A Stochastic Cut-Off Grade Optimization Model to Incorporate Uncertainty for Improved Project Value

"Cut-off grade is a decision-making criterion often used for determining the quantities of material (ore and waste) to be mined, ore processed, and saleable product. It therefore directly affects the cash flows from a mining operation and the net present value (NPV) of a mining project. A series of different cut-off grades that are applied over the life of mine (LOM) of an operation defines a cut-off grade policy. Due to the complexity of the calculation process, previous work on cut-off grade calculation has mostly focused on deterministic approaches. However, deterministic approaches fail to capture the uncertainty inherent in input parameters such as commodity price and grade-tonnage distribution. This paper presents a stochastic cut-off grade optimization model that extends Lane’s deterministic theory for calculating optimal cut-off grades over the LOM. The model, code-named ‘NPVMining’, uses realistic grade-tonnage realizations and commodity price distribution to account for uncertainty. NPVMining was applied to a gold mine case study and produced an NPV ranging between 7% and 186% higher than NPVs from deterministic approaches, thus demonstrating improved project value from using stochastic optimization approaches. Background on cut-off grade calculation and optimizationCut-off grade is a decision-making criterion that is generally used in mining to distinguish ore from waste material. Consequently, it is used to determine the quantities of material (ore and waste) to be mined, ore processed, and saleable product. A series of different cutoff grades that are applied over the life-ofmine (LOM) of a mining operation defines the cut-off grade policy for that particular operation. The cut-off grade therefore directly affects the cash flows to be produced and the net present value (NPV) of a project at the mine planning or feasibility study stage."