The Impact of Discount Rate on Optimum Cut-off grade in Open-pit Mines

Document Type : Original Article

Author

mining

10.22077/jgm.2024.7400.1024

Abstract

Selecting an optimal cut-off grade is a pivotal concept in the design and planning of open-pit mine production, significantly impacting the economy of mining projects, particularly in metal mines. The mining process generally encompasses three main sectors: extraction, processing, and the final stages of smelting, refining, and marketing. The Lane model, along with the heuristic solution method introduced by Lane, underpins most marginal cut-off grade models. This paper presents a new model based on the Lane algorithm and the application of the discount rate. It incorporates the Net Present Value (NPV) of the mine plan and addresses the relevant extended nonlinear model to determine an optimal cut-off grade over the mine's lifespan. Fundamentally, NPV is affected by both discount rate and cut-off grade simultaneously. Consequently, this study examines the impact of varying discount rates on the marginal cut-off grade of a hypothetical copper mine using the developed model. The findings reveal that changes in the discount rate not only affect the cut-off grade but also the mine's lifespan and the capacities of the processing plant and sales. An increase in the discount rate elevates the cut-off grade, thereby shortening the mine's lifespan, whereas a decrease in the discount rate yields the opposite effect. The sensitivity analysis approach proposed in this paper aids mine designers in selecting the optimum cut-off grade.

Keywords

Journal of Geomine
Volume 1, Issue 4
December 2023
Pages 165-170

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