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Preprint 07-088
The opportunity cost is determined as: iterations the process is just repeted. A spreadsheet could also be
used to generate iterations. By generating many iterations the
dxNPVi algorithm should be able to determine whether the process converges
Fi = , (2) or diverges.
C
The algorithm introduced here, finds the optimum cutoff grade
f policy in an iteration process. The steps of the algorithm as mentioned
f = a where f a is the annual fixed costs. (3) above (eq. 1) are as following:
C
1. Reading the input files;
Where d is the discount rate, NPVi is the NPV of the future cash
flows of the years (i) to the end mine life N, and the C is the total a. Economic parameters (price, selling cost, capacities
milling capacity in Year i. and etc.)
determined until the optimum cutoff grades have been decided. The - Qci from the intervals below optimum cutoff grade
solution to this type of interdependency problem is obtained by an
iterative approach. g m (i ) in proportionate among such that the distribution is
not changed.
In mathematics, and in particular functions, iteration is the
process of evaluating a function repeatedly. In iteration the same 7. Checking, if Qci less than the milling capacity (C), then set
mathematical operation is performed several times using the output mine life N=i and go to step 8; otherwise set the year
from the previous operation as the input for the next. For example: we indicator i = i + 1 and go to step 2.
could apply the iterative process to the square root function given by
8. Calculating the incremental NPVis for the cash flows by
using the profits (Pi) estimated in Step 5 to be generated
. In this example five iterations are computated for some from i to N by using the following equation;
specific value for "x". In a mathematical sense this iteration process is
N Pj
denoted = 1.090508 for a seed of 16. In this case the number NPVi =
five (5) does not represnt an exponent, inestead it represents the j =1 (1 + d ) j i +1
number of iterations peroformed, in this case the fifth iteration.
for each year i = 1, N where N is total mine life in years.
As seen from the square root funtion example, the amount of
calculation can become tedious. Most of the graphing calculators can 9. Comparing the NPVi computed in step 8 with the previous
do this with ease. One way to perform the iterations is to assign the iteration. If the computed NPVi does not converge, goes to
seed to the variable "x" (16 => x) and also assign the function to step 2 or changes the optimization factor (), otherwise,
stops; the cutoff grade gis for years i = 1, N is the optimum
"x"( => x) to calculate the first iteration and to get successive
policy that gives maximum net present value of future profits Table 2. Mine Design Parameters
for the operations. Parameters Values
The algorithm was tested using the new optimization factor Price 500 $/oz
introduced in this paper to find the maximum the NPV, these results Sales Cost 4 $/oz
are then compared with results coming from the traditional breakeven Processing Cost 17 $/ton
COG estimation approach and with results form the COG estimation Mining Cost 1,3 $/ton
based on Lanes algorithm. The results were examined and presented Capital Costs $ 154 M
in the next section. Fixed Costs (fa) $ 9,2 M/year
Fixed Cost (f) 9,2 $/ton
C. CUTOFF GRADE OPTIMIZATION SOFTWARE
Mining Capacity --
The introduced algorithm is a windows based program developed Milling Capacity 1,00 M
at Virginia Tech which is based on a series of visual-basic routines Discount Rate 14 %
within a spreadsheet environment (Excel). The program which has Recovery 95 %
been developed within a windows environment is a user-friendly tool
and calculate interactively different mining cutoff grade scenarios. The traditional cutoff grade is defined as breakeven cutoff grade
and referred to as the ultimate pit cutoff grade:
The program consist of two different components: 1) Input
parameters (economic parameters and grade-tonnage distribution) are Mining Cost + Milling Cost (5)
taken by the program that is programmed in the Visual Basic Ultimate pit cutoff grade =
(Pr ice Saling Cost ) x Re cov ery
Programming Language (Fig. 1), 2) The optimum cutoff grade values
and maximum NPV value are solved by using new algorithm (Fig. 2). Table 3 presents the breakeven cutoff grade. As indicated in
Table 3, this approach gives a total NPV of $128.0 million and $601.4
million of none discounted profit.
