Cutoff Grade Optimization (PREPRINT NUMBER 93-247)

The definition and shortcomings of traditional cutoff grades are discussed. The concept of optimum cutoff grade policy which maximizes the Net Present Value (NPV) of annual cash flows coming from a mining project is introduced within the basic framework outlined by K. F. Lane. Several examples are used to demonstrate the shortfalls of cutoff grade policies obtained by various heuristic optimization techniques. An algorithm to obtain an optimum cutoff grade policy which maximizes the NPV of a project is given and described in detail.