This thesis is entitled ‘Cut-Off Grade Optimisation at Xstrata, Mt Isa’. It involved conducting a cut-off grade optimisation study on Orebody 3000 of Xstrata’s Enterprise Mine, which is a large-scale open stoping underground copper mine. The objective of this thesis was to develop an integrated methodology for a detailed cut-off grade optimisation study on Orebody 3000, as a function of stope optimisation, capital investment for capacity expansions and life-of-mine production scheduling, in addition to demonstrating the relevance of declining cut-off grades over time with respect to maximising the NPV of the deposit. The final results included an optimal varying cut-off grade policy (declining over time) that maximised the NPV of Orebody 3000, along with the corresponding annual target production rate.
The MIM Copper Business Study (prior to purchase by Xstrata) was used as the basis for this thesis, which was a conventional cut-off grade study conducted in 2002. While the studies do not form a direct comparison due to insufficient detail in the reporting of some cost calculations and stope sequencing solutions, they are comparable to the point of demonstrating the improvement in NPV that resulted from the implementation of declining cut-off grade theory. The final results of the Copper Business Study include a fixed ore reserve cut-off grade policy of 2.0% Cu and an annual target production rate of 1.25 Mtpa; corresponding to an NPV of $336.5 million. The initial cut-off grade optimisation analysis involved determining the improvement that could be achieved in this NPV, through the implementation of declining cut-off grade theory. The result was a 14.1 % increase in NPV from $336.5 million to $383.8 million, for a cut-off grade policy declining from 3.60 % Cu to 1.72 % Cu as opposed to remaining fixed at 2.0 % Cu.
As those results were based upon an annual target production rate of 1.25 Mtpa (the limiting factor of the final Copper Business Study results), cut-off grade optimisation was again utilised to determine whether a higher sustainable annual target production rate could be achieved for further improvement in the NPV of Orebody 3000. The analysis was conclusive that an annual target production rate of 1.75 Mtpa best satisfied the requirements of both improving NPV and maintaining reasonably sustainable production over the life of the mine, resulting in an additional 9.4 % increase in NPV from $383.8 million for 1.25 Mtpa to $420.0 million; corresponding to a significant 24.8 % increase in NPV over the Copper Business Study, as a result of optimising both the cut-off policy and capacity.
It should be noted that by restricting the study to only consider Orebody 3000 at the request of Xstrata, the likely impact of a variable cut-off grade policy is limited as Orebody 3000 is not the only copper sources at Mt Isa. In considering Orebody 3000 as an individual copper source at Mt Isa, the optimal results would be highly significant with respect to effectively improving the NPV. However, Orebody 3000 is not an individual copper resource and by disregarding the other sources, this thesis is aimed at demonstrating the relevance of cut-off grade optimisation based upon declining cut-off grade theory with respect to NPV maximisation for a tightly constrained underground mining method. If Xstrata required results that could be practically implemented to improve the Copper Business Unit at Mt Isa, all copper sources would need to be integrated into the same comprehensive cut-off grade optimisation and production scheduling study. It would also be necessary to account for competition between lead, zinc and copper production streams for materials handling and processing capacities; an effort clearly beyond the scope of this thesis.
The significant finding of this thesis is that cut-off grade optimisation based upon declining cut-off grade theory does considerably improve the NPV of Orebody 3000. Further advantages of this thesis include the ability of the cut-off grade optimisation methodology to provide an optimal solution for multiple periods simultaneously, generate higher capacities over a greater number of periods, therefore being able to achieve closer to sustainable production and provide greater flexibility in the scheduling process.
The findings of this thesis are significant and relevant to all selective underground mining projects having an economically defined cut-off grade, as the entire mine planning cycle is essentially dependent upon the initial cut-off grade decision. Therefore, it is recommended that awareness of the economic benefits associated with cut-off grade optimisation be improved within the mining industry and that the integration of cut-off grade optimisation into long-term production scheduling be encouraged in selectively mined underground deposits to maximise the NPV. If Xstrata desires more relevant and practical results, this study should be taken one step further to include the current economic environment as opposed to the economic environment of 2002 when the Copper Business Study was conducted.