Optimal production scale of open pit mining operations with uncertain metal supply and long-term stockpiles

• Published in: Resources policy 2012-03, Vol.37 (1), p.81-89
• Main Authors: Waqar Ali Asad, Mohammad, Dimitrakopoulos, Roussos
• Format: Article
• Language: English
• Subjects: Cash flow; Commodity prices; Copper; Cutoff grade; Metal industry; Metals; Mineral resources; Mining industry; Mining production; Natural resources; Net present value maximization; Optimization; Product quality; Production; Production capacities; Production capacity; Stochastic models; Value; Waste
• ISSN: 0301-4207; 1873-7641
• DOI: 10.1016/j.resourpol.2011.12.002

An open pit mining operation consists of various stages, and the calculation of the production capacities of these stages depends upon the available supply of ore (mineralized material of economic value) and waste material. Cutoff grade is the criterion that specifies the amount of ore and waste. The material with grade equal to or higher than the cutoff grade is classified as ore. The material with grade less than the cutoff grade is considered waste. While this explains the link between cutoff grade theory and the calculation of production capacities, the majority of optimization models for finding production capacities not only disregards this relationship but also ignores expected variations and uncertainty in metal content or the available supply of ore and waste material. An extension to an established theory of cutoff grade is proposed herein to determine the optimal production capacities based on a stochastic framework relying on multiple grade-tonnage curves derived from a set of simulated orebody realizations. The proposed model (i) maximizes the net present value of cash flows over the life of an operation; (ii) offsets the initial investment in developing the constituent stages of an operation; and (iii) explores the impact of creating a long-term stockpile on the designed operational capacities. Application on an actual copper deposit demonstrates the benefits of the proposed model. ► The available supply of raw materials is the basis to determine the optimal scale of production. ► Cutoff grade identifies the available supply of ore (valuable) and waste material. ► The mathematical model averts the risk of over-or-under capacity by honoring uncertain supply. ► The model maximizes the net present value of future cash flows and offsets the initial investment. ► Stockpiling enhances the optimal scale of production and the life of open pit mining operation.