade (Ihston) 00-01 01-02 02-03 03-04 04-05 05-06 06-07 o7-08 08-09 09-10 6.7.4 An illustrative example ‘To introduce the reader in a soft way to the problem being explored in detail in this section consider the following example. A final pit has been superimposed on a mineral inventory. Within the pit outline are contained 1000 tons of material, The grade distribution is shown, in Table 6.19. The associated costs, price, capacities, quantities and recovery are: Costs mining = $1/ton concentrating = $2/ton refining = $5/Ib F = fixed cost Price 25 /lb Capacities M = 100tons/year 0 tons/year R= 40 Ibs/year Quantities Qn = amount to be mined (tons) a mount sent to the concentrator (tons) Q, — amount of concentrator praduct sent for a ing (bs) Recovery(Yield) y 1,0(100%recovery is assumed).530. Open pit mine planning and desien: Fundamentals There are a great number of possible mine, concentrator and refinery operating combi: nations. Which is the optimum? In this section the basic equations will be developed in addition to demonstrating the process. However, prior to beginning the theoretical treat ment, it is considered useful to briefly consider just one of these operating combinations. ‘The total amount of material tobe mined Quis 1600 tons. Ifthe mine is operated at capacity (100 tons/year) then the pit would be mined out over a time period of 10 years. Assuming that the grades (Table 6.19) are equally distributed throughout the pit and a concentrator cutoff grade of 0.50 Ibs/ton is used, then 50 tons of material having an average grade of 0.75 Ihsfton would be sent to the concentrator every year. The other 50 tons would be sent to the waste dump. Since the concentrator capacity C is 50 tons/year, this is an accept- able situation. The concentrator product becomes the refinery feed. In this case it would be 37.5 Ibs/year (0.75 Ibs/ton x 50 tons/year). Since the refinery can handle 40 bs/year, it ‘would be operating at below its rated capacity R. This combination of mining rate and cutoft grade would yield a yearly profit P, of P, = (25 ~ 5)37.5 ~2 x 50 — 1 x 100 — 300 = $250 ‘These profits would continue for 10 years and hence the total profit would be $2500. The NPV assuming an interest rate of 15% would be 250{(1.15)"° 0,151.15)" ‘The first question to be asked is whether some other combination of mine production rate and concentrator cutoff grade would yield a better profit from this deposit? ‘The larger question is whether the various plant capacities (with their associated costs) are optimum? ‘The procedure described in this section isa way of determining the combination yielding the ‘maximum profit fora given set of operating constraints. The constraints may then be changed (mine, concentrator and refining capacities, for example) and the profit corresponding to this new combination determined as well as how the various capacities should he utilized ver the life of the pit NPV = $1,254.69 6.1.5 Cutoff grade for maximum profit Step I. Determination of the economic cutoff grade ~ one operation constraining the total capacity As indicated, the basic profit expression (6.10) is. P=(5—1)Q, ~ CQ, MO _, — fT Calculate cutoff grade assuming that the mining rate is the governing constraint. If the mining capacity M isthe applicable constraint, then the time needed to mine material Qy is Qa 14 = in = Be (n Equation (6.10) becomes P=(s—r)0Q, ~<0,~ (+4) on (6.12) “Tofu dhe glade which eniies te prfcunde is couse ne fis ake dhe et ale of (6.12) with respect og dP dQ, dQ, ( Ff \4Qm BF ps — 9 — A _ (mg £ 6.13 te de dg - n) de is)Production planning 531 However the quantity to be mined is independent of the grade, hence Qn ie .14) Equation (6.19) becomes ap a eo ne (6.15) ‘The quantity refined Q, is related to that sent by the mine for concentration Q- by Q, = By. (6.16) where is the average grade sent for concentration, and y is the recovery. ‘Taking the derivative of Q, with respect to grade one finds that dQ, _, dO Be 6.17 ag 72 6.17) Substituting Equation (6.17) into (6.15) yields ap de che [@ — nay -de (6.18) The lowest acceptable value of Z is that which makes ap Pao dg ‘Thus the cutoff grade gm based upon mining constraints is the value of which makes (s=nay-c=0 Thus a (6.19) “ ye-n om Substituting the values from the example yields 82 bo — TERE ~ hOtbs Hon Calculate cutoff grade assuming that the concentrating rate is the governing constraint. If the concentrator capacity C is the controlling factor in the system, then the time required to mine and process a Q- block of material (considering that mining continues simultaneously with processing) is 2. & 6.20) C (6.20) Substituting Equation (6.20) into (6.10) gives P= (5-190, €0.