MN 584 SURFACE MINE PALANNING AND DESIGN

CHAPTER 6

ECONOMIC MODELING OF SURFACE LAYOUTS

6.0 DEFINITIONS
Some basic terms are explained as follows.

6.1 CUT OFF GRADE Any grade that for any specified reason is used to separate any two
courses of action.

Should the next block be:

(a) mined and processed; or
(b) mined and stockpiled; or
(c) mined and sent to the waste dump, to expose more ore; or
(d) not mined at all.

 The lowest grade that will meet costs, i. e. costs = revenue

 The grade at which unit costs provide no profit at given market values
Dependent on:

▪ Economics;

▪ System capabilities;

▪ Grades;

▪ Mining sequence;

▪ Salable products; and

▪ Operational constraints.

COST OPERATIONS
DIRECT MINING COSTS Drilling, blasting, loading, hauling costs.

DIRECT PROCESSING COSTS Crushing, conveying, grinding, concentrating

costs.

DIRECT MARKETING COSTS Concentrate handling, smelting, refining,

transportation costs.

DIRECT OVERHEAD COSTS General administrative costs of the mine,

mill and offices.

DEPRECIATION The recovery of capital cost of plant,

equipment and assets

BREAK EVEN STRIPPING RATIO Grade at which the cost of removing the
waste (to access the ore) and mining the ore
is equal to the value of the ore in the block.
1
MN 584 SURFACE MINE PALANNING AND DESIGN

6.2 Decision Tree for Mining Block of Material Based on Cut-Off Grade

Block of Ore

Has it enough value to cover mining, milling &

marketing costs plus profit?

Yes No

Mine, mill & Is it required to access

market deeper high value ore?
block

Yes No

Has it enough value to cover Do not mine

milling, marketing costs plus
profit?

No
Yes

Mine & process block Mine & send to waste dump

Fig. 6.1 Decision Tree for mining blocks of material

Depreciation is used in the calculation for the purpose of setting the pit size. As shown in
Fig.6.2 the size of the pit will increase if the burden of some costs is removed. The cutoff
grade is lower in increment C than in increment B. This is due to the lower costs used in
determining the cutoff grade.
The material in increment C can only be economically mined after the plant has been
depreciated. A plant built to handle the material in increment C would not be justified
because the revenue would not cover the cost of the plant. If the plant was fully depreciated
by the time increment C was mined, the ore would be worth processing.
A minimum profit can also be used to calculate the cutoff grade. It will further decrease the
size of the pit as shown by increment A in Fig. 6.2. The purpose of adding a minimum profit
is twofold:

2
MN 584 SURFACE MINE PALANNING AND DESIGN
1) it confirms that a block is ore only if it can be mined and processed at a profit and
2) it sets an economic limit below which a company would find an alternate investment
more attractive.

Fig. 6.2 Layout of Pit showing the effects of costs and depreciation on pit depth

The amount of minimum profit to be used is a difficult decision. A true profit calculation
would include the role of depreciation, depletion, and taxes. At the design stage, these are
not known. An approximation can be made by increasing the costs.
Other costs and changes in revenue can be included if they are known. These would include
recoveries that vary with the ore grade, mining costs that vary with the distance or elevation
of haulage, and the time lag between stripping the waste from a block of ore and the mining
of the ore. These values should only be added if they are well known and the added degree of
sophistication is warranted.

Cut-off grade calculation (operating cut-off grade, go, and breakeven cut-off grade, gc):
Profit = RV – [(SRxW) + M + P]
= MR x Price x go -[(SRxW) + M + P]
Hence,
go = [Profit +-(SRxW) + M + P]/(Price x MR)
Where,
RV = Revenue
SR = Stripping ratio
W = Stripping cost per tonne waste
M = Mining and transportation cost per tonne ore
P = Total cost of milling, concentration, smelting and refining with elements of
administrative overheads
MR = Metallurgical recovery.

The profit here is a specified profit margin per tonne of ore is included; but if this is set to
zero, then the critical grade is known as the breakeven cut-off grade, gc.

Hence;
Gc = [(SRxW) + M + P]/(Price x MR)

The actual grade would have to exceed this value if an overall profit is to be made at current
price and cost (Annels, 1991).

Table 1 is the calculation of the mining cutoff grade for a copper project with the following
parameters:

3
MN 584 SURFACE MINE PALANNING AND DESIGN

Table 1 Calculation of Breakeven Cutoff Grade

Head Grade 0.8% Cu 0.7% Cu

Recovery 85% Cu 85% Cu
Recoverable Copper/ton 6.80 kg 5.95 kg
Costs Per tonne ore Per kg Cu Per tonne ore Per kg Cu
Mining $1.00 $1.00
Processing $3.00 $3.00
General and Administrative $1.00 $1.00
Depreciation $1.40 $1.40
Total $6.40 $0.94 $6.40 $1.08

Freight, Smelting $ Refining $5.10 $0.75 $4.46 $0.75

Total $11.50 $1.69 $10.86 $1.83
Value @ $1.75/kg $11.90 $1.75 $10.41 $1.75
Net Value $0.40 $0.06 ($0.45) ($0.08)
Cutoff grade 0.753% Cu (by interpolation)

4
MN 584 SURFACE MINE PALANNING AND DESIGN

5
MN 584 SURFACE MINE PALANNING AND DESIGN

6
MN 584 SURFACE MINE PALANNING AND DESIGN

7
MN 584 SURFACE MINE PALANNING AND DESIGN