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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