Determination of optimal cut-off grade policy to optimize NPV using a new approach with optimization factor

Abstract

One very important aspect of mining is deciding what material in a deposit is worth mining and processing, versus what material should be considered waste. This decision is summarized by the cutoff grade policy. The cut-off grade strategy for an open pit mine influences the annual cash flows and affects the net present value of a project. The optimization of cut-off grade strategy requires the knowledge of detailed operational costs, mining sequence, mining operation, processing, and product constraints, as well as the grade distribution of a given deposit defined by pit, phase, and different material types. Cut-off grade optimization algorithms have been developed in the past. The most common criteria used in cut-off grade optimization is to maximize the net present value (NPV). This paper describes the determination of a cut-off grade strategy based on Lane's algrorithm adding an optimization factor based on the generalized deduced gradient (GRG) algorithm to maximize the project's NPV. The introduced algorithm is; a windows based program developed at Virginia Tech that is based on a series of Visual Basic routines within a spreadsheet environment (Excel). The benefits of the methodology are demonstrated using a hypothetical case study.