Planning and operational cutoff grades based on computerized net present value and net cash flow

"The object of this paper is to outline a computerized net cash flow approach for practical cutoff grade determinations. A cutoff grade carries not only geological but also economic value, in which costs are balanced against revenues. For different situations, cutoff grades are a 'standard of value' that are determined for the purpose of classifying economic or uneconomic mineral reserves in a specified time frame. In a constantly changing technical and economic environment, the decision to develop or maintain a mining operation at its best economic potential, requires an appropriate cutoff grade strategy, a strategy consistent with short- and long-term operational and corporate objectives and one based on realistic marketing and metal prices forecasts. The use of a project evaluation computer program, in combination with specific corporate net cash flow requirements, shows the most promising and flexible team approach for cutoff grade optimization.IntroductionThe recent recession has had a devastating effect on the Canadian mining industry. Exploration and mining R&D expenditures have been critically reduced and now are believed to be below healthy levels. Ore reserves, mine life and cutoff grades are careening in several directions because of low base metal prices, relatively high costs and sensitive precious metal prices.These conditions demand an improved understanding of the terms ""ore"" and ""cutoff grades"" as they are applied to the planning process and day-to-day operations. ""Ore"" or 'ore reserves"" is a dynamic concept, reflecting a cumulative effect of changes in geological, technical and economic conditions in terms of material which can be mined at a potential profit. By contrast, if economics are not the primary consideration, the term ""mineral reserve"" or ""mineral inventory"" should be used to describe the mineral deposit. For different situations, cutoff grade is ""a standard of value"" determined for the purpose of classifying mineral reserves as economic or uneconomic in a specified time frame. The question of mining at average reserve grade or low-grade material during high metal prices is of paramount importance for cutoff grade strategy."