~ Om -F (621) Rearranging terms one finds that P (s-)Q, - (« + Lo. 2m532. Open pit mine planning and design: Fundamentals Differentiating with respect to g and setting the result equal to zero yields ap 40, f Qn = =(s-n= —~(¢ mt ae (c+ Hoa As before Qn ‘The cutoff grade when the concentrator is the constraint is, eth yer) For the example, this becomes 3245 = 0.40 = T9925 — $5) (6.22) Calculate cutoff grade assuming that the refining rate is the governing constraint. If the capacity of the refinery (or the ability to sell the product) is the controlling factor then the time is given by gr TAR Substituting (6.23) into Equation (6.10) yields Qe — MOn Qe ~ MOn Lo Differentiating with respect to g and setting the result equal to zero gives eae -f) a 0. _ 10m _ ae dg “de "de Simplifying and rearranging gives € (r= a)s or this example 8 = = 0.16 (825 — $5 - 882) 1.0 (6.23) (6.24) (6.25) (6.26)Production planning 533 One can now calculate the amount of material which would be concentrated and refined under the various constraints as well as the time required. When the mining rate of 100 tons/year is the constraint 100010 [OO tons/year Since the cutoff grade gq is 0.10 Ibs/ton, a quantity Q, of 900 tons having an average grade of 0.55 Ibs/ton would be sent to the concentrator. The total amount of product refined and sold Q, is Q, = 900 x 0.55 = 495 Ibs ‘Substituting these values into the profit equation gives, Pp = (S25 ~ $5)495 — $2 x 900 — $1 x 1000 ~ $300 x 10 = $4100 ‘The same procedure can be followed with the other two limiting situations. The results are ziven below: Concentrator limit: Be = 0.40 Ibs/ton Q. = 0.60 x 1000 = 600tons 0 tons/year Tm years 600 OO = i2years 30 1000 12 Tbs tons, Q, = 600 x 0.7 x 1.0 = 420Ibs P. = (25 ~ 5)420~2 x 600 — 1 x 1000 — 300 x 12 = $2600 83.3 tons/year a1 Refinery limit: 8 = 0.16 Ibs/ton = 0.58 bs/tons Q. = 0.84 x 1000 = 840:tons Q, = 840 x 0.58 x 1.0 = 487.2 Ibs 487.2 AA = 12.18year T, = ~Gy~ = 12-1 8years 1000 M = 5g = 82:1 tons/year ee car C= Pig = Pye P, = (25 ~ 5)487.2 —2 x 840 — 1 x 1000 — 300 x 12.18, = $3410534 Open pit mine planning and design: Fundamentals Table 6.20. Tota profits as a function of concentrator cutoft with mine ‘operating at capacity. & Profits (8) Pn », 00 3250 o1 1700) 3386 016 2024 3410 02 2200 3400 03 2500 3287.50 oa 2es0 3050) 05 2500 2687.50 06 2200 2200 07 1700 1587.50 08 1000 850 09 100 =1250 095 425 112s In summary, for each operation taken as a single constraint, the optimum cutoff grades are: Sm = 0.10 Be = 0.40 8 = 0.16 ‘The total profits assuming the single constraint of mining, concentrating or refining are given as a function of cutoff grade in Table 6.20. The values have been plotted in Figure 6.22. Step 2. Determination of the economic ewoff grade by balancing the operations In the first step, it was assumed that only one of the operations was the timiting factor to production capacity. A second type of cutoff is based simply on material balance. To be able to calculate this ‘one needs to know the distribution of grades of the mined material. The average grade of the treated material can be found as a function of the chosen cutoff. The average grade, and the number of units involved are given as a function of cutoff grade in Table 6.21 For both the mine and mill to be at their respective capacities, then Qn = 100 tons Q. = 50tons ‘Ay can be seen from Table 6.21, the cutoff grade should be 0.5 Ihs/ton. This balancing cutoft between mine and concentrator is expressed a8 gq... For the concentrator and the refinery to be at full capacity 2. = S0t0ns 2, = 400008. ‘The relationship between Q. and Q, is shown in Table 6.22. In examining Table 