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PROCESSING STREAMS
by
in
AUGUST 2017
In this study, dynamic cut-off grades and multiple processing streams are used to
maximize the value of a mining project based on a finite resource. Optimal cut-off
policies are generated using Lane’s method for determining cut-off grade. By
maximizing the present value of future profits as a function of cut-off grade, mine project
value is increased over the traditional break-even approach. A method for determining
multiple cut-off grades at a single deposit was applied to analyze the impact that
changes in processing capacity have on NPV. It was found that additional capacity
waste. Grade tonnage data used in the case study was simulated to represent the
hypothetical case study examined in this thesis reveal that a low-grade open pit gold
mine will benefit from the use of multiple processing streams when a dynamic cut-off
stream to maximize the potential revenue of the mineralized material. This means that
for a given set of design, production and geological parameters, the classification of ore
ii
LAY SUMMARY
The purpose of this research was to identify the effects that multiple mineral processing
streams have on the overall value of a mining project. By incorporating more than one
processing facility into a mine plan, the classification of ore and waste at a gold deposit
was improved. This allowed for each processing facility to process ore best suited for
that particular stream, based on the concentration of gold in the ore. Ultimately, by
optimizing the grade of ore sent to each facility, mine value was increased over a
iii
PREFACE
This thesis is original, unpublished, independent work by the author. The Algorithms
used are based on dynamic cut-off theory proposed by Lane (1) and work done by Asad
iv
TABLE OF CONTENTS
ABSTRACT ...................................................................................................................... ii
LAY SUMMARY ...............................................................................................................iii
PREFACE ....................................................................................................................... iv
TABLE OF CONTENTS ................................................................................................... v
LIST OF TABLES ............................................................................................................vii
LIST OF FIGURES ......................................................................................................... viii
LIST OF SYMBOLS ........................................................................................................ ix
DEDICATION ..................................................................................................................xii
1 INTRODUCTION ........................................................................................................ 1
1.1 THESIS ORGANIZATION ............................................................................................... 3
1.2 IMPORTANCE TO INDUSTRY ....................................................................................... 4
1.3 RESEARCH OBJECTIVES ............................................................................................. 5
2 LIERATURE REVIEW ................................................................................................ 6
2.1 LANE’S METHOD ........................................................................................................... 6
2.2 EXTENSIONS/MODIFICATIONS TO LANE’S METHOD ................................................ 8
2.2.1 INCORPORATING REHABILITATION COSTS ....................................................... 8
2.2.2 OPTIMIZATION FACTOR ON OPPORTUNITY COSTS .......................................... 8
2.2.3 NON-LINEAR PROGRAMMING ............................................................................... 9
2.2.4 VARIABLE CAPACITIES .......................................................................................... 9
2.2.5 STOCHASTIC PRICES .......................................................................................... 12
2.2.6 MULTIPLE MILLS ................................................................................................... 12
3 METHODS ................................................................................................................ 14
3.1 BREAK-EVEN METHOD ............................................................................................... 14
3.2 LANE’S METHOD ......................................................................................................... 17
3.2.1 EXPLOITATION STRATEGY ................................................................................. 17
3.2.2 LIMITING ECONOMIC CUT-OFF GRADES .......................................................... 20
3.2.3 BALANCING CUT-OFF GRADES .......................................................................... 23
3.2.4 EFFECTIVE OPTIMUM CUT-OFF ......................................................................... 24
3.2.5 CUT-OFF POLICY .................................................................................................. 28
3.2.6 SHORTCOMINGS OF LANE’S METHOD .............................................................. 30
3.3 GRADE TONNAGE CURVES ....................................................................................... 30
4 PROCESSING .......................................................................................................... 33
4.1 MODULAR PROCESSING ............................................................................................ 33
4.1.1 CAPITAL AND OPERATING COSTS..................................................................... 35
4.2 MULTIPLE STREAMS ................................................................................................... 37
4.2.1 CUT-OFF GRADE FOR MULTIPLE PROCESSING STREAMS ............................ 40
5 THE MODEL ............................................................................................................. 44
5.1 ECONOMIC AND OPERATIONAL INPUTS ................................................................. 45
5.1.1 GRADE TONNAGE SIMULATION ......................................................................... 45
v
5.2 INITIAL ESTIMATES OF NPV ....................................................................................... 47
5.3 LIMITING CUT-OFF GRADE ........................................................................................ 48
5.4 QUANTITY OF ORE, WASTE AND AVERAGE GRADE .............................................. 48
5.5 QUANTITY MINED, PROCESSED AND REFINED ...................................................... 49
5.6 ANNUAL CASH FLOW AND NPV ................................................................................. 51
6 HYPOTHETICAL CASE STUDY .............................................................................. 53
6.1 MODEL ASSUMPTIONS AND LIMITATIONS .............................................................. 53
6.2 METHOD ....................................................................................................................... 56
6.2.1 BASE CASE ........................................................................................................... 57
6.2.2 MODULAR CASE ................................................................................................... 59
7 ECONOMIC ANALYSIS ........................................................................................... 63
7.1 SENSITIVITY ANALYSIS .............................................................................................. 63
8 CONCLUSIONS ....................................................................................................... 68
9 RECOMMENDATIONS ............................................................................................ 70
REFERENCES ............................................................................................................... 72
APPENDIX A. Derivation of Lane’s Equations .............................................................. 74
APPENDIX B. Simulated Grade Tonnage Data ............................................................ 77
APPENDIX C. Cut-off Policy Results ............................................................................ 83
APPENDIX D. Sensitivity Analysis ................................................................................ 89
vi
LIST OF TABLES
Table 1 Estimated unit operating costs for the Gekko Python modular processing plant,
from (22). ................................................................................................................ 36
Table 2 Mine design parameters for hypothetical gold mine. ......................................... 55
Table 3 The complete cut-off policy for base case using grade tonnage curve 1 (GT1).
................................................................................................................................ 58
Table 4 Calculated NPVs for both the base and modular scenarios across the set of 15
equally probable simulated grade tonnage curves. ................................................ 58
Table 5 Complete cut-off policy for modular case using GT1. ....................................... 60
Table 6 Base case cut-off policy when HL has capacity of 573,000 t/yr, for GT1. ......... 60
Table 7 Complete break-even cut-off policy for modular case using GT1. .................... 61
Table 8 Comparison of annual gold production across set of simulated grade tonnage
curves. .................................................................................................................... 64
Table 9 Cut-off policy for GT13 showing how an increase in HL unit costs by 5% results
in an increase in HL COG and a decrease in CIL COG. ......................................... 66
Table 10. Cut-off policy for base case, GT13. ................................................................ 66
Table 11. Cut-off policy for GT13 when HL capacity is increased by +15% of base case
values. ..................................................................................................................... 66
vii
LIST OF FIGURES
Figure 3.1 Graphical representation of the break-even relationship between costs and
revenue similar to (5). ............................................................................................. 16
Figure 3.2 Graphical representation of balancing cut-off when the mine and the mill are
limiting. .................................................................................................................... 24
Figure 3.3 Increment in present value versus cut-off grade with the mine and mill
components in balance. .......................................................................................... 26
Figure 3.4 Increment in present value versus cut-off highlighting the maximum value in
the feasible region of v e when the mine and the mill are in balance. ..................... 27
Figure 3.5 Simulated tonnage histogram of gold deposit. .............................................. 31
Figure 3.6 Sample grade tonnage curve with cut-off grade of 4.0 g/t. ........................... 32
Figure 4.1 Process flow diagram for the Gecko Python Plant, from (22). ...................... 34
Figure 4.2 Cut-off and cutover grade defined by revenue earned per ton of material
processed. .............................................................................................................. 41
Figure 6.1 Flow sheet diagram for hypothetical gold mine with capacity constraints
(modular case). ....................................................................................................... 54
Figure 6.2 Grade tonnage distribution GT1 for hypothetical gold mine. ......................... 56
viii
LIST OF SYMBOLS
ix
𝑔!" [g/t] Mine and process balancing cut-off grade.
𝑔!" [g/t] Processing and refining balancing cut-off grade.
𝑔!" [g/t] Mine and refining balancing cut-off grade.
𝑣 [$/-] Increment in PV per unit of resource utilized.
𝑣! [$/-] Max of the min increment in PV per unit of resource utilized.
𝑊 [$] Present value one year in the future at t=t+1.
𝑇! [tons] Quantity of tons in each grade category ‘n’.
𝑇𝑂 [tons] Quantity of ore tons above cut-off grade.
𝑇𝑊 [tons] Quantity of waste tons below cut-off grade.
∆ [-] Difference between TO/Tn for each process.
𝐺𝑇! [-] Grade tonnage data.
x
LIST OF ABBREVIATIONS
HL Heap leach
PV Present value
xi
DEDICATION
This thesis is dedicated to Christine A. Pettingell. Thank you for your continuous
support.
xii
1 INTRODUCTION
Current trends in the gold mining industry show that weak commodity prices and an
overall decline in metal grades have resulted in less gold being mined (3). There has
also been less investment dedicated to exploration in recent years resulting in a smaller
inventory of new deposits (4). Although the majority of exploration dollars is spent in
remote areas of Latin America and other underdeveloped countries, the lack of
infrastructure has made these ore bodies increasingly challenging to mine. The question
then becomes how to mine these remote, low-grade deposits economically? Barring
any new technological breakthroughs this must be done strategically with capital cost
One solution is to incorporate a modular processing stream and a dynamic cut-off grade
strategy to capture the full value of the resource being mined. By utilizing multiple
processing streams the mineralized body can be further classified into zones based on
the geology and/or mineral content that is best suited to a particular processing stream.
Modular processing provides flexibility to the mine operator to route the mined material
to the most economic recovery method no matter how small or remote the zone or
mine. A dynamic cut-off strategy refers to what material should be mined based on the
current mine design, the local geology and prevailing market conditions. This is
The simplest definition of cut-off grade (COG) is the amount of metal concentration in
1
the mineralized material that determines what is considered ore versus what is
considered waste (1). Mine operators use cut-off grades to optimize mine designs,
estimate resources and guide production. As cut-off grades decrease more material is
classified as ore and production rates increase. Consequently, the average grade of the
ore being processed decreases. The opposite occurs when cut-off grades increase. An
optimum dynamic cut-off strategy will change the classification of ore and waste
throughout the life of the project to maximize the present value of all future profits.
Factors such as, grade distribution, available capacities and variable costs for mining,
milling and refining as well as the selling price for the commodity(s) all play a crucial role
Modular processing technology is ideal for processing material in remote areas, which
lack the infrastructure necessary to construct and operate a conventional mill. Modular
processing plants are designed to be small and flexible, dividing the components of the
mill into separate subsystems that can be added or removed based on the needs of the
operator for the material being mined. The smaller size of the unit over its traditional
counterpart allows some modular systems to fit underground in a drive or drift, the idea
being that underground processing would lower haulage costs and increase hoisting
capacity while reducing energy consumption and in turn the environmental footprint.
