Pit & Cut-off
Optimisation
Work Book
Prepared by
Norm Hanson
Whittle Consulting Pty Ltd
For
University of Queensland
Sept 2008
Worksheet 1
The Value Of Truck Load Of Ore
Calculate the value (which is Revenue - Costs) of a single truck load of ore in three example cases 1. 50 tonnes of 2g/t Gold
2. 100 tonnes of 1 g/t Gold
3. 250 tonnes of 0.5% g/t Gold
Before you begin the calculation can you guess which is the most valuable truck load?
Costs
$ 1.50
$17.50
Mining
Processing (CIP)
Gold
US$900/oz
Prices
Grams
31.103 grams per oz
2240 lbs per tonnne
Unit Prices
Recoveries (CIP)
Value =
92.5%
Revenue
Costs
= [(GRADE* ORE* PRICE*RECOVERY) - (ORE*COSTP)]- ROCK*COSTM)
Example 1 - 2 grams per tonne in 50 tonnes
= [(2* 50 * PriceAu * 92.5%) - (50 * $17.5)]- (50 * $1.50)
=
Example 2 - 1 gram per tonne in 100 tonnes
= [(1*100 * PriceAu * 92.5%) - (100 * $17.5)]- (100 * $1.50)
=
Example 3 - 0.5 grams per tonne in 250 tonnes
= [(0.5*250 * PriceAu * 92.5%) - (250 * $17.5)]- (100 * $1.50)
Worksheet 2
The Value with Multi-Metal, Destinations
If you have more than one metal or more than one possible
4. 250 Tonnes of 0.25% Copper & 0.5 g/t Gold from an Oxide Zone
In this example the truck could go to two different processes, a floatation (but since it is oxide ore and
has lower recoveries) or SXEW (a form of heap leach with a solvent extraction)
Mining
Processing (SXEW)
Processing (Floatation)
Costs
$ 1.50
$ 5.00
$ 8.00
Gold
US$400/oz
Copper
US$1.20/lb
Prices
Grams
Unit Prices
Recoveries (SXEW)
Recoveries (Floatation)
Value =
Revenue
Tonnes
31.103 grams per oz
2240 lbs per tonnne
65%
25%
30%
75%
Costs
= [(GRADE* ORE* PRICE*RECOVERY) - (ORE*COSTP)]- ROCK*COSTM)
Example 4a - 0.5 grams Au plus 0.25% Cu per tonne in 200 tonnes to SXEW
= [(0.5*250 * PriceAu * 65% + 0.25%*250*PriceCu*30%)
- (250 * $5)]- (250 * $1.50)
Example 44b- .5 grams Au plus 0.25% Cu per tonne in 200 tonnes to flotation
= [(0.5*250 * PriceAu * 25% + 0.25%*250*PriceCu*75%)
- (250 * $8)]- (250 * $1.50)
=
Worksheet 3
Simple Example
Let us consider a very simple ore body which is rectangular, of constant grade, and sits beneath a
horizontal topography. Let us further assume that it is of infinite length, so that we do not have to allow
for end effects, and need only consider one section.
The following diagram shows such an ore body.
Surface
Bench Level
100 tonnes waste
500 tonnes ore
Using the quantities indicated in the diagram, we can easily calculate the tonnages for the eight possible
pit outlines, and the following table shows these.
Tonnages for possible outlines
2
3
4
5
Pit
Ore
Waste
500
100
1,000
400
Total
600
1,400
900
1,600
2,500
3,600
4,900
6,400
If we assume that ore is worth $2.00 per tonne and that waste costs $1.00 per tonne to mine and
remove, then the following table shows the value of each pit.
Pit
Value
Pit values for ore at $2.00/T and waste at -$1.00/T
1
2
3
4
5
6
900
1,600
Worksheet 4
Floating Cones
Trace around the Optimal Pit
Case A
-30
-80
-80
+100
+100
Case B
-20
-30
-80
-70
+200
+40
+60
Which Case Overmines
Which Case Undermines
Worksheet 5
Two Dimensional L-G
To see how the Lerchs-Grossmann method works, we will use a two dimensional example. To keep the
example simple we will use squares and assume a 45o slope.
As an example we can have a two dimensional model 17 blocks long by 5 blocks high. Only
three blocks contain ore and they have the values shown (after mining). All other blocks are
waste and have the value -1.0.
23.9
6.9
Structural arcs
for each block
Draw the Lerch-Grossman network and determine the most profitable pit.
23.9
Worksheet 6
Handling Variable Slopes
Blocks whose centroid is above the desired slope line must be mined, Those below the line do not need
to be mined.
