Optimum scale of an open pit operation: discount rate and risk

For a large scale open pit mining and concentrating operation, on a low-grade disseminated ore body, it is possible to set an approximate lower bound on economically feasible operating scales and an approximate upper bound on economically desirable scales in a relatively straight forward manner. The optimum scale ofplanned operations, with respect to the objective ofmaximisation ofthe net value ofthe orebody, will have to be arrived at by iterative planning runs, but it may be expected to lie close to this upper bound. The effects of infrastructural costs and of the addition of a risk premium to the cost of capital, to form the discount rate for planning purposes, are considered theoretically and by worked example. It is concluded that a perceived special, unsystematic, risk should not be accounted for by the use of such a risk premium as this is inducive to placing a greater amount of investment capital at risk, for no greater return-rate to investment.