There are several manufacturers that offer modular processing solutions ranging from
small skid mounted units that can process 10-20 t/hr, to larger units capable of
processing over 50tph. There is also a wide range of useful applications for these
2
plants, from gravity concentration to flotation of several different commodities in virtually
any location.
To aid in the exploitation of low-grade precious metal deposits multiple mineral recovery
process streams can be used. By implementing multiple processing streams the miner
has the ability to choose the best processing method for a particular ore type at any
given time. This strategy has been used at mining operations where the ore is classified
into different categories based on lithology or mineralization. This is common when the
The benefits of utilizing multiple processing streams combined with modular processing
technology include, but are not limited to, reduced blending requirements, additional
processing capacity, mitigation of geologic uncertainty and the ability to push revenue
forward from higher-grade material. However, the greatest benefits arise from the
options available at the time a particular area is mined. With the capability to send
material to a low or a high recovery stream over just an ore or waste pile, the miner can
have greater influence on the economics of the project through a more refined cut-off
strategy.
The purpose of this research was to identify the effects that multiple processing streams
have on cut-off grade policy and how cut-off strategy influences overall project value,
particularly when a modular processing plant is introduced to an open pit gold mine with
3
an existing heap leach facility.
The cut-off analysis conducted in this thesis is based on Lane’s (1) method for
optimizing cut-off grades by maximizing the present value of future cash flows
theoretical review outlining past studies on cut-off grade strategy. In section 3, the
primary methods for determining cut-off grades are discussed in detail. The concept of
modular processing and the use of multiple processing streams are examined in section
4. Section 5 contains the description and steps to the algorithm used to maximize the
value of a mine through dynamic cut-off grade optimization. In section 6, the model is
sensitivity analysis on the results obtained in section 5. In the remaining sections, 8 and
The optimization of cut-off grades in mine planning and design is of practical and
theoretical interest. Although it is well known that a dynamic cut-off strategy can
improve the net present value (NPV) of a mining project over a break-even cut-off
model, many mining companies refrain from incorporating a robust cut-off analysis in
their valuations and long-term plans. Hall (5) suggests that junior engineers or
geologists are often determining cut-off grades based on past practices. More
importantly, the way cut-offs are determined has become indistinguishable from what a
4
The model presented here applies Lane’s cut-off theory focusing on modular processing
of this kind can be applied to low-grade, open pit precious metal deposits where
The objective of this research was to maximize the value of small-scale, low-grade,
open pit homogenous gold deposits using multiple processing streams and optimum
dynamic cut-off grade strategy. To accomplish this, two processing streams, a heap
leach facility (HLF) and a modular carbon in leach plant (CIL) were incorporated
simultaneously to fully exploit a set of simulated grade tonnage curves. An optimum cut-
off policy was determined and mineralized material was routed to a waste pile, a high-
1. Apply Lane’s methods for determining cut-off grade to maximize the NPV of a
2. Apply Lane’s methods to a gold mine when two processing streams are utilized.
3. Determine if Lane’s methods improve the NPV of a mine over the traditional
break-even approach.
5
2 LIERATURE REVIEW
Cut-off grade research has been an important topic for mine planners in industry and
academia ever since K. Lane published his seminal work in 1964 and subsequent text
book in 1988. The following section provides a general review of cut-off theory and
Kenneth Lane was the first to consider cut-off grade as a dynamic value that must be
optimized to maximize the value generated from a mine. Instead of maximizing profits,
he sought to maximize the present value of the resource as a whole by considering the
opportunity cost associated to mining at a particular cut-off. In his book “The Economic
Definition of Ore” published in 1988, he explains that due to the time value of money,
processing lower grade ore today reduces the potential future value of higher-grade ore
if processed at a later date. Therefore, by mining at higher cut-off grades early in the life
Lane also considers the mining system to be comprised of three main limiting
components, the mine, the processing facility and the market. By his theory, at any
given time the system will be constrained by one or more of the limiting factors. In order
to derive optimal cut-off grades that maximize the NPV of the project, the capacities to
the limiting components must be considered and the overall system balanced.
6
Mathematically, the objective function is represented as,
T
Pt
max NPV = ∑
(1+ d )
t
t
subject to
Qmt ≤ M
Qct ≤ C
Qrt ≤ R
where P is cash flow, d is the discount rate, t is time, Qm is the quantity of tons
mined, Qc , ore tons processed, and Qr is the ounces refined. The variables M , C and
R represent the maximum periodic capacities for the mine, the mill and refinery,
respectively.
The initial work done by Lane was based on the assumptions that there was one source
of material feeding one treatment plant. He also assumed that the ultimate pit limit had
been determined and a mine schedule planned. Furthermore, he used static prices and
costs for his economic inputs. These assumptions and limiting parameters often fail to
capture the real world complexity related to valuing actual mines in practice.
7
2.2 EXTENSIONS/MODIFICATIONS TO LANE’S METHOD
J. Gholamnejad (6) identified that the costs associated with mining and dumping waste
represent a portion of the rehabilitation costs, and therefore must be included in the cut-
off calculation. This allows the mine planner to strategically account for not only the
returns that ore provides but also the costs that are incurred from waste. For
rehabilitation cost variable ' h ’ subtracted from the unit processing cost ‘ c ’ in the
Incorporating rehabilitation costs can provide a more accurate estimate of the profits
obtained through a cut-off grade policy. Results suggest cut off grades determined
using a rehabilitation factor will be lower than otherwise in an effort to reduce the total
amount of waste rock sent to the waste dump (6). By including these costs into the
Another study conducted by Bascetin and Nieto (7) use an iterative approach based on
Lane’s algorithm to determine the optimal cut-off policy for an open pit mine. However,
algorithm to maximize the NPV of a project. The optimization factor is included in the
limiting cut-off grade calculation and serves as an additional time cost associated with
8
producing one more unit of ore. This is in addition to the opportunity cost introduced by
Lane. Their findings suggest that by including a mining cost into the optimal cut-off
grade calculation, when the concentrator is the limiting capacity, the overall NPV of a
non-linear constraints. The solution to optimizing a cut-off grade that maximizes the
expected NPV of a mining project is a non-linear objective with several linear and non-
linear constraints. The reduced gradient method of solving such a problem is outlined in
a paper written by Yasrebi et al (8). Using a cut-off model based on Lane’s algorithm
created with LINGO software, they are able to optimize a single cut-off grade for the
entire life of the project. This type of simplified calculation is not optimal because it does
not apply dynamic cut-off theory whereby cut-off grades decline as the resource is
depleted.
This approach also assumes static prices and costs that will undoubtedly change
throughout the life of the project. An attempt to combine a series of NLP equations
capacities on the major limiting factors; mine, mill and market. Their method attempts to
9
improve on Lane’s original algorithm, which holds mining, processing and market
variable for the maximum capacity of a constraint into the equation to find the total
quantity utilized for a particular constraint, the maximum efficiency of the investment can
be obtained. For example, consider the concentrator to be the limiting capacity for an
open pit mine. To find the quantity of material refined ‘ Qr ’ for the life of the project;
Lane introduced an equation that provides the relationship between quantity produced
Qr = y * g * Qc
average grade of the mineralized material above cut-off and ‘ Qc ’ is the total amount of
material processed over the life of the mine (LOM). By substituting the maximum
capacities for both the market and the concentrator for the quantities utilized, the
R
C=
y *g
where ‘ C ’ is the maximum variable capacity for the concentrator and ‘ R ’ is the
maximum variable capacity for the refinery. In this case the refinery capacity is assumed
10
capacity) are constant and are determined before the calculation of an optimum cut-off
grade.
By applying this technique and comparing the results to both Lane’s original algorithm
(1) and that offered by Gholamnejad (6), which introduces rehabilitation costs into cut-
off grade determination, Abdollahisharif et al (9) find that using variable capacities to
calculate cut-off grade provides the greatest NPV. The optimal cut-off grade becomes
much lower than the other two methods. This results in more material concentrated,
~29% more than the others, while holding the refining capacity equal to market demand
for all three methods. However, the mining throughput rate was reduced by 10%
In practice, as cut-off grade changes, so does the amount of material sent to the
processing plant and potentially the mining rate, as seen with other studies (1,2,10). In
contradiction to Abdollahisharif et al (9), Breed and Heerden (11) state that “to ensure
the cut-off grade”. Therefore using variable capacities to determine the optimal cut-off
strategy can only be used to determine potential capacity parameters. The variable
capacity algorithm also assumes a single metal, open pit project and does not create a
LOM cut-off value policy nor does it capture the opportunity costs associated with
11
2.2.5 STOCHASTIC PRICES
Lane’s model is based on the assumption that future prices are known. In reality
determining cut-off grades for the life of a project requires some level of price and cost
forecasting to accurately estimate the value of the project. Barr suggests in his work on
real options (12), that by using a stochastic price model of the entire futures curve and
not simply a predetermined price or even stochastic spot price model, optimal cut-off
grades are lower than otherwise. This means more mineralized material is classified as
ore. Therefore, using deterministic prices and costs lead to higher than optimal cut-off
Although applying a stochastic price model and real options valuation to a mine is closer
to a real world scenario, the steps taken to forecast price movements are beyond the
scope of this research. Readers are directed to (14,15) for a more in depth examination
Asad and Dimitrakopoulos (2) applied a heuristic process to expand on Lane’s algorithm
to optimize cut-off grade at a project with multiple processing streams. They also
account for geologic uncertainty by simulating several different, but equally probable
grade tonnage curves. Using a modified algorithm that is successful at maximizing the
NPV for the set of given grade tonnage curves, they are able to determine the optimum
cut-off grades for each processing stream. Their approach was applied to a large open
pit copper mine where they observed a 13.8% difference between the minimum and
12
maximum NPV generated from the set of simulated grade tonnage curves. They
conclude that ignoring geologic uncertainty in the planning stage can have severe
mine with multiple processing streams, the utilization of those streams was well below
capacity. Their results suggest that out of the four processing streams incorporated, for
the entire life of the project, not one stream runs at even half of its maximum capacity.
This is not practical in a real world situation. A mill design with an annual production
capacity of 43.8 million tons of ore would not be justified if its peak production were <10
The algorithm used in this thesis was based on the work done by Asad and
opposed to a permanent mill. This type of technology has the flexibility to increase and
conditions. Therefore, when the resource is low the use of an additional mill will be
excluded from the model negating the need for a balancing system, as only one
13
3 METHODS
The analysis and optimization of cut-off grades is essential to maximizing the value
generated from a mine. The term “cut-off grade” takes on several definitions depending
on how it is applied. Taylor defines cut-off grade at an ore deposit as any mineral grade
that, for any specific reason, is used to separate two courses of action (16). This could
include whether or not to mine a unit of material or which recovery process is best
suited for that material. Another definition considers cut-off grade the level of mineral
concentration that dictates whether mineralized material is deemed ore or waste (1). In
Currently, there are two main methods used to determine cut-off grade. The break-even
method, which considers only financial factors and Lane’s method which attempts to
maximize the NPV of the project subject to mine, mill and market constraints. The
Many mining companies use a break-even analysis to determine cut-off grade. This
method considers the prices and costs and average recoveries related to mining and
processing. The break-even cut-off grade is where the costs of producing a salable
product are equal to the revenue earned from that product (5,17).