6.22, it can be seen that the required balancing cutoff grade g., is Ber = 0.60Production planning 535 4000 Pent (8) 101602 05 404505 06 07 \08 09 ‘Gut Grau (bso) Figure 6.22. Total profit as a function of cutoff grade under different constrains Table 6.21. Concentrator feed as a function of concentrator cut with mine operating at capacity Mined amount Concentrator eutotT Feed going to the (Gn) tons) rade (ge) (Ibston) concentrator (Q. tons) 100 0 100 100 ou 90) 100 02 80 100 03 70 100 os oo 100 0s 50 100 06 40 100 07 30 100 08 20 100 09 10 ‘The final balancing cutoffic hetwean the mine and the refinery. Ac euen in Tabla 6.23 (aceumn- ing 100% concentrator recovery) a cutoff grade of 0.4 yields 42 Ibs of product whereas 0.5 yields 37.5 Ibs. The desired level of 40 Ibs lies between these two. Interpolating one finds that Snr = 0.456 Ibs /ton536 Open pit mine planning and design: Fundamentals ‘Table 6.22. Refinery product asa funetion of concentrator cutofT with concentrator ‘operating a capacity Amount to be Concentrator ‘Avg. cone Refinery concentrated (Q.) cutoff grade (g.) feed grade (Z,) product (Q,) (ons) (boston) i) ‘bey 50 0 0s 25 50 ol 055 275 30 02 os 30 50 03 065 325 50 oa o7 35 50 03 075 a7 50 06 08 40 50 07 08s 225 50 08, 09 45 50 09 095 a5 Table 6.23. Refinery feed as a function of mine cutofT with the m capacity assuming 100% concentratory recovery). we operating at Mined amount (Qn) Mine cutoft grade (en) Refinery product (Q,) (tons) ston) i) 100) 0 50 100 ou 495 100 02 48 100 03 455 00 04 2 100 os 315 100 06 322 00 on 233 100 08 18 100 09 95 In summary, when the operations are taken in combination, the optimum cutoff grades are: Be = 0.50 Ber = 0.60 Bar = 0.456 Step 3. Determining the overall optimum of the six cutoff grades There aresix possible cutoff grades. Three (Rme, Bers nd fr) are based simply upon the grade distribution of the mined material and capacities. The other three (gq, ge. and g,) are based upon capacities, costs and the price. The objective isto find the cutoff grade which produces the overall maximum profit in light of the mining, concentrating and refining constraints, The local optimums for each pair of operations are first considered. ‘The corresponding ‘optimum grades for each pair (Cru, C, Bm Bm = Bm Gwe =} 8 8m > Be (6.26a) Bne otherwise and Grpr) are golosted using the following rules:Production planning 537 Be Be = Br Gre =) Be iBn 2 Be (6.26b) Bre otherwise fn ifr E Bm Gur = 4 &r ifr 2 Br (6.26c) Bnr otherwise ‘The overall optimum cutoff grade G is just the middle value of Gye, Gur, and Ge. In our example the six possible cutoff grades are: Consider them in groups of three: Bm = 0.10 Group! ge =0.40 Choose the middle value Ge = 0.40 Bm = 0.50 Bm = 0.10 Group2 g, =0.16 Choose the middle value Gyr = 0.16 Bmr = 0.456 10 40 Choose the middle value G,- = 0.40 0.60 Group3 Considering the three middle values Ge = 0.40 Grr = 0.16 Ger = 0.40 ‘one chooses one numerically in the middle G =0.401bs/ton From Table 6.24, the average grade Z, of the material sent to the concentrator for a cutoff of 0.40 Ibs/ton would be He = 0.10 Ibs/ton Far 108 reenvory the quantities are Qn = 1000 tons 600 tons = 420 bsSAR Open pit mine planning and dosign: Fundamentals Table 6.24. Grade: stration forthe frst 100,on parcel mined, Grade (hon) ‘Quantity (ons) 10 10 0 10 10 10 10 to lo 10 Applying the respective capacities to these quantities one finds that 600 T= = p2year 50 ears 420 S = 10.5 yes a = 1005 years 1000 Ty = = 10 yea Too es ‘Since the concentrator requires the longest time, it controls the production capacity. The total profit is P = $2600 and the profit per year Py is $2600 216.7 years = $216-70/year ‘The net present value of these yearly profits assuming an interest rate of 15% is d+) = 11s —1 NPV = P, ——_— = $216,270 —_—____ 14.60 +5 aise = 811% In summary: the concentrator is the controlling production limiter; concentrator feed =SOtons/year; optimum mining cutofT grade=0.40 Ibs/ton (constant); total con- centrator feed = 600ons; average concentrator feed grade—0.70Ibs/ton; years of production = 12 years: copper production/year = 35 Ibs; total copper produced = 420 Ibs; total profits = $2600.40; net present value = $1174.60. 