Table 3. Breakeven cutoff grade policy of the gold mine
Optimum
Quantity Quantity Quantity
Cutoff Profit
Year Mined Concentrated Refined
grade ($M)
(ton) (ton) (ton)
(oz/ton)
1 0.039 3.333.869 1.000.000 93.468 15.826.346
2 0.039 3.333.869 1.000.000 93.468 15.826.346
3 0.039 3.333.869 1.000.000 93.468 15.826.346
4 0.039 3.333.869 1.000.000 93.468 15.826.346
5 0.039 3.333.869 1.000.000 93.468 15.826.346
6 0.039 3.333.869 1.000.000 93.468 15.826.346
7 0.039 3.333.869 1.000.000 93.468 15.826.346
8 0.039 3.333.869 1.000.000 93.468 15.826.346
9 0.039 3.333.869 1.000.000 93.468 15.826.346
10-38 0.039 3.333.869 1.000.000 93.468 15.826.346
601,401,148
Toplam 126.687.022 38.000.000 3.551.784 NPV
($127,984,981)
Figure 1. The window shows using the tools of the program.
Table 4 presents the optimum cutoff grade policy based on Kane
Lanes algorithm, using the fixed cost and opportunity cost:
m+c+ f +F
(6)
( P s ) xr
As indicated in Table 4, this optimization approach gives a total
NPV of $354.6 million and $676.5 million of none discounted profit.
On the other hand, Table 5 presents the results of the optimum
cutoff grade approach using the optimization factor (t) year by year.
The cutoff grade policy that is determined by this optimizing approach
using the optimization factor (t) gives a total NPV of $377.5 million
and $676.5 million of none discounted profit.
According to the values shown in Tables 3-5, the cutoff grade
policy determined by the optimization approach using the (t) factor
Figure 2. The algorithm procedure of the program. which is determined year by year (Table 5) gives a higher NPV than
the cutoff grade policy estimated using the traditional breakeven and
At the starting point, the user enters the input parameters. Then, Lanes cutoff grade approach . The results are given graphically in
the maximum NPV value can be obtained using the NPV OPTIMIZER Figure 4.
button.
th
As seen in Figure 5 the program ends in the iteration of 6 and it
D. ALGORITHM APPLICATION AND RESULTS is obtained the maximum total NPV ($377,476,180). After the iteration
th
Consider the following hypothetical case of an open pit gold mine of 6 , the NPV values are constant.
(Dagdelen 1992). The tonnage grade distribution and mine design
parameters are shown in Tables 2-Figure 3, respectively. The values in
Table 2 give assumed capacities and accepted costs to mine this
deposit at 2,857.14 ton/day milling rate. The mine will be worked at the
rate of seven days a week for 350 days per year.
50
40
REFERENCES
30
20 Asad M. W. A. Cutoff Grade Optimization Algorithm for open Pit Mining
10 Operations with Consideration of Dynamic Metal Price and Cost
Year 38
0 Escalation during Mine Life. Application of Computers and
1 2 3 4 5 6 7 8 9 10 11 12 13 14 Operations Research in the Mineral Industry (APCOM 2005).,
Years March 2005, (Tuscon, USA), 273-277.
Ultimate Cutoff Grade Lane Algorithm Iteration Algorithm
Dagdelen K. Cutoff grade optimization. Application of Computers and
rd
Operations Research in the Mineral Industry (23 APCOM
Figure 4. Comparison of Traditional Cutoff Grade, K. Lanes and the Symposium)., 1992 (Littleton, Colorado, USA), 157-165.
Iteration Algorithm.
Lane K. F. Choosing the optimum cutoff grade. Colorado School of
CONCLUSIONS Mines Quarterly., 59, 1964, 485-492.