Costs
Breakeven COG =
Commodity Price * Recovery
14
Most commonly this is used to distinguish between ore and waste at the mining level.
However, depending on the costs included in the calculation, the break-even cut-off
• Marginal break-even cut-off considers the variable costs of mining and milling
• Mine operating break-even cut-off assumes total mining costs and milling costs
• Site operating break-even cut-off includes total mining, total milling and total site
administration costs
Although these calculations are used for different applications they are all based on a
break-even principle, by which the revenues earned are equal to the costs of producing.
Consider an example provided by Hall (5) for a simple break-even COG calculation
where,
• Recovery = 90%
$60
= 6.67 g / t
$10 * 90%
Since recovery is 90% and the selling price is $10/g, the revenue earned is $9/g. By
applying a total cost break-even COG of 6.67g/t the revenue earned is equal to the
costs of producing that revenue. Figure 3.1 below is a graphical representation of the
15
Breakeven Cut-off Grade
100
80
60
$/ton
40 Total Cost
Revenue
20
0
0 1 2 3 4 5 6 7 8 9 10
Grade (g/t)
Figure 3.1 Graphical representation of the break-even relationship between costs and revenue similar to
(5).
Here, total costs of $60/t are assumed to be independent of grade and are therefore
represented as a straight line. The revenue function increases with grade at a rate of
$9/g. The point where the total cost and the revenue functions meet is the break-even
This method is widely accepted by the mining industry to ensure the operation remains
profitable. However, it fails to maximize the value of the material being mined. Since the
break-even model only considers price and costs, other factors such as variability in
geology and operational capacities that have an influence on revenue are overlooked.
Ignoring such factors can lead to lower than optimum cut-off grades resulting in a lower
overall NPV.
16
3.2 LANE’S METHOD
The need for optimal cut-off grade calculations based on an available resource and the
capacities that limit the extraction and production of that resource is a major challenge
in the mining industry. Lane was the first to introduce an algorithm to calculate cut-off
grades that maximize the present value of cash flows from a mining project. He derived
a set of equations to calculate a cut-off grade specific to which capacity(s) in the mining
system are limiting output. Furthermore, he outlined a method for calculating the
Until Lane published his initial work on cut-off theory in 1988, cut-off grades were
calculated using the costs of mining and processing the ore and the selling price of the
commodity. Lane proposed that cut-off grade is a function of not only costs and prices
but of capacities that limit mining, processing and refining. Understanding that the
primary objective of most mine operators is to maximize the present value of all future
profits (1), Lane suggested that to maximize the value of an exhaustible resource an
exploitation track that maximizes the present value of the project at all times must be
employed.
The present value of an operation based on a finite resource is calculated as the total of
the future cash flows discounted back to the present. At a mine, minerals are
containing sufficient economic value to cover the costs of mining and processing are
17
classified as economic ore, while material with less than enough mineral concentration
is considered waste. Ore is sent to the processing facility while waste is sent to a waste
pile or left in place. The level of mineral concentration that dictates whether material is
Cut-off grades can be used for several different situations at a mine as a means for
classification. Most commonly, it is the lowest grade material that “should” be mined
and/or used to calculate total reserves. Most importantly, cut-off grades are used to
identify the optimum exploitation strategy for maximizing the present value of an
operation (1).
In order to determine the optimum cut-off grades for a deposit two fundamental
expressions must be considered. The first determines the optimum exploitation strategy
for maximizing the present value of an operation based upon a finite resource. Lane
suggested that value is a function of the size of the remaining resource Q and the rate
of extraction q (1). These two variables also define the life of the project T . Therefore,
the present value V of the mining operation at any time is a function of the life of mine,
the size of the remaining resource and the chosen rate of extraction (18).
(
V T + t,Q − q ) [1]
18
dV t⎛ dV ⎞
= p − ⎜ δV − [2]
dQ q⎝ dT ⎟⎠
where, p is the cash flow arising from one unit of resource and t is the time it takes to
process that unit. The tonnage ( τ ) is given by t / q , which represents the time required
The opportunity cost of mining at a particular extraction rate is the term in brackets.
Here, the discount rate δ is multiplied by V to reflect the decrease in value of the
resource resulting from extraction, which is subtracted by the first derivative of the value
(V ) with respect to time ( T ). The opportunity cost can be rewritten as F , and the
dV
= p − τF [3]
dQ
The second necessary expression directly relates cash flows to cut-off grades. The
formula for the cash flow arising from one unit of mineralized material is:
( )
p = S − r xyg − xc − m − ft [4]
19
where x is the proportion of mineralized material classified as ore, g is the weighted
average grade of the ore and y is the percentage recovery of mineral from the
Combining equations [1] and [2] we derive the objective function that must be
maximized at all times during the life of mine in order to maximize NPV.
{( ) (
Maxg S − r xyg − xc − m − f + F t)} [5]
In this expression x and g are directly dependent on the cut-off grade, g . The time t
is also dependent on g but indirectly, which gives rise to three separate cases for
Lane proposed there are three economic capacities in the mining system that limit
throughput and the exploitation of the deposit. They are the mine, treatment facility and
market (1). The mine represents mining and development rates that govern throughput.
20
The treatment facility consists of the concentrator(s) and ore handling facilities. The
smelter. At any given time during the life of an operation one or more of these capacities
will be the limiting factor for the system. Because each of these capacities dictates the
Each limiting capacity has its own calculation taking into account the unit costs and the
specified capacity for that system. Each calculation also contains the opportunity cost of
not mining the remainder of the deposit due to the limiting capacities of the mine, the
processing facilities, and the market. Therefore, depending on which area of the total
processing plant, or the refinery are limiting, respectively (2), where Qm represents the
quantity of tons mined, Qc is the quantity of tons milled and Qr is the quantity of
ounces refined in a given period. The maximum annual capacity for the mine, the mill
and the market are denoted as M , C and R respectively. The opportunity cost must
then be distributed per ton of material mined, per ton of ore processed, or per ounce of
c
Mine Limiting gm = [6]
( )
S−r *y
The equation for a mine limiting economic cut-off grade indicates that the mineralized
( )
material should be classified as ore for as long as its implicit value, S − r * y * g ,
21
exceeds the costs of further processing, c . It is important to recognize that time costs
and mine costs are not relevant. This is because the formula is based on the
assumption that the decision to mine beyond the present time has already been made
(1). The mine limiting equation also does not make reference to present values due to
the fact that there is no trade-off of future losses against present gains to modify the
current policy.
c+
(f + F )
Process Limiting gc = C [7]
(
S−r *y )
For the process limiting equation, the opportunity cost F represents an additional time
cost associated with processing the ore. This creates higher cut-offs when F is large in
the early years of production and lower cut-offs as F declines along with the resource.
This realization represents dynamic cut-off theory, whereby cut-off grades change
throughout the life of a mine to maximize the value of the resource being mined.
c
Market Limiting gr = [8]
⎡
⎢S − r −
(
f +F ⎤
⎥*y
)
⎢⎣ R ⎥⎦
Similar to the process limiting cut-off grade formula, the market limiting equation
includes the present value term in the form of an opportunity cost, which along with the
fixed costs is distributed according to the limiting capacity. This results in declining cut-
22
3.2.3 BALANCING CUT-OFF GRADES
Often a mine is constrained by more than one of the limiting factors mentioned in the
previous section. If this is the case, the optimum cut-off grade is calculated by balancing
the limiting cut-off grades and the maximum capacity for each of the limiting factors. As
mine, the processing plant, or the refinery are limiting output, respectively (2). Setting
these ratios equal to each other gives rise to three new cut-off grades called balancing
cut-off grades.
If both the mine and processing facility are limiting than cut-off grade gmc is the grade
Qm Qc
= [9]
M C
Similarly, if the processing plant and the refinery are the limiting factors than gcr is the
Qc Qr
= [10]
C R
And if the mine and the refinery are both limiting than gmr must satisfy,
Qm Qr
= [11]
M R
Applying these ratios to the cumulative grade distribution curve, a single point is
observed where the proportion of; mineralized material, recoverable mineral per unit of
23
mineralized material, and the recoverable mineral per unit of ore above the
Ratio C/M
=Processing
Balancing cut-off
cap./Mining cap.
grade
gmc Grade
Figure 3.2 Graphical representation of balancing cut-off when the mine and the mill are limiting.
Therefore, six possible cut-off grades must be examined to determine the effective
optimum cut-off; three break-even cut-off grades based on the limiting capacity and
three balancing cut-offs that are dependent on which capacity(s) are limiting the mining
system.
The optimum cut-off grade is selected from the 6 possible cut-offs discussed thus far.
Again, this will be dependent on which areas are limiting the output of the mining
24
system. Because the cut-off grade g corresponds to the present value V of the mine,
the optimum cut-off grade can be determined by maximizing the rate of change of V ,
with respect to resource usage ( dV / dQ ) (1,2,18). Setting equation [5] equal to the
variable v , which represents the increment in present value per unit of resource utilized,
we get
( ) (
v = S − r xyg − xc − m − f + F t. ) [12]
As with the limiting and balancing cut-offs, v takes on three forms depending on which
Mine ( )
v m = S − r xyg − xc − m −
(f + F ) [13]
M
Mill ( )
⎧⎪
v c = S − r xyg − x ⎨c +
f +F ( ) ⎫⎪ − m [14]
⎬
C
⎩⎪ ⎭⎪
Refinery
⎧⎪
v r = ⎨S − r −
(
f +F ) ⎫⎪ xyg − xc − m [15]
⎬
R
⎩⎪ ⎭⎪
By plotting v as a function cut-off grade, it is observed that the graph is concave with a
single maximum. This holds true for all forms of v . The maximum corresponds to the
25
Increment in Present Value (v) Effective Optimum Cut-Off Grade
Maximum ve
v mine
v mill
Process limiting cut-off
Mine limiting
cut-off
gm gmc gc
Grade
Figure 3.3 Increment in present value versus cut-off grade with the mine and mill components in balance.
When two forms of v are plotted on the same graph as in Figure 3.3, the feasible region
(shaded in purple) for the optimum form of v called v e is always the lower of the two
curves. The effective optimum cut-off becomes the maximum point along the feasible
v e curve. In the example above, the maximum value for v e occurs at gmc when the
mine and the mill are in balance. However, in Figure 3.4 the balancing cut-off is above
both the mine and mill limiting cut-offs and the maximum point along the feasible v e
In Figure 3.4 the effective optimum grade occurs at the process limiting cut-off gc , or
the median value between the limiting and balancing cut-offs. Lane devised a set of
conditions that must be applied to determine the effective optimum cut-off grade at a
26
single point in time.
Maximum ve
v mine
v mill
Figure 3.4 Increment in present value versus cut-off highlighting the maximum value in the feasible
region of ve when the mine and the mill are in balance.