6.7.6 Net present value maximization ‘The previous section considered the selection of the cutoff grade with the objective being to maximize profits. In most mining operations today, the objective is to maximize the net present value NPV. In this section the Lane approach to selecting cutoff grades maximizing NPV subject to mining, concentrating and refining constraints will be discussed.Production planning 530 For the example of the previous section a fixed mining cutoff grade of 0.40 Ibsfion was. used. One found that ‘The yearly profit would be 15.0 x $20 — 50 x $2 — 83.3 x $1 — $300 $216.70 P, ‘when finding the maximum total profit, the profits realized in the various years are simply summed, The total profit is, therefore 2 Pr = DOP) = 12 x 216.7 = $2600.40 ‘The net present value for this uniform series of profits (Chapter 2) is calculated using, a+it-1 y= ptt NV Te Assuming an interest (discount) rate of 15% one finds that a.15)? = 1 NPV = 216.7575 age = SHI746 ‘The question to be raised is “Could the NPV be increased using a cutoff grade which, instead of being fixed, varies throughout the life of the mine?” Ifso, then ‘What should be the cutoff zgtades as a function of mine life?” These questions have been addressed by Lane and are the subject of this section. Assume that just prior to mining increment Qq (shown to commence at time t=0 in Figure 6.23 for simplicity), the present value of all remaining profits is V. This is composed of two parts. The first, PV,, is from the profit P realized at time 7’ by mining the quantity Qn. The second, PV,, is obtained from profits realized by mining the material remaining after time T. These profits are indicated as P occurring at time Ts. P> occurring at time Ta, etc., in Figure 6.23. The value of all these remaining profits for mining conducted after 1 = T as expressed at time T is W. The present values of W and P, respectively, discounted to time 1 =0 are given by Ww. PVA(E = Tar (6.27) PY,(1=0) = 6.28 Wt = O= ar eae where d is the discount rateS40 Open pit mine planning and dosign: Fundamentals Figure 6.23. A diagrammatic representation of the NPV calculation. ‘The present value at time ¢ = 0 is therefore w P wart oar ae Since the present value at time 1 — TT of the remaining reserves is W, the difference » between the present values ofthe rematning reserves at times =U and t =T is v-w (6.30) Equation (6.29) can be rewritten as WH+P=V+d" (6.31) Applying the binomial expansion tothe tem (1 +d) one finds that (tat atere¢ Toh TE r= (6.32) Ford small, (1+)? can be approximated by (+a s14 Tt (6.33) Combining Equations (6.31) and (6.33) results in W4P=VU4Td)=V4VId or V-W=P-Vrd (6.4) Comparing Equations (6.30) and (6,34) one finds that v= P—VId (6.35) ‘The profit P obtained through the mining of Qy in ime T is given as before by P=(8~1)0,~€O, ~My —fT (6.36) Combining Equations (6.35) and (6.36) yields 5 —)O, — Q, ~ Om — Tf + Vd) (631)Production planning SAV ‘One would now like (o schedule the mining in such a way that the dectine in remaining present value takes place as rapidly as possible. This is because later profits get discounted more than those captured earlier, In examining Equation (6.37), this means that v should be maximized. As in the previous section one first takes the derivative of v with respect to ‘grade, Setting the derivative equal to zero, one can solve for the appropriate cutoff grades subject to mining, concentrating and refining constraints. Step 1. Determination of the economic cutoff grades one operation constraining the total capacity (9) Calculate cutoff grade assuming that the mining rate is the governing constraint ‘The time Tm is given by Qn Tm = 5 (638) Substituting this into Equation (6.37) yields va Ym s— 0.0. [m+ 0, 639) ifferentiatng (6.39) with respect to grade g gives dn f£+Vd] dQn t ae | aa 640) However the quantity mined Qj does not depend upon the grade: dQm — 41 ie (641) Hence om 42,40. Fe = 6 — eRe (42) ‘The relationship between the quantities refined Q, and those sent for concentration Qe QBey (6.43) where 2. is the average grade of ore sent for concentration and y is the recovery in