Commercial Aspects Of Choosing Cutoff Grades ? Introduction

In most industries it is normal commercial policy to try to gear production to the market. In times of scarcity output is pushed to its maximum and in times of glut output is reduced. Because of the effects of supply and demand, these times correspond to times of high and low prices respectively so the policy results in maximising long run total profits. Stockpiling is often an integral part of the policy. Stocks are accumulated during depressed market conditions and sold off when demand revives. This further increases the long run total profits. However, such policies cause violent fluctuations in short term profitability and impose severe financial strains. Indeed planning and implementing the policies are a central management concern which is often critical to the success of the industry. The mining industry is no exception and, for many raw materials, trying to balance supply with demand is an international problem. Stockpiling and restricted production agreements are common elements of policy. But very little attention has been paid to the one additional control which is unique to the mining industry, namely, the cut off grade. This neglect is apparent at all levels from individual mines to national economies.