When the mine and the processing facility are limiting the effective optimum cut-off
grade is,
27
When the mill and market are limiting,
Identifying the feasible region of v e is not always as clear as the examples above. Often
all three forms of v must be analyzed making it difficult to identify the true maximum.
Lane admits that the peaks for the various incremental present value curves are easily
identified, however, the exact intersections of the feasible region can be difficult to
determine graphically and a more robust method such as the golden search method
A cut-off grade policy is a sequence of optimum cut-off grades over a specified period of
time (1). A cut-off policy serves as a long-term strategy for how much material to mine,
process and refine as a function of grade that will maximize the value of a mining
project. Similar to determining a single effective optimum cut-off grade for a single point
in time, a complete cut-off policy will follow an exploitation track that maximizes the
present value of the resource being mined at all times, while adhering to the capacity
constraints associated to the mine, the mill and the market. It is therefore necessary to
have a mine design including all the major operational and economic parameters in
28
A cut-off policy calculation begins with identifying a terminal value for V . Most often the
terminal value will be zero if the policy is for the life of the resource. Next, initial values
⎛ dV ⎞
F = ⎜ δV − [16]
⎝ dT ⎟⎠
and a policy is calculated. Finally, the present value at termination is compared to the
specified terminal value. Based on the results, the initial estimates for V are adjusted
and a new policy is calculated. This iterative approach ultimately returns a solution
where the present value at termination is within some tolerance of the terminal value.
As stated earlier, the opportunity cost is the rate of change of present value with respect
to time. Therefore, an estimate of this term is the difference between the present value
at time t = 0 , (V ) and the present value at time t = t + 1, ( W ) for the same amount of
F = δV +V − W [17]
The mathematical iterative process proposed by Lane can be quite complex when
fluctuations in prices, costs and other variations in economic parameters are introduced.
Consequently, robust cut-off policy calculations are most efficiently performed with a
computer.
29
3.2.6 SHORTCOMINGS OF LANE’S METHOD
Lane’s method for determining optimal cut-off grades is based on maximizing the
present value of cash flows generated from a mine. Lane’s model assumes that a single
mine producing a single stream of material is processed by one facility and refined at
one facility. Therefore mining complexes with multiple sources and multiple processing
streams are difficult to model using Lane’s methods. Another major assumption is that
the resource has been defined and a mine schedule has already been determined.
However, in practice the mine schedule is based on cut-off grades and Lane’s algorithm
thus becomes iterative. Also Lane’s methods fail to capture blending requirements
The use of grade tonnage data is imperative when analyzing cut-off grade strategy. The
above a calculated cut-off in a particular deposit. The data often comes directly from a
geological block model of the mineralized body of rock created from exploration and
definition drilling. A block model is a three dimensional array of minable blocks each
containing specific attributes such as density, metal grade and lithology. This data is
then used to create a histogram of the tonnages belonging to each grade category. An
30
Tonnage Histogram
1200
1000
Tonnage ('000s)
800
600
400
200
Next, the cumulative frequency of tons is calculated where, n refers to the individual
grade categories and T represents the tons of material within those grade categories.
Q = ∑ Tn
n=0
∑T g n n
g= n=0
∑T n
n=0
31
where gn represents the average grade of tones with in each grade category n . Plotting
the two functions for Q and g we obtain a grade tonnage curve, as illustrated in Figure
3.6.
Here, the blue line represents the cumulative tonnage of mineralized material and the
red line is the average grade of that material plotted on the primary and secondary y-
axis, respectively.
Consider a calculated effective optimum cut-off grade of 4.0 g/t. By inspection of the
grade tonnage curve it can be seen that there are 1.7 million tons of ore averaging a
grade of ~6 g/t.
7 12.00
6 10.00
5
8.00
4
6.00
3 Tons
4.00
2 Avg. Grade
1 2.00
- 0.00
0 1 2 3 4 5 6 7 8 9 10
Cut-off Grade (g/t)
Figure 3.6 Sample grade tonnage curve with cut-off grade of 4.0 g/t.
Grade tonnage curves serve as a visual aid in evaluating the exploitation potential of a
deposit at several different cut-off grade scenarios. The curve displays the average
32
4 PROCESSING
At an open pit mine, mineralized material is excavated and sent either to a waste
the determination of ore and waste is based on a calculated cut-off grade. A dynamic
cut-off strategy based on Lane’s methods must include the capacities for processing in
the derivation of the COG. It is therefore imperative to understand how processing and
cut-off grades are related. The following chapter is divided in to two categories. The first
section defines modular processing and provides a brief overview of the economic and
operating parameters. The second section examines how cut off grades are determined
Modular mineral processing plants are small, often mobile mineral recovery facilities.
They concentrate ore through the use of gravity or flotation. The term “modular” refers
to the flexible arrangement offered by the design of the milling unit. Traditional
of space and depending on the location of the mine and can have very high construction
costs. Modular processing plants were originally designed to process ore underground
in an effort to reduce the haulage and energy costs associated with traditional milling
(22). The smaller size of the mill also reduces the surface footprint when compared to a
conventional mill.
33
Modular processing plants are typically designed to process lower tonnages (10-20 tph)
than larger fixed facilities (50-125 tph). However, they have the flexibility of being mobile
and the option of adding or removing elements of the circuit as necessary. The system
itself is designed in such a way that it can be modified based on the type of ore being
processed. For example, a newly developed gold mine with considerable amounts of
refractory gold at the surface may use flotation to concentrate the ore. Later on, the ore
contains coarser gold that benefits from gravity concentration. These units can be
added and/or removed at very little capital cost when compared to a fixed infrastructure.
The flow sheet for a modular processing plant is much the same as a conventional
facility using the same recovery method except for the size. An example flow sheet
diagram for the Gekko Python underground gravity/flotation plant is presented below.
The Python uses coarse and fine crushing, wet screening, continuous gravity
Figure 4.1 Process flow diagram for the Gecko Python Plant, from (22).
34
This type of mill design can benefit any project that is limited in available space but also
benefits projects with multiple ore types and/or with varying grades. The modular
processing plant can be used in conjunction with a larger conventional plant when it is
required that specific ore be processed using a separate recovery method. Consider an
open pit deposit containing predominantly low-grade oxide ore with lesser amounts of
higher-grade sulfide rich ore. The mine currently blends and processes all the ore using
a 3000 t/d heap leach pad with a carbon in column recovery circuit. Lab testing has
determined that the HL recovery method is ideal for the oxide ore resulting in a recovery
of ~90%. However, test work on the sulfide ore when run as separate batch, has a
recovery of ~30%. With exploratory drilling suggesting more high-grade sulfide rich ore,
By incorporating a modular flotation plant the need for blending and stockpiling the
different ore types is removed. This reduces operating expenses related to transporting
Although the operating and capital expenses of a modular processing plant are far less
than a conventional plant, the exact capital and operating costs are difficult to estimate
due to the variability in project location and ore type. Each project requires a different
set of modules to obtain maximum recovery from the ore being processed resulting in
project specific costs. Sepro Systems of Vancouver reports their 30 tph skid mounted
35
gravity/flotation plants cost approximately $1.2-$1.5 million USD (*Personal
Communication, Sepro Systems). Table 1 lists the estimated total operating costs for
two sizes of the Gekko Python plant, the P200 and P500, installed in an underground
South African gold mine. The P200 and the P500 have annual throughput capacities of
146,000 tons and 360,000 tons, respectively. Unit operating costs range from $8.80-
$12.50 USD per ton, depending on the throughput rate (22). The variable operating
costs for both the Sepro and Gekko modular processing plants are most sensitive to
Table 1 Estimated unit operating costs for the Gekko Python modular processing plant, from (22).
Along with Sepro and Gekko, several manufacturers offer modular processing solutions.
in Johannesburg South Africa construct modular processing units tailored to fit the
36
specific needs of their clients. Typical applications include crushing, grinding, flotation,
lime slaking, as well as thickening and filtration circuits. Although several companies
offer variations of this technology they all aim to reduce start-up costs, plant installation
As mentioned in the example above, a mine can often have multiple minerals of interest
associated to multiple ore types that each requires a specific degree of beneficiation.
processing a specific ore grade or type. In the context of this research, projects that
incorporate heap leaching and floatation recovery methods typically require high
tonnages of low-grade material with lesser tonnages of high-grade material. The ore
metallurgical testing. The location of the project also has an impact on whether or not
concerns, remote locations with little to no infrastructure and the climate where the
project is located.
Consider the Ruby Hill mine in NV, USA. The project utilized a closed HLF/milling circuit
to process gold ore. Low grade, run of mine (ROM) ore was stacked on a leach pad and
higher-grade material was sent to a flotation circuit where the gold was extracted.
Tailings from the flotation circuit were then pumped to the HL pad and blended with low-
37
This process increased the value of the ore being mined by processing it under the
correct conditions. This approach also reduced the capital and operating costs inherent
systems.
Alamos Gold’s Mulatos mine located in Sonora Mexico is another example of a mine
benefitting from multiple processing streams. The deposit currently contains ~1.5M oz in
reserves and another 3M oz in measured and indicated resources (23). The mill design
is able to process 18,000 t/d through an HLF and gravity concentrator. The gravity
concentrator processes high-grade material from both the Mulatos mine and ore from
the nearby San Carlos project while the HLF handles low-grade crushed ore.
The mine was originally designed to crush and convey 10,000 t/d to a heap. A carbon in
column (CIC) absorption circuit would then recover the gold. In 2012 Alamos discovered
a new high-grade zone that warranted the construction of a $20M 500-t/d gravity mill.
The high-grade milling stream produces gold concentrate through a gravity concentrator
followed by intensive leaching. Similar to the closed system used at the Ruby Hill Mine
and the underground modular python plant, the tailings from the gravity circuit are
dewatered and conveyed to the leach pad for further processing. This removes the
need for tailings ponds and reduces the environmental impact of the project.
Finally, consider New Gold’s Mesquite mine in California. The deposit contains
38
approximately 2.2 million oz of gold in reserves, with 32% of the ore being non-oxide
ore (24). The remaining ore is classified as either oxide or transitional between oxide
and sulfide. Through heap leaching, the non-oxide ore has a historic recovery of ~35%
while the oxide ore has 75% recovery (24). To account for the differences in recovery
New Gold applies different cut-off grades to each ore type based on the oxide content.
The break-even cut-off is 0.003 oz/t for oxide ore and 0.007 oz/t for non-oxide (24). The
higher cut-off applied to non-oxide ore ensures that value of gold recovered will offset
This last example highlights the tradeoff between cut-off grade and processing method.
If the total reserves contained more non-oxide ore than oxide ore the processing
method would likely be different to maximize the value of the ore. By incorporating a
cut-off strategy to match a specific ore type New Gold has added flexibility to their
Based on the examples mentioned above the use of multiple processing streams and
cut-off strategy play a major role in maximizing the value of a particular ore type. All of
the above examples are open pit mines utilizing a low cost low recovery method such
as a HLF in addition to a higher cost, higher recovery stream. Here, economies of scale
greatly affect the cut-off strategy specifically when considering the mining and
processing capacities for these low-grade deposits. With a low cost, low recovery-
processing method such as heap leaching, the greater the throughput rate the greater
the return. A large HL operation of ~30,000 t/d (typical in Nevada) has a total operating
39
cost half that of a small 3,000 t/d operation (25). This means that a smaller project may
not benefit solely from multiple processing streams and optimizing the cut-off strategy
becomes paramount.