concentration, ‘Thus 49, 8 Lay 6.48) Te ae 64) ‘Substituting Equation (6.44) into (6.42) yields am — (6.45) i 643) ‘The average grade 8. is defined as the mining cutoff (breakeven) grade gq when Vin ra (6.46) Setting Equation (6.45) equal to zero and solving for & = gq one finds that Bm © (6.47) (any547 Open pit mine planning and design: Fundamentals Substituting the values from the example yields 32 525 —$5)1.0 (b) Catculate cutoff grade ussuming that the concentrating rate is the governing constraint, Ifthe concentrator throughput rate is the limiting factor then the time T is controlled by the concentrator. a rok 6.48 a (6.48) where Qe is the total number of tons which will be sent to the concentrator, and C is the tons/year capacity Equation (6.37) becomes 10 Ibs/ton (= 0, = 60, = mda =F +arye (6.49) == 10, = 9, — my —m (650) Since the total amount of material Q,, is fixed, Qn = const “Thus the ewoff grade affects only Q, and Q, Substituting as before = Oke cone finds that - +a v= [lero (rs Je Om (651) ‘To make y, as large as possible the term (ftv (- nee (« oe shouldbe as arge as possible. At breakeven (the cutolt grade), the term is zero, Thus + Oe 6.52 & = Se=n oe (©) Calculate cutoff grade assuming the refining rate is the governing constraint, If the refinery output is the limiting Factor then the time T is controlled by the refinery, T (6.53, 4 » where Q, is output ofthe refinery and R isthe refining/sales capacity per year Substituting into Equation (6.37) yields Ye SSO, — C0, ~ On =f + av) (654) ) 2-0. ~m0n (655)Production planning 543 As before Q, = BryQc Thus f+dv Te) 8190. 00, — mn ‘The total amount of material in the pit is fixed, therefore Qn = const Maximizing the expression for V, one finds that (1-22) eo Solving yields Ss Qe (6.56) a= el) (-1- 4)» In summary. this first type of cutoff grade determination is based upon finding the grade for which the net increase in overall present value is zero. The expressions are as in formulas (6.47), (6.52) and (6.56): fa= Be y= r) c Br As can be seen, the expressions for ge and g, contain the unknown value of V Step 2. Determination of the economic cutoff grade by balancing the operations ‘This step is exactly the same as that discussed in the previous section. Hence only the results, will be presented here, Step 3. Determining the optimum of the six cutoff grades ‘There are six possible cutoff grades. Three are based simply upon the grade distribution of the mined material and capacities Bnc = 0.50 Ber = 0.60 Bn = 0.456S44 Apen pir mine planning and design: Fundamontale ‘The other three are based upon capacities and costiprice. Substituting in the known values one finds that ye=n) LOGS _ 840.0037 30 2 as-3 TS 00nTV Of these, two of the limiting economic cut-off grades are not known initially since they depend upon knowing the overall present value, This in urn depends upon the cutoff grade. Since the unknown V appears in the equations an iterative process must be used. ‘An optimum grade will be determined for each of the three pairs of operations. This will be followed by finding the optimum of the three final candidates. For the mine and the concentrator considered asa pair, there are three possible candidates for the optimum cutoff grade Gn. These aFe Bi, es atid Sync. The following rules are used to select Ge 8m ifm S 8m imc =} 8 ifBme = Be Boe otherwise G, ‘This simple sorting algorithm yields the middle value. Treating the concentrator and refinery aa pair, the optimum Gr. i found from Br Re S Br Be ite > Be Bn otherwise Finally the optimum cutoff grade Gy when the mine and refinery are treated as a pair is 8m ifn = Bm Br ilBir = Br Sar otherwise As the first step in the iteration process, it will be assumed that V = 0. Applying these rules to the example values 8m = 0.10 Be = 0.40 B= 0.10 Bre = 0.50 Bn = 0.60 Brn = 0.456Productian planning SAS ‘Table 6.25. Concentrator product as a function of concentrator cut grade with mine operating at capacity Concentrator ‘Concentrator ‘Average feed Concentrator/efinery cutoff feed ‘grade product ‘abston) (tons) ston) (as) 00 100 050 50 ou 90 035 495 02 80 0.60 48 03 0 065 455 04 0 0.0 2 0s 50 075 375 06 40 080 32 07 30 085 