Z
Desired
Slope
1,2
1,1
2,1
3,1
etc
How arcs can be referenced.
1, 1
1, 1
>
>
1, 2
2, 2
the third arc from 1,1 is:
>
Worksheet 8
The Sequence of Mining
If we have another look at our simple example pit design, we can look at the discounted cash flow and
its interaction with the sequence of mining and production rates
Surface
Bench Level
100 tonnes waste
500 tonnes ore
We will use a discount rate of 10%
Top Down Mining Sequence
Pit
Value
Mill Capicty 500 tpp
Mill Capicty 1000 tpp
900
900
900
1,600
1,530
1,530
2,100
1,917
1,868
2,400
2,085
2,011
2,500
2,057
1,956
2,400
1,851
1,552
2,100
1,486
1,049
1,600
978
449
Inner Shell First then Mining out by Shell
Pit
Value
Mill Capicty 500 tpp
Mill Capicty 1000 tpp
900
900
900
1,600
1,530
1,530
2,100
1,935
1,898
2,400
2,154
2,068
2,500
2,220
2,105
2,400
2,161
1,993
2,100
2,002
1,790
1,600
978
449
Top Down Mining is the
WORST CASE NPV
BEST CASE NPV
Inner Shell out Mining is the
WORST CASE NPV
BEST CASE NPV
Worksheet 7
Discounted Cash Flow Analysis
Suppose we have a cash flow of $1 million for ten years.
Year 1 Year 2 Year 3
Actual Cash flow
1.00
1.00
1.00
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
1.00
1.00
1.00
1.00
1.00
1.00
1.00
0.53
0.48
0.43
0.39
0.35
Simple Discount Factor 10%
0.90
0.81
0.73
Discounted Cash flow
0.90
0.81
0.73
(1-D/100)
0.66
0.66
"Financial" NPV Factor 10%
0.91
0.83
0.75
Discounted Cash flow
10.00
0.59
0.59
0.53
0.48
0.43
0.39
0.35
0.51
0.47
0.42
0.39
NPV
5.86
(1/(1+D/100))
0.68
0.62
0.56
NPV
Worksheet 9
Cut-Off Grades
Value = [(METAL* PRICE * REC) - (ORE*COSTP)]- (ROCK*COSTM)
Breakeven situation is when Revenue from Recovered Metal = The Cost of Processing
METAL* PRICE*REC
= ORE*COSTP
(GRADE * ORE )* PRICE*REC
= ORE*COSTP
GRADE
COSTP * ORE / (PRICE* REC) * ORE
GRADE
COSTP / (PRICE* REC)
CUT-OFF GRADE
$15 / ( $12.70* 92.5%)
Worksheet 10
Cut-Off Grades
Label this graph
Worksheet 11
Delay Cost
We again have a cash flow of $1 million for ten years.
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Actual Cashflow
1.00
1.00
1.00
1.00
1.00
1.00
1.00
Simple Discount Factor (10%)
0.91
0.83
0.75
Discounted Cashflow
0.91
0.83
0.75
Year 8
Year 9
Year 10
TOTAL
1.00
1.00
1.00
10.00
0.68
0.62
0.56
0.51
0.47
0.42
0.39
0.68
0.62
0.56
0.51
0.47
0.42
0.39
0.35
Now consider what happens to NPV if we delay production
Delay in First Year
0.83
0.75
Cost of Delay
Delay in Seventh Year
0.91
0.83
0.47
0.42
0.39
0.35
Cost of Delay
6.14
Worksheet 12
Change (Cost)
If we could somehow receive a higher cashflow in the first five years (say $1.2 million) and then accepting a
lower cash flow later (eg $0.8 million), what happens to the NPV?
This is like starting with a high price which falls over time.
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Actual Cashflow
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
Discount Factor
0.91
0.83
0.75
0.68
0.62
0.56
0.51
0.47
0.42
0.39
Discounted Cashflow
0.91
0.83
0.75
0.68
0.62
0.56
0.51
0.47
0.42
0.39
Our Desired CashFlow
1.20
1.20
1.20
Discount Factor
0.91
0.83
0.75
Discounted Cashflow
1.20
1.20
0.8
0.8
0.8
0.8
0.8
0.68
0.62
0.56
0.51
0.47
0.42
0.39
Change in NPV
10.00
6.14
![Worksheet 9
Cut-Off Grades
Value = [(METAL* PRICE * REC) - (ORE*COSTP)]- (ROCK*COSTM)
Breakeven situation is](https://screenshots.scribd.com/Scribd/252_100_85/356/260217412/10.jpeg)