BREAK-EVEN METHOD
Under the break-even model, if two process streams are utilized, there will be two cut-
off grades gp1 and gp 2 . These two economic grades tell us a few important aspects
about the material to be mined and processed. First, the lower of the two cut-offs ( gp1 )
identifies which material will be considered ore vs. waste. This is similar to when only
one process stream is utilized. Material below this grade will either be left in the ground
or sent to a waste pile. Second, we can determine which process stream any material
deemed ore should be sent to. Ore with an average grade above gp1 and below gp 2 will
be processed at the Cp1 facility. Ore with an average grade above gp 2 will be processed
using the Cp 2 facility, unless the Cp 2 stream is at capacity. This second grade tells us at
expensive methods.
To help illustrate, Figure 4.2 represents the revenue generated per ton of material
processed using two processing streams, a heap leach pad and a mill. The break-even
cut-off grade ( gHL ) is shown graphically where the green line crosses the x-axis. At a
40
grade just below 0.10 g/t, the revenue per unit of material processed using HL is equal
to the cost of processing that unit. Any material above this grade will be considered ore
and will be sent to either the leach pad or the mill. Similarly, the break-even grade for
the mill is observed to be approximately 0.15 g/t, where the blue line crosses the x-axis.
The mill cut-off ( gCIL ) or “cut-over” grade is where the green and blue lines intersect. At
this point the revenue earned from sending ore to the mill exceeds that of sending ore to
the leach pad. Here, any material with a grade < ~0.35 g/t should be sent to the HLF
and any material with a grade > ~0.35 g/t should be processed at the mill.
$20
$15
$10 CIL
gHL gCIL
$5 HL
$-
$(5)
$(10)
$(15)
Cut-off Grade (g/t)
Figure 4.2 Cut-off and cutover grade defined by revenue earned per ton of material processed.
It is important to note that the example in Figure 4.2 holds processing capacity the same
for each method when in practice the capacities could be very different. For example a
typical heap leach operation in Nevada will place 20,000+ tons of ore per day on the
heap, while a standard conventional mill may only have a throughput capacity of 1,000
tpd (25). This will have a great impact on the availability to process material in the
41
higher-grade stream and the opportunity costs of sending material to one stream
The break-even approach does not optimize the grade or quantity of ore processed for
each stream. It is limited by the fact that deposit geology and capacities for both
processing and mining are not considered (5). This results in static calculations that do
not reflect what happens in many real world situations. For example, when one stream
does not have the capacity to process more material two options are presented. One is
to process material using the low recovery stream, while the other is to stockpile the
excess material until process capacity becomes available. Simply put, the break-even
model fails to optimize cut-off grades given changes in capacity and grade uncertainty.
LANE’S METHOD
The goal in analyzing cut-off grade with multiple process streams using Lane’s method
remains the same exercise as when analyzing a system with one stream with a few
modifications. First, all equations that include the quantity of ore processed, Qc , must
recoveries.
For situations when more than one of the limiting components to the mining system
restricts throughput the model must be expanded to account for all of the limiting factors
in order to be in balance. Lane’s method considers the three limiting components in the
42
mining system to be the mine, the mill and the market/refinery. Consider an example
proposed by Asad (26) where two economic minerals are present at a mine. The ore is
mined and concentrated similar to mine with only one ore type. The ore is then
delivered to one of two refineries depending on that ore type. The balancing formula
must be changed to include the costs and capacity of both refineries. Therefore four
components must be balanced: the mine, the mill, refinery 1 and refinery 2. The same
theory holds true when there are multiple mills or even multiple mines. The addition of a
43
5 THE MODEL
The objective function is to maximize the NPV of future profits subject to mine, mill and
market capacity constraints. The dynamic cut-off model proposed by Lane is used in
block diagram overview of the algorithm used is provided in Figure 5.1 below.
Start
Set V=PV
(Initial PV=0)
Calculate PV
YES
YES
Stop
44
5.1 ECONOMIC AND OPERATIONAL INPUTS
The first step is to enter the economic, operational and grade tonnage parameters. The
economic data includes the price of gold, fixed and variable costs and the discount rate.
The operational inputs include the grade tonnage data, the mining, milling and refining
A grade tonnage curve must be created based on the geologic profile of an ore body.
This means that a resource has been defined, the mine has been designed and the
In this thesis, grade tonnage data was simulated to create a set of random but equally
probable grade tonnage curves. This allows for the mitigation of geologic uncertainty
Monte Carlo simulation is a form of data analysis used to model the results of a process
distribution is substituted into the random uncertain variable and the probability of a
commodity price and metal grade. These variables both have a large impact on the
profitability of a mine but more importantly, they both must be estimated when valuing
45
Assuming that the metal grades and tonnages follow a lognormal distribution around a
low grade mean, with 80% of the resource being less than 1.0g/t and 20% being above
1.0g/t, a frequency distribution can be constructed. Using a mean and variance for Y, of
1.2 and 5.7, respectively, it is possible to calculate the mean and standard deviation for
log (Y).
⎛ σ2⎞
⎜ µ+ ⎟
⎝ 2⎠
mean = e
variance = ⎛ e
(σ ) − 1⎞ e(2 µ +σ )
2 2
⎝ ⎠
This allows for the lognormal distribution of grade tonnage data using the known
A total of 15 grade tonnage curves were created using the simulation methods
ore body. This exercise served two purposes. First, that simulated controlled data can
be applied to the cut-off model. The second is that by simulating several equally
probable realizations of the ore body the resulting cut-off policy and its sensitivity to key
46
5.2 INITIAL ESTIMATES OF NPV
The objective is to maximize NPV through optimum cut-off grade strategy. However,
since the calculation for the optimum cut-off grades depends on NPV an iterative
mathematical approach is necessary. Therefore, initial estimates for the unknown NPV
variable must be made. By Lane’s approach, the opportunity cost associated to mining
at a particular cut-off affects the overall NPV of the project. This means an opportunity
cost must be included in the calculation for cut-off grade. Looking back at Lane’s theory,
opportunity cost ( F ) is the rate of change in present value with respect to time,
⎛ dV ⎞
F = ⎜ δV −
⎝ dT ⎟⎠
As Lane points out, any estimated value for V is valid as long as the resulting terminal
value is zero (or a specified value). If not, the initial estimate must be changed and the
process repeated.
For projects with existing production, NPV can be calculated and the estimation process
is excluded. For LOM cut-off policies of new projects with no production history an initial
47
5.3 LIMITING CUT-OFF GRADE
The calculations for determining the limiting economic cut-off grades are the same as
was mentioned in section 2.2.2. Because this thesis is focused on projects constrained
by the processing stage of the system it is assumed that the mine and the refinery will
cp +
(f + F )
Cp
Process Limiting gp = [18]
(S − r ) * y p
Here, the subscript p refers to the specific process being analyzed. This means that
each process p , will have its own unit costs, capacities and recovery used to determine
Once the limiting economic grade 𝑔! for each process is calculated the quantity of ore
𝑇𝑂, the quantity of waste 𝑇𝑊 and the average grade of ore 𝑔 is determined as a
function of 𝑔! .
TO g =
( ) p
∑T n
[19]
n≥n*
TW g =
( ) p
∑T n
[20]
n<n*
48
()
⎛ g n + g(n + 1) ⎞
∑ n
≥ n *Tn⎜
2
⎟
⎝ ⎠
gg = [21]
( ) TO g
( )
p
p
Here, n refers to the individual grade categories that make up the grade tonnage curve,
T represents the tons of material within those grade categories and n * is the grade
category selected as cut-off. The sum of all tons in each grade category above cut-off is
denoted as TO g . Conversely, TW g is the sum of all tons within each grade category
( )
p ( )
p
below cut-off.
The average grade is used to determine the overall concentration of gold in the ore sent
to the processing facility. Here, g g is the weighted average grade for the tons included
( )
p
Next, the quantity of material mined, Qm , the quantity of ore processed, Qc (per
function of the cut-off grade. The variables used in these equations are interrelated and
⎧TO − Δ if < Cp + Δ ⎫
⎪ ( gp ) ⎪
Qc p = ⎨ ⎬ [22]
⎪⎩Cp otherwise ⎪⎭
49
Here, Δ represents the difference between the ratios TO g / Tn for each process. By
( )
p
adding Δ to the given capacity all annual processing quantities are within the maximum
bounds. This variable ensures that maximum utilization of capacity is used and no
⎡ TW ⎤
(min gp ) ⎥
Qm = ∑ p Qc p * 1+
⎡ ⎤ ⎢ [23]
⎣ ⎦ ⎢ ∑ TO ⎥
⎣ p ( gp ) ⎦
The second half of the Qm equation refers to the stripping ratio applied to the ore
body. It should be noted that not all cut-off calculations require a stripping ratio, only
open pit mines. Underground projects use a calculated dilution % to account for the
Qr = ∑ p Qc p * g g * y p [24]
( )
p
Here, the quantity refined for the entire mine is equal to the sum quantity of ore
processed by each process stream multiplied by the product of the average grade of
ore sent to each mill and the average mineral recovery from each processing
50
5.6 ANNUAL CASH FLOW AND NPV
Once the limiting cut-offs have been computed and the quantities for mining, milling and
refining determined, the resulting cash flow can be calculated using equation [25] below.
The model proposed here uses periods of 1 year for time considerations.
(( ) )
P = S − r * Qr − ∑ p c p * Qc p − m * Qm − f [25]
The next step is to calculate the PV of the remaining resource to identify the value and
opportunity cost of using the calculated cut-off grades. First, the remaining life of mine
(in years) must be determined based on the quantities of ore calculated in Section 5.4
TO min
( gp )
lom = [26]
∑ p
Qc p
Next, the present value V for the remaining resource is calculated using the annual
⎡ 1− 1+ δ
( ) ⎤
− lom
V =P*⎢ ⎥ [27]
⎢ δ ⎥
⎣ ⎦
This is simply the formula for the present value of an annuity discounted by rate, δ . The
51
±$500,000. If V and v ′ do not converge, v ′ is set equal to V and the process repeated
until convergence.
Once converged, the year is set to t = t + 1 and the grade tonnage curve is adjusted in
proportionate amounts so that the overall grade distribution remains unchanged (7,26).
This is done by removing waste tons, Qm − ∑ p Qc p , below the minimum optimum cut-
off and ∑ p
Qc p tons above each optimum cut-off.