255 08 20 090 18 09 10 095 95 10. o 1.00 0 ‘one finds that Gime = 0.40 Gy = 0.40 Grr = 0.16 ‘The overall optimum cutoff grade G is the middle value of Gc, Gur, and Gr G = middle value (Gye, Ges Gre) In this case G=040 Step 4. Calculation of quantities ‘The next step in the procedure is to determine the maximum quantities Qn, Qe and Q- which could be produced and not violate the capacities. Assume that 100 tons are mined (Qn = 100). The grade distribution of this material is as shown in Table 6.24. From Table 6.25, a cutoff grade of 0.40 would yield an average feed grade of 0.70. Each of the capacities must, however, be considered. A mining capacity (Qn = M) of 100tons would ‘mean 60 tons to the concentrator and 42 product units. Both the concentrator and refinery capacities are exceeded. In meeting the concentrator capacity (Q- = 50), the required mining and refinery capacities are: 5 mn = 2 x 100 = 83.3 On = 3 x 100 Q, = 50 x 0.70 =35 These are both less than the maximum values. In meeting the refinery capacity of Q, = 40, the required concentrating and mining capacities are: 40 Bas m= 95 357.1 222100 = 95.2 6 |546 Open pit mine planning and design: Fundamentals Thus the concentrating capacity is violated. ‘The result is that the concentrator is the bottleneck In the Further calculations ‘The profit from time period T is expressed as Pa(s Qe cQ.~mOy~ fT For T = 1 year one finds that = 2x 50-1 x 83.3 — 300 x 1 = $216.7 P=(25-5)x Since the total amount of material to he mined from the pit is @ = 1000 units, the number nnof years required is, 1000 AO = 12 years wa ‘The present value V cortesponding to 12 equally spaced payments of P=$216.7 using an interest rate of 15 percent is 216.711.15!? — 1) 0.1515) This value of V becomes the second approximation of V (the first was V =0) for use in the formulas to calculate g. and gy. $174.6 4 we S766 &= Se ye= 3-5 Ber = 0.456 Applying the rules to select the overall pair optimum yields, Gye = 0.50 Gy = 0.576 Gye = 0.247Production planning S47 ‘The overall optimum is the middle value G=050 Returning to the grade distribution Table 6.24 one finds that the average grade is 0.75. Ifthe mining rate Qm — 100, then Q; = 50 antl Q, — 37.5. Both the mine and the concentrator are at their rated capacities, ‘The profit in a given year is P=(s—1)Q,—cQ. — mQn — fT = 20 x 375-2 x 50-1 x 100~ 300 = $250 ‘The number of years is @ _ 1000 Be 7 Too = 1oveas “The present value becomes 1.15! =1 V = 250-0 1 = $1254.7 OTIS x Lise ~ S ‘This becomes the third estimate for V to be used in calculating ge and g,. 2p Masos9887 = 2h =o si &e oy 0.588 ‘The optimum pairs are: Ge = 0.50 Gye = 0.588 Gp = 0.257 and the overall optimum (G-=0.50) is the same as found with the previous estimate. Hence in year | Optimum cutoff grade = 0.50 1bs/ton Quantity mined = 100 tons Quantity concentrated = 50 tons Quantity refined = 37.5 Ibs Profit = $250S48 Open pit mine planning and design: Fundamentals Table 6.26, Reserve distribation at the end of year 1 Grade (Ibston) ‘Quantity (ons) 00-01 0 0102 90 02-03 30 03-04 90 04-05 90 05-06 90 06-07 90 07-08 90 08-09 90 09-10 90 Total =900 “Table 6.27. Reserve distribution atthe start ot year Grade (Ibston) Quantity tons) 00-04 30 01-02 30 02-03 30 03-04 0 040s 30 05-06 30 06-07 30 07-08 30 08-09 30 09-10 30 Toval = 300 € reserves must now be adjusted to those given in Table 6.25 and the process is repeated assuming V =0, calculating g, and g,, etc. ‘Through year 7, it will be found that the optimum cutoff grade remains at 0.50 with the ‘quantities mined, concentrated and refined being 100, SO and 37.5, respectively. The annual Profit is $250. The reserves going into year 8 are those given in Table 6.27. The balancing grades remain at Bm = 0.50 8 = 0.60 Br = 0.456 ‘The first approximation forthe economic cutolf grades (V =0) is 10 0.40 16Production planning 549 ‘The optimum values of the pairs are Gmc = Ge = 0.40 Gy = 0.16 he overall optimum 1s 0.40, and the quantities are Om = 83.3 Q = 50 Q,=35 ‘The profit is $216.7 as before. The number of years becomes 300 n= Gy = BO yeas ‘The present value V becomes .15)6—1 v =216.7 2) o.nscrasys ~ 971? Substituting this into the formulas