The results given by the presented case study indicate that the Lane K. The economic definition of ore, cutoff grade in theory and
impact of the optimization factor ( t) on the objective function (NPV) is practice. London: Mining Journal Books Limited., 1988.
significant at $249,491,199.00 and $22,801,533.00 increase which is
equivalent to a 195% and 6.4% NPV increment according to Whittle J., and Wharton C. Optimizing cutoff grades. Mining Magazine.,
breakeven and Lanes cutoff grade policy respectively. Therefore, the 173, 5, Nov. 1995, 287-289.
cutoff grade optimization algorithm presented here is a tool that Wooler R. Cutoff grades beyond the mine-optimizing mill throughput.
improves the cutoff grade policy and serves as a user friendly platform The Biennal Conference Strategic Mine Planning., March 1999,
for eventual algorithm adaptations such as the use of cost escalation Autralia.
and simulation for risk analysis. This approach provides great flexibility
at the mine planning stage for evaluation of various economic and
grade/ton alternatives. The other important feature of the algorithm is
0,03
0,035
0,04
0,045
0,05
0,055
0,06
0,065
0,07
0,075
0,08
0,085
0,15
0,25
380
Iteration NPV ($M)
375 1 365.801.976
NPV Value ($M)
2 375.056.288
370 3 376.409.151
4 377.171.471
365
5 377.396.725
360 6 377.476.180
7 377.476.180
355 8 377.476.180
1 2 3 4 5 6 7 8 9 10 9 377.476.180
Table 4. Cutoff grade policy of the gold mine using Kane Lanes algorithm.
Optimum Quantity Quantity Quantity
Profit NPV
Year Cutoff grade Mined Concentrated Refined
($M) ($M)
(oz/ton) (ton) (ton) (ton)
1 0.096 12.274.288 1.000.000 209158 61.585.935 354.674.647
2 0.092 11.336.481 1.000.000 199710 58.118.871 293.088.712
3 0.088 10.624.419 1.000.000 192537 55.486.385 242.107.246
4 0.084 10.069.606 1.000.000 186947 53.435.245 199.412.274
5 0.081 9.628.546 1.000.000 182504 51.804.650 163.345.006
6 0.078 9.182.735 1.000.000 177583 49.943.365 132.672.494
7 0.076 8.797.020 1.000.000 173216 48.278.930 106.733.475
8 0.073 8.437.322 1.000.000 168992 46.651.502 84.738.244
9 0.072 8.132.220 1.000.000 165372 45.252.454 66.094.563
10 0.070 7.880.241 1.000.000 162369 44.090.812 50.230.905
11 0.068 7.652.378 1.000.000 159528 42.977.995 36.672.630
12 0.067 7.652.378 1.000.000 159528 42.977.995 25.079.582
13 0.066 7.652.378 1.000.000 159528 42.977.995 14.910.242
14 0.065 7.652.378 809551 129146 32.898.270 5.989.768
Total 126.972.390 13.809.551 2.426.118 $676,480,404 $354,674,647
Table 5. Cutoff grade policy of the gold mine using optimization factor (t).
Optimization Optimum Quantity Quantity Quantity
Profit NPV
Year Factor Cutoff grade Mined Concentrated Refined
($M) ($M)
(t) (oz/ton) (ton) (ton) (ton)
1 28,87 0.100 13.112.225 1.000.000 217.550 4.658.907 377.476.180
2 28,82 0.100 13.107.389 1.000.000 217.550 .665.194 312.817.273
3 28,83 0.100 13.108.385 1.000.000 217.550 4.663.899 256.093.418
4 28,83 0.100 13.108.178 1.000.000 217.550 4.664.169 206.336.648
5 28,68 0.100 13.034.557 1.000.000 216.818 4.396.643 162.690.175
6 28,65 0.100 13.018.831 1.000.000 216.659 4.338.503 124.562.193
7 28,60 0.100 12.994.065 1.000.000 216.410 4.246.945 91.146.790
8 27,50 0.097 12.450.271 1.000.000 210.931 2.236.542 61.876.747
9 24,90 0.092 11.335.723 1.000.000 199.703 8.116.070 37.004.702
10 21,81 0.085 10.245.376 1.000.000 188.718 4.085.064 16.631.587
Total 125.515.000 10.000.000 2.119.439 626,071,936 $377,476,180