The iterative process continues until the resource is exhausted, the remaining resource
52
6 HYPOTHETICAL CASE STUDY
The model outlined in Chapter 5 was applied to a hypothetical gold mine. The case
study was separated into two scenarios, a base case and a modular case in order to
compare and contrast the results. Holding all design parameters constant for each
scenario, the base case only employs the heap leach facility, while the modular case
averages, literary examples and personal experience. For simplicity, prices and costs
are held constant in this model. However, adjustments can be made to incorporate
stochastic price movements or cost escalation (12,28). The model is suited for an open
pit gold mine with one source, one or more processing methods, and one refinery.
Figure 6.1 is a flow sheet diagram for the mine system in the modular case with the
corresponding capacities.
53
Heap Leach
(500,000 t/yr)
Mine Market/Refinery
(2,000,000 t/yr) (30,000 oz/yr)
Modular Mill
(73,000 t/yr)
Waste
(Unlimited)
Figure 6.1 Flow sheet diagram for hypothetical gold mine with capacity constraints (modular case).
It was assumed that a defined resource and an ultimate pit limit had been determined.
Capital costs were excluded from the model but can be considered as cash out flows
when calculating the NPV. As mentioned previously, simulated grade tonnage data was
used to account for geologic uncertainty and to serve as the primary data set. The
economic and operational design parameters are shown in Table 2 and one realization
The parameters in Table 2 highlight the assumed gold price, variable unit costs, annual
fixed costs, and the planned capacities for the mine, both mills and the refinery.
Average mill recoveries are listed for both the HLF and CIL plant, while the mine and
54
The project was expected to be operational 365 days a year with a mining capacity of 2
million t/yr and a market/refining capacity of 30,000 oz/yr. These values were chosen
purposefully so that the mine and refining capacities would never be limiting factors on
output. Unit mining costs were $2.65 per ton and assumed to be the same for both ore
and waste. The HLF capacity was very small at just 500,000 t/yr with an average annual
recovery of 70%. In the modular case, the CIL plant had a capacity of 73,000 tons per
year with an average annual recovery of 90%. Unit costs for the HLF and CIL were
estimated based on information provided by (22,25). An annual fixed cost of $1.2 million
The simulated ore grade distribution was lognormal with a low-grade skew throughout
the mineralized body. The grade tonnage data serves as the sole grade tonnage curve
for the entire life of the mine. This is a simplification of real world scenarios where
multiple mining phases would each have unique grade tonnage curves that make-up the
55
Grade Tonnage Distribution
2,000
Tons (000's) 1,500
1,000
500
-
Figure 6.2 Grade tonnage distribution GT1 for hypothetical gold mine.
It is important to note that a cut-off policy based on dynamic cut-off grades is most
valuable in the pre-feasibility stage. Any adjustments to the long-term plan can
potentially be very expensive and are therefore most easily implemented in the early
6.2 METHOD
A set of 15 grade tonnage curves and an optimization model following the algorithm
discussed in Section 5 was created using Microsoft Excel. The model was then used to
analyze the simulated grade tonnage curves with respect to cut-off grade and
production, subject to capacity constraints in order to maximize NPV. Then for each
grade tonnage simulation, a complete cut-off policy was created. This process was
56
6.2.1 BASE CASE
Table 3 shows the complete cut-off policy for one of the simulated grade tonnage
curves. Included are the cut-off grade, the quantity of material mined, the quantity of ore
processed, the quantity of gold ounces refined and the resulting profits for each year of
Each of the 15 simulated grade tonnage curves was exhausted in year 7 for the base
case, with little variability in the quantity of ounces produced. The low variability in
production suggests that the variance used in the simulated grade tonnage data was
It can be seen in Table 3 that cut-off grade declines throughout the life of the project as
the resource is exhausted. This is expected based on Lane’s theory of dynamic cut-off
grades. The higher cut-offs push revenue forward in the early years of production when
cash flows are discounted less, increasing the overall NPV. It is also observed that the
quantity of material mined decreases with time. This is due to smaller stripping ratios in
57
Table 3 The complete cut-off policy for base case using grade tonnage curve 1 (GT1).
Table 4 shows the calculated NPV for each of the 15 grade tonnage curves used in the
analysis. Based on the results the average NPV for the base case was $55,979,753
Table 4 Calculated NPVs for both the base and modular scenarios across the set of 15 equally probable
simulated grade tonnage curves.
NPV
SIM# Base Case Modular Case
GT1 $54,758,653 $60,852,647
GT2 $54,708,668 $61,314,816
GT3 $57,123,583 $63,509,245
GT4 $58,230,506 $64,866,558
GT5 $53,960,510 $60,034,202
GT6 $59,614,937 $66,216,130
GT10 $58,035,176 $64,947,783
GT11 $52,302,068 $58,321,150
GT12 $57,091,653 $63,498,597
GT13 $56,385,943 $62,804,701
GT14 $56,930,227 $63,338,054
GT15 $52,615,118 $58,809,129
58
6.2.2 MODULAR CASE
The trend highlighted in Table 5 shows that, similar to the base case policy for GT1, cut-
off grades for both processing streams decline as the resource is exhausted. The
additional capacity offered by the modular processing plant results in more material
being mined in the early years to maximize utilization which in turn results in a shorter
The total quantity of ounces produced did not vary significantly across the set of
simulated grade tonnage curves. The difference between the minimum and maximum
was ~9.5% with an average LOM gold production of 82,000 oz. Compared to the
average LOM base case production of 78,000 oz, the additional modular capacity
For GT1, the total quantity of ore processed decreased slightly by 0.03% from the base
case. Consequently, NPV increased by $4.2 million. This indicates that in the modular
case more of the resource is being classified as ore, maximizing the overall value of the
mineralized material. In the final year for the modular case the HL cut-off is 0.25 g/t,
which is in fact equal to the HL limiting cut-off. Compared to a cut-off of 0.30 g/t in the
59
Table 5 Complete cut-off policy for modular case using GT1.
The addition of extra processing capacity has shown to have an impact on the optimum
cut-off grade. Therefore, the reclassification of ore and waste when a modular
adding a modular processing plant to process “high grade” material, the combined
processing capacity must be equal in both scenarios. Consider the situation presented
in Table 6, where the HLF capacity in the base case was equal to the combined
capacity of the HLF and CIL in the modular case. Here, the LOM Qr was still 4.3% less
than the LOM Qr in the modular case. This suggests the classification of ore and waste
that maximizes NPV is when the available processing capacity is divided into separate
streams.
Table 6 Base case cut-off policy when HL has capacity of 573,000 t/yr, for GT1.
60
Another trend observed is the rate at which the cut-off grades decline. In the base case
the HLF stream starts with a lower cut-off in year one compared with the modular case,
and slowly declines as the resource is removed. In the modular case the HL stream
starts at a higher cut-off and declines more rapidly to offset the higher-grade material
being diverted to the CIL plant. This is also a function of the additional capacity
The average NPV over the set of 15 grade tonnage curves was $62,376,084 for the
modular case compared to $55,979,753 for the base case. The difference of $6,396,331
Table 7 Complete break-even cut-off policy for modular case using GT1.
When comparing the break-even policy from Table 7 to the “Lane style” dynamic COG
policy in Table 5, it is clear that using dynamic cut-off grades improves NPV. In the case
61
of GT1, with all other parameters held constant, the Lane style LOM policy has an NPV
of $60.85 million representing a 7% increase over the break-even approach. The most
important realization is that by mining more material in the early years of production the
value of the resource increases. The tradeoff is in the amount of years the project will
10yr LOM while the COG policy based on Lane’s methods have a 6yr LOM.
62
7 ECONOMIC ANALYSIS
The parameters analyzed in the sensitivity analysis were chosen due to the expectation
Parameters analyzed:
• Gold Price
• Processing Capacity
The sensitivity calculations were performed on the NPV of the project, by applying a
range of variations of ±15% to the base case parameter values on GT13. Aside from
NPV, the sensitivity analysis was also used to analyze any changes to the cut-off policy
as variations of the parameter values were tested. The complete results are presented
Overall the NPV is most sensitive to gold price. NPV increased by 28% from the base
case, when gold price was increased 15%. This is common with most mining projects,
as the selling price of the commodity dictates how much of the material is considered
economic. Mineral grade is another parameter that often has significant effect on NPV.
63
In this research, grade uncertainty was accounted for through the set of 15 ore body
simulations. The base case scenario had an average LOM Qr of 78,758 oz of gold
while the modular case had 81,904 oz. Table 8 is a cumulative list of the annual gold
production for the min, max and median grade tonnage curves applied to the modular
case. It can be seen that the total amount of gold ounces produced varies by ~9.5%
from the min to the max. Although this is largely due to the lack of production in year six
of GT2, the difference between the max and median case is ~4%. This reiterates the
importance of accounting for grade uncertainty when creating a LOM cut-off policy.
Table 8 Comparison of annual gold production across set of simulated grade tonnage curves.
NPV was moderately sensitive to unit processing costs, relative to the other parameters
tested. NPV increased by 5% when HL unit operating costs were reduced by 15%
representing an increase of $3.2 million in pre tax NPV. Changes to CIL unit operating
costs were less sensitive, observing only a 1% increase in NPV when CIL unit costs
were reduced by 15%. Table 9 shows that an increase in HL unit costs increased HL
COG and decreased CIL COG. It is understandable that as unit processing costs for the
HL stream increase, the limiting HL break-even cut-off grade will also increase;
64
essentially reclassifying what is considered ore and waste under the current conditions.
The interesting realization comes from the reduction in CIL COG as a result of
increases to HL unit costs. This occurs because there is less available tonnage in
“higher-grade” grade categories requiring the CIL COG to decrease. The opposite is
The NPV was least sensitive to changes in processing capacity. It was observed that a
in NPV from the base case. Although these changes had minor effects on NPV,
Similar to changes in unit costs, which determine limiting economic cut-offs, as the
capacity for a given process is increased the limiting economic cut-off grade is
decreased. This redefines what material is classified as ore and waste within the
mineralized body. This holds true for both the HL and CIL streams. Tables 10 and 11
highlight this phenomenon, particularly when HL capacity is increased by 15% from the
base case. Here it can be observed that LOM was reduced by a year due to more
65
Table 9 Cut-off policy for GT13 showing how an increase in HL unit costs by 5% results in an increase in
HL COG and a decrease in CIL COG.
Table 11. Cut-off policy for GT13 when HL capacity is increased by +15% of base case values.
66
It is important to note that due to economies of scale, as process capacity is increased
the unit costs will decrease. Kappes (25) points out that operating costs are not very
sensitive to the size of a HL operation. In an article on heap leach design and practice
3000 t/d operation has a unit cost of $10.12 per ton, a 15,000 t/d has a unit cost of
$7.70 per ton and a 30,000 t/d (typical of Nevada) has an operating cost of $5.20 per
ton.
Similarities are observed when comparing operating costs for modular CIL units as well.
