Determination Of Optimum Cutoff Grades - Introduction

Cut-off grade is one of the most critical parameters affecting project cash flow. Its sensitivity is due to the number of other parameters that are correlated with any change in its value. Changes in cut-off grade, average grade and ore tonnage vary and they in turn can affect such parameters as capital and replacement costs, recovery, life of the project and operating costs. Perhaps one of the best definitions of cut-off grade is that of Taylor (1), "... any grade that, for any specific reason, is used to separate two courses of action, e.g. to mine or to leave, to mill or to dump ... . Obviously the most likely specific reason is one governed by economics, involving the return of investment and sufficient profit to motivate development and mining of the deposit. In this paper the cut-off grade is defined as that mining limit which will maximise the economic return for a projected mining venture. The following brief literature survey indicates that when computing the optimum cut-off grade there is a need to be able to directly compute the Discounted Cash Flow Rate of Return (DCFRR) or Net Present Value (NPV), as economically as possible, while allowing for parameter dependencies and variation in project structure.