for ge and g, yields Be = 0.486 gr = 0.193 Combining them with the others &m =0.10 Bne = 0.50 Bre = 0.60 Br ~ 0-856 yields Cnc = 0.486 Gy, = 0.486 Gnr = 0.193 ‘The overall optimum cutoff is G = 0.486 and the average grade above cutoff drops to 0.743; ‘Tons Grade ‘Tons x Grade 42 0.493 2.07 30 0.58 16.50 30 0.65 19.50 30 0.75 2.50 30 25.50 30 28.50 Total = 154.2 11457 here are 194.2 ore tons out OF the 300 {ons remaining (© be mined. Since the cunvemuator ‘capacity is 50 tons/year, the mine life would be 154.2 50 = 3.08 years550 Open pit mine plauning and design: Fundamontale Table 6.28. Reserve distribution athe start of year 9 Grade (Ihston) ‘Quantity (ons) 00-01 20.23 01-02 20.23 02-03 20.27 03-04 20.27 04-05 20.27 05-06 20.27 06-07 2027 07-08 20.27 08.09 2027 09-10 2027 ‘Towal = 202.27 ‘The yearly mine production becomes 300 = =973 Qn = 55g = 97: and Q, =37.15, Calculating the profit one finds that P=20x37.15~2 x 50-1 973-300 ‘The corresponding present value is (1S ~1 = 245.7 IST vous 0.15 x (115) $572.96 Repeating the process with this new estimate of V yields 0.486 0.193 & & ‘These are the same as before, Hence the values for year 8 are C0486 ‘The reserves are those given in Lable 6.28. In year ¥, the initial values for a cutoff of 0.4 are On = 833, 0. = 50 0, =35 The profit would be $216.7, Based upon this mining rate, the reserves would lastProduction planning 931 land the present value is (1s) — Vv =2167 70S x Mise Recomputing g, and g. we obtain 462 183 ‘The other possible values are: 0.10 8m Bnc = 0.50 Br = 0.60 Bor = 0.456 ‘The optimum pair values are: Ge = 0.462 Gr = 0.462 Gr = 0.183 ‘The middle value of these is G = 0.462 Examining the reserve distribution suggests that there are 109.05 tons out of the total 202.7 tons which are above cutoff. The average grade of this remaining ore is 0.731: Tons Grade “Tons x Grade 7:10 0.48 20.27 oss 20.27 0.65 20.27 0.75 20.27 0.85 20.27 0.95 Total = 109.05 Avg=0.731 Sum Since the maximum concentrating rate is 50 tons/year the life is 109.05 30 ‘The amount of product is = 2.18 years 36.55 2, =50 0.73 202.7 Ym = 2k ‘The profit becomes, P 20 x 36.55 — 2 x 50-1 x 93 — 300 = $238589 Open pit mine planning and design: Fundamontale Table 6.29. Reserve distribution at the start of year 10. Grade (Ibsiton) ‘Quantity (tons) 0.0-0.1 un 01-02 un 02-03 "1 0-04 1 04.05 "1 05-06 1 06-07 1 07-08 "1 08-09 hi 09-10 u 10 ‘The present value is (1S = 1 V = 238 x $417 0.15 x 11S2® Iterating again does not change the values. The new distribution is shown in Table 6 29. In year 10, the initial values for a cutoff of 0.4 yields: Qn = 83.3, Q.=50 0, =35 Profit ~ $216.7, Based upon this mining rate, the reserves would last HO 1.32 years 83.3, a ‘The present value is (ts) V = 2167 = $243.4 O15 x (1S) Calculating g- and g, and using this approximation for V yields 0.437 0.172 Snr = 0.456Productivns planning The optimum pair values are ‘The optimum value is G=0.437. Examining the reserve distribution suggests that there are 62 tons of the 110 tons remaining which are above this cutoft. Tons Grade ‘Tons x Grade 7 0.469 3.28 in 055 6.05 i 0.65 TAS u 0.75 8.25 u 0.85 9.35 u 0.95 10.45 Totl=62 Avg=U.718 — Sum=4455 ‘The average grade is 0.718. The number of years would be oy aayean ‘The rate of mining and refining would be 110 124 35.9 Qn 89 Q, and the profit would become P= 20x 359-2 x 50-1 x 89 — 300 = $229 ‘The present value is (1.15)!74# = 1 v —s229 ISA! gaan 8229075 x (15) ~ © Further iteration yields no change. In year 11, the grade distribution is shown in Table 6.30. ‘The initial values (V =0), yield a cutoff of 0.4 and Qn = 21 Q. = 126 0, = 8.8 The time would be the largest of 2 o> Ta = Fog = O24 126 = 025 30" ° 88 _o22 0S51 Open pit mine planning and dosign: Pundamontals Table 6.30. Reserve distribution at the stat of year U1 Grade (ibvton) Qua ty (Hons) 00-01 0-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09) 09-10 Total =21.0 which is again controtled by the concentrator. The profit is "1 = $548 ‘The present value is (1.159925 0.15 x (1.15) V = $54.8. =$125 Solving for ge and gr yields 0.402 0.161 8 br Combining with the others Bm = 0.16 Sn: = 0.50 Bre = 0.60 Bor = 0.456 fone finds