Hughes and Gray (22) determine that barring any changes to power, water and reagent
consumption, increased capacity means lower unit operating costs. The Gekko Python
P200, with an annual throughput capacity of 146,000 tons, has an estimated operating
cost of $12.10 per ton. While the Python P500, with an annual capacity of 360,000 tons
For both the HL and modular CIL processing streams the unit labor and management
costs become the dominating variable. When capacity is low the utilization of man-hour
to processed ton is also low. As capacity is increased, and the demand for labor stays
the same overall unit costs will decrease. In practice this may not be the case. For
example, in a HL operation if the capacity was doubled certain variable costs would
indeed increase such as the unit costs for reagents and haulage costs to transport the
additional ore. Other areas of the mine will also be affected including waste disposal
67
8 CONCLUSIONS
The objective of this research was to maximize the value of small-scale, low-grade,
open pit homogeneous gold deposits through cut-off grade strategy and modular
processing. The NPV for the modular case was on average 11.43% higher than that of
the base case. This indicates that by adding process capacity and dividing the ore into
The hypothetical case in this research does not consider capital costs. However, this
study suggests that an additional modular processing plant to process high grade ore
should be introduced if the capital cost is less than the difference between the average
NPV calculated for both the base and modular case over the set of 15 simulated grade
tonnage curves.
It was demonstrated through a sensitivity analysis that gold price has the greatest
influence on NPV and therefore ore/waste classification. When gold price was low, cut-
off grades are higher and less material is classified as ore. When gold price is high,
optimum cut-off grades are low and more material is classified as ore. The methods
used in this research based on Lane’s algorithm, determine the optimal ore/waste
classification scheme for any point in time during the life of the mine. This confirms the
The results also demonstrate that an optimum cut-off strategy needs to consider the
capacities for the limiting components outlined by Lane, and the opportunity costs of
68
mining at a determined cut-off grade level. A comparison of the NPV obtained via the
break-even method and dynamic optimization methods presented here, suggest that by
overlooking the capacities and opportunity costs, break-even calculations may lead to
sub optimal cut-off grades resulting in underutilized resources and revenue loss. This
substantiates that cut-off grades determined by the break-even method are inadequate
Results from the hypothetical case study reveal that a low-grade open pit gold mine will
benefit from the use of multiple processing streams when a dynamic cut-off policy is
used, particularly, when incorporating a “high grade” milling stream to maximize the
processing flexibility has more value than a mine that does not. This means that for a
given grade tonnage curve and a set of design and production parameters, the
classification of ore and waste is what ultimately determines the NPV of a mining
project.
69
9 RECOMMENDATIONS
The strategy of utilizing multiple processing streams in which ore and waste are more
finely classified must be considered when processing low-grade ore in remote locations.
The flexibility offered by modular processing streams allows for a wider range of
feasible ore grades and commodity prices than that offered by traditional constructed
for designs that can be scaled up to throughput rates similar to conventional facilities
Work done in this thesis on optimal cut-off policies for mines with multiple processing
plants including a modular stream can be further developed with case studies which
closer reflect real world situations. For example, projects that do not have the ability to
process material using a HLF can be modeled with multiple modular processing
streams. A cut-off policy of this kind will benefit a mining complex with multiple ore types
and/or multiple phases each containing a separate grade tonnage curve. In theory, the
model will provide the best sequence of extraction based on the determined optimum
cut-off grades.
conceivable that a combination of these extensions could be compiled into one model.
This includes:
1. The ability to analyze underground and open-pit mines containing multiple metals
70
functional forms of Qm and Qc would need to be defined for a specific
underground mine. Barr (12) suggests the quantity of material mined and
designs.
2. The replacement of deterministic prices and costs with stochastic variables. The
in to the limiting cut-off calculation (step 5.3 of algorithm) and the annual profit
calculation (step 5.6 of algorithm). This substitution will allow for improved mine
design planning when analyzing mines with longer life spans. The longer the
3. The incorporation of rehabilitation costs into the limiting cut-off grade calculation
71
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73
APPENDIX A. Derivation of Lane’s Equations
Derivation of the equations used in this thesis for Lane’s method for determining the
maximum present value of a mining operation based on a finite resource, from (18).
The value of the mining operation V , in the first period, is the cash flow ( Pq ) associated
with mining q units of material and the present value (PV) of any facility is given by:
1
( )
V T,Q = Pq +
(
1+ δ t ⎣ ) (
⎡V T + t,Q − q ⎤
⎦ )
[XXVIII]
(
= Pq + ⎡⎣V T + t ⎤⎦ / 1+ δ t ) ( )
(
⎡V T + t,Q − q ⎤
⎣ ⎦ )
(1+ δ )
t
74
(
V T + t,Q − q ) = V (T + t,Q − q ) * (1+ δ t )
(1+ δ )
t
Next, using the Taylor Series expansion for two variables for this part of the equation,
dV t 2 d 2V
( )
V T + t =V T + t + ( )
dT 2 dT 2
+ ...and [XXIX]
dV q 2 d 2V
( )
V Q − q =V Q − q ( ) −
dQ 2 dQ 2
+ ...and [XXX]
⎡ dV dV ⎤
( )
V T + t,Q − q = ⎢V T,Q + t
dT
−q (
dQ ⎥⎦
)
* 1+ δ t ( ) [XXXI]
⎣
⎛ dV ⎞
Multiplying equation [IV] by −rt ⎜ t ≈ 0 and because −rt is very small, it means −rt 2
⎝ dT ⎟⎠
and −rtq are extremely small, so they can be ignored and equation [IV] becomes:
dV dV
( )
V T,Q − rtV + t
dT
−q
dQ
[XXXII]
75
dV dV
( ) ( )
V T,Q = Pq +V T,Q − rtV + t
dT
−q
dQ
[XXXIII]
After differentiation and cancelling of the common terms on both sides of equation [VI],
dV dV
Pq − rtV + t −q =0 [XXXIV]
dT dQ
dV ⎛ dV ⎞
q = Pq − t ⎜ δV +
dQ ⎝ dT ⎟⎠
dV t⎛ dV ⎞
= P − ⎜ δV +
dQ q⎝ dT ⎟⎠
and if,
⎛ dV ⎞ t
F = ⎜ rV + ⎟ and τ =
⎝ dT ⎠ q
Lane is,
dV
= P − Fτ [XXXV]
dQ
76
APPENDIX B. Simulated Grade Tonnage Data
Grade tonnage data for the set of 15 simulated grade tonnage curves used in this
research is presented in Tables B1-B5 below. The data set includes the tons of
material, the average grade of the material and the ounces of gold contained in each
grade category.
77
1.95-2.00 10,000 1.96 631 30,000 1.98 1,910 30,000 1.98 1,911
2.00-2.05 10,000 2.04 655 40,000 2.03 2,610 80,000 2.02 5,197
2.05-2.10 50,000 2.07 3,332 10,000 2.08 668 20,000 2.08 1,335
2.10-2.15 20,000 2.14 1,379 40,000 2.12 2,731 - - -
2.15-2.20 10,000 2.19 704 10,000 2.20 707 50,000 2.17 3,482
2.20-2.25 20,000 2.24 1,439 40,000 2.22 2,854 50,000 2.24 3,593
2.25-2.30 40,000 2.27 2,917 50,000 2.28 3,665 10,000 2.27 731
2.30-2.35 20,000 2.33 1,498 20,000 2.33 1,498 40,000 2.32 2,981
2.35-2.40 10,000 2.35 757 60,000 2.37 4,566 10,000 2.37 762
2.40-2.45 10,000 2.42 779 40,000 2.43 3,123 20,000 2.43 1,565
2.45-2.50 20,000 2.47 1,591 30,000 2.48 2,388 10,000 2.48 798
2.50-2.55 40,000 2.53 3,259 10,000 2.51 806 10,000 2.53 814
2.55-2.60 - - - 60,000 2.58 4,968 20,000 2.58 1,659
2.60-2.65 20,000 2.62 1,684 10,000 2.64 848 10,000 2.63 844
2.65-2.70 20,000 2.67 1,719 20,000 2.67 1,714 30,000 2.68 2,587
2.70-2.75 10,000 2.73 877 10,000 2.74 882 10,000 2.70 869
2.75-2.80 30,000 2.78 2,684 10,000 2.75 885 - - -
2.80-2.85 - - - 20,000 2.83 1,820 10,000 2.81 903
2.85-2.90 10,000 2.87 923 - - - 10,000 2.89 928
2.90-2.95 10,000 2.95 948 - - - 10,000 2.91 935
2.95-3.00 40,000 2.98 3,829 20,000 2.97 1,908 10,000 2.96 953
Total 9,120,000 134,070 9,200,000 132,354 9,180,000 138,831
78
1.75-1.80 30,000 1.77 1,706 30,000 1.76 1,695 70,000 1.78 3,995
1.80-1.85 30,000 1.83 1,768 30,000 1.81 1,743 40,000 1.82 2,345
1.85-1.90 30,000 1.89 1,821 60,000 1.88 3,619 30,000 1.88 1,811
1.90-1.95 30,000 1.93 1,861 10,000 1.92 617 20,000 1.93 1,238
