Theory of Cutoff Grades

and Cutoff Grade Policy

Department of Mining Engineering,
University of Liberia
 Cutoff grade Policy
• Background
• Inputs to cutoff grade calculation
• Cutoff grade calculation techniques
– Breakeven analysis
– Optimal cutoff grade policy
• Lane’s approach
– Difference between breakeven and optimal cutoff
grade analysis
 Background
• Cutoff grade
– Classifies ore and waste
• Ore – material above cutoff grade
– Destination - processing plant
• Waste – material below cutoff grade
– Destination - waste dump
– Categorizes ore for distribution among multiple
processing streams
– Defines potential ore
 Background
• If cutoff grade is 0.35%
 Background
• Quantities of ore and waste
– Can we mine, process, and refine the identified
quantities of material, ore, and metal?
• Mining, processing, and refining capacities
– Production schedule
• Cutoff grade policy
– Identifies the life of operation production
schedule in terms of cutoff grade, quantity mined,
processed, and refined
• Cash flows – discounted and undiscounted
 Input parameters
• Economic parameters
– Price of metal, mining cost, processing cost,
refining/selling/marketing cost, fixed/period cost,
recovery, discount rate
• Geological parameters
– Grade-tonnage curve inside the ultimate pit limit
or pushbacks
 Input parameters
• Economic parameters
– Period/year indicator (t)
– Cash flow in period t (CFt)
– Metal price (p), $ per gram or tonne of metal
– Refining cost (r), $ per gram or tonne of metal
– Mining cost (m), $ per tonne of material
– Processing cost (c), $ per tonne of ore
– Period cost (f), $ per year
– Metallurgical recovery (y), %
– Discount rate (d), %
 Input Parameters
• Geological parameters
– Optimum cutoff grade (G), grams per tonne or %
– Average grade of ore ( ), grams per tonne or %
– Quantity of material corresponding to a particular grade in
the grade-tonnage curve (q), tonnes
– Total quantity of material inside the pit or pushback (Q),
tonnes
– Quantity of material to be mined in period t (Qmt), tonnes
of material
– Quantity of ore to be processed in period t (Qct), tonnes
of ore
– Quantity of metal to be refined in period t (Qrt), grams or
tonnes of metal
 Input Parameters
• Production capacities
– Mining capacity (M), tonnes of material per year
– Processing capacity (C), tonnes of ore per year
– Refining capacity (R), grams or tonnes of metal per
year
Breakeven cutoff grade
 Breakeven cutoff grade

• Constant throughout the life of operation

• Maximizes undiscounted cash flows
• Ignores the grade-tonnage curve of the
deposit and production capacities
Breakeven cutoff grade – case study
Breakeven cutoff grade – case study
 Breakeven cutoff grade – case study
• Cutoff grade policy
– Step 1: determine cutoff grade
– Step 2: determine quantity of ore (qo) and
quantity of waste (qw), stripping ratio (SR), and
average grade ( g ) of ore
– Step 3: determine Qm, Qc, and Qr
Breakeven cutoff grade – case study
– Step 4: determine cash flow for year t, CFt
Breakeven cutoff grade – case study
Breakeven cutoff grade – case study
Breakeven cutoff grade – case study
Breakeven cutoff grade – case study
Breakeven cutoff grade – case study
 Optimal cutoff grade – Lane’s
approach
• Maximizes net present value (NPV) of future
cash flows
• Satisfies
– Production capacities constraints
• Accommodates
– The grade-tonnage curve
• Dynamic
– Higher during early years and lower during later
years of operation
Optimal cutoff grade – Lane’s
approach
 Optimal cutoff grade – Lane’s
approach
• Problem solution
– Determine optimum cutoff grade that maximizes
NPV
• Limiting economic cutoff grades – gm , gc , gr
• Balancing cutoff grades – gmc , gmr , gcr
• Optimum cutoff grade G is chosen among balancing
and limiting economic cutoff grades
 Balancing cutoff grades
• Mine and process balancing cutoff grade
– Mine and process are in balance if quantity of ore
per unit of material mined equals C÷M
 Balancing cutoff grades
• Mine and refinery balancing cutoff grade
– Mine and refinery are in balance if quantity of
metal per unit of material mined equals R÷M
 Balancing cutoff grades
• Process and refinery balancing cutoff grade
– Process and refinery are in balance if recoverable
metal content per unit of ore equals R÷C
 Limiting economic cutoff grades
• If it takes time t to mine next Qm of material, the
cash flow realized at the end of time t is CFt
CF = (p r)Qr + cQc + mQm + ft
Limiting economic cutoff grades
Limiting economic cutoff grades
 Limiting economic cutoff grades
• Mine limiting economic cutoff grade
– Opportunity cost is distributed per tonne of
material mined
 Limiting economic cutoff grades
• Process limiting economic cutoff grade
– Opportunity cost is distributed per tonne of ore
processed
 Limiting economic cutoff grades
• Refinery limiting economic cutoff grade
– Opportunity cost is distributed per gram of metal
refined
Optimum cutoff grade
Optimum cutoff grade – case study
• Cutoff grade policy
– Step 1: Calculate balancing cutoff grades
– Step 2: Calculate limiting economic cutoff grades,
assume initial V = 0
– Step 3: Calculate optimum cutoff grade
– Step 4: Calculate quantity of ore (qo), quantity of
waste (qw), average grade of ore, and stripping
ratio
• Cutoff grade policy
– Step 5: Calculate Qm, Qc, and Qr
– Step 6: Calculate cash flow for period t, CFt
– Step 7: Calculate life of operation (T)
– Step 8: Calculate new V
• Check for convergence of V, if converged go to next
step, otherwise, go to step 2 and recalculate limiting
economic cutoff grades using new value of V
Calculate balancing cutoff grades
Mine and process balancing cutoff
grade
Mine and refinery balancing cutoff
grade
Process and refinery balancing cutoff
grade
 Limiting economic cutoff grades
• Cutoff grade policy – year 1
Choosing the optimum cutoff grade
Choosing the optimum cutoff grade
Optimal cutoff policy – case study
Optimal cutoff policy – case study
 Optimal cutoff policy – case study
• Cutoff grade policy – year 1
 Optimal cutoff policy – case study
• Cutoff grade policy – year 1
Optimal cutoff policy – case study
Optimal cutoff policy – case study
Optimal cutoff policy – case study
 Optimal cutoff policy – case study
• Cutoff grade policy – year 2
– Calculate balancing cutoff grades – new grade-
tonnage curve
– Repeat all steps as in year 1
Optimal cutoff policy – case study
 Difference between breakeven and
optimal cutoff grade policy
• Higher NPV
• Life of operation
• Dynamic cutoff grade
– Decline in NPV with depleting reserves, higher cutoff
grade during early years and lower cutoff grade during
later years
– Stockpile – potential ore
• Increase in life of operation
• What if only processing plant limits the
operation?