that Ge = 0.402, Gy = 0.402 Gur = 0.161 ‘The cutoff grade ia G 0.402 ‘The distribution is only slightly changed and further iteration is not warranted.Production planning 955 ‘Table 6.31, The production schedule determined by the fist pass. Year Optimum Quantity Quantity Quantity Profit Net present cutoff grade mined concentrated refined ($) value Abston) ons) ons) bs) 1 os 100 50 315 2501255 2 05 100 50 315 2501193 305 100 50 315 2501122 4 05 100 50 315 250° 1040 505 100 50 315 250 946, 6 05 100 50 315 250 838 7 03 too su 313 250 74 8 086 97 50 311 257 S74 9 0462 93 50 36555 238 a7 100437 89 50 359) 229 243 040 2 126 88. 55 33 ‘Table 6.32, ‘The final schedule forthe manual example. Year Optimum Quantity Quantity Quantity Profit Net present cutoff grade mined concentrated refined = ($)—=value ston) ons) (ons) bs) 1 050 1000 10. 373 2500. 1237.8 2 050 100.0 500 315 250011965 3 050 1000 $0.0 318 2500 11260 4 050 1000 500 315 2500 1084.9 5 050 1000500 318 2500 951.7 6 050 1000 50.0 318 25008445 7 050 1000 50.0 315 2500 721.1 8 049 972500 311 2456 5793, 9 046 93.0500 3656 23824206 10 O44 88.7 500 359 295 SS oat 210 ce 88 S47 528 ‘The net present value is calculated using the yearly profits. GAS = 1, 245.7 238, 22955 0.15 x (1.15)? © (1.15) © (1.15)? © (1-15)! © (1.15)!025 = 1040 + 80.32 + 67.70 + 56.61 + 13.12 $1258 ‘Step 5. Repetition of the iteration process In Table 6.31, the present value column reflects the current approximation to V as each years cutoff grade was calculated. The present value of $1258 obtained using the yearly profits should be the same as that shown in the table for year I. Since the values are not the same ($1258 versus $1255), the process is repeated from the beginning using V=$1258 as the initial estimate for V. Using a computer this iterative procedure is completed in fractions of a second. The final results are shown in Table 6.32. The NPV is slightly higher than the $1255 which would have been obtained by maintaining a constant cutoff grade of 0.5 NPV = 250:S86 Open pit mine plonning and design: Fundamentals In summary: Initially the mine and the concentrator are in balance, both operating at capacity. In the last few years, the concentrator is the limiter. ~The cutoff grade begins at 0.50 Ibs/ton and drops to 0.41 Ibs/ton at the end of mine life Mine life is slightly more than 10 years Total copper produced = 380.9 Ibs. ~ Total profits = $2518, ~ Net present value = $1257.80. ‘This net present value should be compared to that of $1174.60 obtained with the fixed cutoff grade. 68 MATERIAL DESTINATION CONSIDERATIONS 6.8.1 Introduction ‘The term ‘cutoff grade’ is a rather poorly defined term in the mining literature. A major reason for this is that there are many different cutoff grades. Furthermore the values change with time, mining progress, etc. A cutoff grade is simply a grade used to assign a destination label to a parcel of material ‘The destination can change. During the evaluation of final pit Timits, the destinations to be assigned are: ~ to the surface, and ~ left in the ground. Once the destination ‘to the surface” has been assigned, then the destination label ‘where fon the surface’ must be assigned as well. In the distant past there were really only two surface destinations: to the mill, and ~ to the waste dump. ‘A grade was used to assign the location. The distinction between destinations was called the mill cutoff grade, In more recent times, the potential future value of material carrying values has been recognized. Hence the lean (low grade) ore dump has become a destination, ‘Thus the 3 destinations require 2 distinguishing grades: Destination Assignment = to the mill mill cutoff grade to the lean ore dump. waste cutoff grade ~ to the waste dump ‘Today there are many more possible destinations as our ability to handle and treat materials have improved. Leach dumpsfleach pads are a common destination. An active stockpile is a less common destination ‘This section will deal with alternate destinations to the mill and waste dump. These will be discussed with respect to cutoff grade, However the reader should remember that these simply are a way of assigning material destinations.