1.95-2.00 40,000 1.97 2,537 - - - 20,000 1.95 1,257
2.00-2.05 30,000 2.01 1,943 30,000 2.03 1,954 40,000 2.01 2,589
2.05-2.10 10,000 2.10 674 50,000 2.08 3,338 10,000 2.06 662
2.10-2.15 30,000 2.13 2,058 30,000 2.13 2,053 20,000 2.14 1,379
2.15-2.20 30,000 2.16 2,083 50,000 2.19 3,518 30,000 2.17 2,097
2.20-2.25 10,000 2.24 721 - - - 20,000 2.22 1,426
2.25-2.30 10,000 2.27 729 40,000 2.29 2,939 20,000 2.27 1,462
2.30-2.35 10,000 2.32 745 20,000 2.32 1,495 40,000 2.33 2,995
2.35-2.40 20,000 2.39 1,540 - - - 10,000 2.37 762
2.40-2.45 50,000 2.43 3,909 20,000 2.42 1,553 10,000 2.44 786
2.45-2.50 10,000 2.46 791 20,000 2.46 1,584 20,000 2.48 1,595
2.50-2.55 40,000 2.52 3,237 20,000 2.51 1,611 20,000 2.52 1,622
2.55-2.60 20,000 2.55 1,643 10,000 2.57 825 10,000 2.57 827
2.60-2.65 40,000 2.62 3,375 - - - - - -
2.65-2.70 20,000 2.65 1,706 30,000 2.67 2,574 40,000 2.68 3,444
2.70-2.75 - - - 40,000 2.72 3,501 10,000 2.74 882
2.75-2.80 - - - 10,000 2.75 885 - - -
2.80-2.85 20,000 2.83 1,820 - - - 40,000 2.81 3,614
2.85-2.90 20,000 2.87 1,846 10,000 2.89 928 - - -
2.90-2.95 - - - 10,000 2.95 947 30,000 2.94 2,832
2.95-3.00 20,000 2.96 1,904 20,000 2.99 1,923 20,000 2.98 1,916
Total 9,070,000 137,778 9,270,000 135,460 9,160,000 141,015
79
1.65-1.70 40,000 1.67 2,151 30,000 1.68 1,617 90,000 1.68 4,860
1.70-1.75 10,000 1.74 559 20,000 1.72 1,105 30,000 1.72 1,655
1.75-1.80 50,000 1.78 2,854 50,000 1.77 2,845 30,000 1.78 1,717
1.80-1.85 30,000 1.82 1,752 30,000 1.82 1,756 60,000 1.84 3,550
1.85-1.90 10,000 1.87 601 20,000 1.88 1,211 20,000 1.88 1,207
1.90-1.95 30,000 1.91 1,845 30,000 1.93 1,860 - - -
1.95-2.00 10,000 2.00 642 40,000 1.97 2,534 - - -
2.00-2.05 50,000 2.03 3,256 20,000 2.01 1,294 20,000 2.02 1,299
2.05-2.10 10,000 2.06 662 30,000 2.07 2,001 10,000 2.05 660
2.10-2.15 20,000 2.11 1,359 20,000 2.13 1,371 20,000 2.12 1,360
2.15-2.20 20,000 2.16 1,387 20,000 2.17 1,392 50,000 2.19 3,517
2.20-2.25 - - - 20,000 2.21 1,422 20,000 2.22 1,429
2.25-2.30 20,000 2.26 1,456 40,000 2.29 2,940 20,000 2.28 1,466
2.30-2.35 10,000 2.33 750 30,000 2.31 2,230 30,000 2.34 2,259
2.35-2.40 70,000 2.37 5,340 10,000 2.39 768 20,000 2.38 1,528
2.40-2.45 - - - 40,000 2.41 3,104 10,000 2.42 779
2.45-2.50 10,000 2.49 800 - - - 20,000 2.47 1,588
2.50-2.55 20,000 2.53 1,624 30,000 2.52 2,432 20,000 2.51 1,617
2.55-2.60 10,000 2.56 823 - - - 20,000 2.58 1,656
2.60-2.65 10,000 2.60 836 - - - - - -
2.65-2.70 20,000 2.69 1,727 10,000 2.66 857 30,000 2.68 2,584
2.70-2.75 20,000 2.72 1,751 10,000 2.71 873 20,000 2.71 1,743
2.75-2.80 30,000 2.78 2,682 20,000 2.79 1,797 20,000 2.77 1,784
2.80-2.85 20,000 2.81 1,810 30,000 2.82 2,721 10,000 2.84 913
2.85-2.90 40,000 2.88 3,709 10,000 2.88 924 - - -
2.90-2.95 30,000 2.91 2,806 20,000 2.94 1,892 10,000 2.90 933
2.95-3.00 10,000 2.99 960 40,000 2.98 3,831 10,000 2.97 954
Total 9,140,000 139,204 9,100,000 134,519 9,180,000 132,492
80
1.55-1.60 30,000 1.57 1,519 40,000 1.58 2,031 80,000 1.58 4,062
1.60-1.65 20,000 1.62 1,041 50,000 1.63 2,621 40,000 1.62 2,083
1.65-1.70 70,000 1.68 3,772 60,000 1.67 3,225 40,000 1.67 2,143
1.70-1.75 20,000 1.73 1,112 20,000 1.72 1,104 50,000 1.72 2,771
1.75-1.80 20,000 1.77 1,140 10,000 1.79 576 20,000 1.77 1,138
1.80-1.85 50,000 1.83 2,949 30,000 1.81 1,741 40,000 1.83 2,352
1.85-1.90 20,000 1.87 1,204 10,000 1.88 604 50,000 1.88 3,028
1.90-1.95 20,000 1.92 1,232 - - - 50,000 1.93 3,109
1.95-2.00 10,000 1.99 640 20,000 1.99 1,277 20,000 1.98 1,274
2.00-2.05 10,000 2.03 651 40,000 2.03 2,606 50,000 2.03 3,261
2.05-2.10 20,000 2.07 1,332 20,000 2.07 1,331 10,000 2.06 661
2.10-2.15 20,000 2.13 1,370 40,000 2.12 2,731 50,000 2.13 3,424
2.15-2.20 40,000 2.16 2,782 20,000 2.17 1,394 30,000 2.17 2,097
2.20-2.25 - - - 30,000 2.22 2,142 30,000 2.23 2,147
2.25-2.30 20,000 2.25 1,449 30,000 2.28 2,201 - - -
2.30-2.35 30,000 2.32 2,236 20,000 2.31 1,487 30,000 2.31 2,227
2.35-2.40 10,000 2.36 759 10,000 2.40 771 40,000 2.37 3,043
2.40-2.45 30,000 2.43 2,340 - - - 20,000 2.43 1,561
2.45-2.50 50,000 2.47 3,967 30,000 2.48 2,397 30,000 2.49 2,405
2.50-2.55 10,000 2.52 809 10,000 2.51 807 20,000 2.54 1,631
2.55-2.60 10,000 2.59 833 20,000 2.57 1,655 40,000 2.58 3,315
2.60-2.65 40,000 2.63 3,380 20,000 2.62 1,686 - - -
2.65-2.70 10,000 2.68 860 - - - 20,000 2.69 1,732
2.70-2.75 10,000 2.72 876 10,000 2.72 876 - - -
2.75-2.80 - - - 10,000 2.76 887 20,000 2.77 1,781
2.80-2.85 10,000 2.84 914 30,000 2.81 2,714 10,000 2.84 912
2.85-2.90 50,000 2.88 4,629 - - - 30,000 2.86 2,759
2.90-2.95 30,000 2.92 2,815 - - - 10,000 2.94 944
2.95-3.00 30,000 2.98 2,876 20,000 2.96 1,903 40,000 2.96 3,804
Total 9,170,000 139,027 9,270,000 131,838 9,140,000 135,597
81
1.50-1.55 40,000 1.52 1,952 80,000 1.53 3,925 30,000 1.53 1,472
1.55-1.60 40,000 1.56 2,012 50,000 1.57 2,526 20,000 1.59 1,021
1.60-1.65 30,000 1.64 1,577 30,000 1.63 1,574 30,000 1.63 1,573
1.65-1.70 10,000 1.65 532 20,000 1.68 1,079 30,000 1.68 1,623
1.70-1.75 30,000 1.72 1,663 10,000 1.71 549 20,000 1.71 1,100
1.75-1.80 30,000 1.78 1,712 50,000 1.78 2,855 40,000 1.76 2,268
1.80-1.85 40,000 1.83 2,351 10,000 1.84 593 50,000 1.83 2,939
1.85-1.90 60,000 1.88 3,634 40,000 1.87 2,406 10,000 1.88 603
1.90-1.95 40,000 1.93 2,480 40,000 1.92 2,475 80,000 1.93 4,956
1.95-2.00 10,000 1.97 634 10,000 1.97 634 10,000 2.00 641
2.00-2.05 10,000 2.00 643 30,000 2.02 1,944 10,000 2.04 657
2.05-2.10 - - - 10,000 2.09 673 10,000 2.06 663
2.10-2.15 20,000 2.14 1,378 40,000 2.12 2,726 10,000 2.15 691
2.15-2.20 10,000 2.15 692 20,000 2.18 1,401 30,000 2.16 2,086
2.20-2.25 10,000 2.23 717 20,000 2.23 1,435 30,000 2.22 2,144
2.25-2.30 30,000 2.26 2,178 10,000 2.25 724 30,000 2.28 2,196
2.30-2.35 20,000 2.31 1,483 60,000 2.33 4,486 10,000 2.34 751
2.35-2.40 60,000 2.36 4,559 20,000 2.35 1,512 20,000 2.39 1,534
2.40-2.45 40,000 2.41 3,104 30,000 2.43 2,346 - - -
2.45-2.50 40,000 2.48 3,186 30,000 2.47 2,383 - - -
2.50-2.55 30,000 2.52 2,431 10,000 2.54 818 20,000 2.52 1,619
2.55-2.60 30,000 2.57 2,477 30,000 2.58 2,485 20,000 2.57 1,654
2.60-2.65 20,000 2.61 1,680 40,000 2.61 3,353 20,000 2.60 1,673
2.65-2.70 10,000 2.66 856 - - - 20,000 2.68 1,721
2.70-2.75 30,000 2.72 2,625 - - - 10,000 2.70 868
2.75-2.80 - - - 20,000 2.76 1,775 - - -
2.80-2.85 - - - 10,000 2.84 912 20,000 2.83 1,821
2.85-2.90 10,000 2.86 918 20,000 2.88 1,851 20,000 2.87 1,844
2.90-2.95 10,000 2.91 935 20,000 2.93 1,885 10,000 2.93 943
2.95-3.00 20,000 3.00 1,927 20,000 2.97 1,909 20,000 2.96 1,905
Total 9,170,000 136,521 9,250,000 137,935 9,200,000 133,405
82
APPENDIX C. Cut-off Policy Results
Calculated complete cut-off policy for each simulated grade tonnage curve including
annual Qm , Qr , Qc and cut-off grade (for each process), profit and cumulative NPV.
Results for both the modular and base case scenarios are presented in Table C1 and
83
GT 5 Year Qccil Qchl Qm Qr gcil ghl Profit NPV
1 73000 500000 1831721 18662 1.85 0.5 17255754 60034202
2 73000 500000 1712326 17119 1.6 0.45 15264050 42778448
3 73000 500000 1590947 15368 1.35 0.4 12968969 28241257
4 73000 500000 1504942 13634 1.15 0.35 10604881 16478020
5 73000 500000 1438372 11607 0.95 0.3 7750468 7317125
6 11985 284430 905386 4241 0.8 0.3 1200721 940796
84
Total 388603 2873017 8773528 84740 70743020 64947783
85
Table C2 Base case LOM cut-off policy results for GT1-GT15.
86
GT 6 Year Qchl Qm Qr ghl Profit NPV
1 500000 1552542 13316 0.45 11218652 59614937
2 500000 1449367 12752 0.4 10648171 48396285
3 500000 1449367 12752 0.4 10648171 38255170
4 500000 1312321 11948 0.35 9808916 28596965
5 500000 1312321 11948 0.35 9808916 20123654
6 500000 1205263 11270 0.3 9079215 12053834
7 364575 878818 8217 0.3 6620115 4940032
87
2 500000 1495161 12068 0.4 9503764 42798303
3 500000 1495161 12068 0.4 9503764 33747099
4 500000 1400302 11569 0.35 9010000 25126904
5 500000 1400302 11569 0.35 9010000 17343728
6 500000 1276860 10874 0.3 8298540 9931178
7 276872 707052 6022 0.3 4595261 3429055
88
APPENDIX D. Sensitivity Analysis
The sensitivity calculations were performed on the NPV of the project, by applying a
range of variations of ±15% to the base case parameter values. Parameters tested
were,
• Gold price
• HL capacity
• CIL capacity
• HL unit costs
The results are listed in Table D1 and illustrated graphically in Figure D1 below.
Gold Price
$65 HL Capacity
$60 CIL Capacity
$55 CIL Unit Costs
$50 HL Unit Costs
$45
$40
-15% -10% -5% Base 5% 10% 15%
NPV
89
Table D1 Results of sensitivity analysis on NPV for GT13, modular case.
90