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Cut-off grade optimisation to maximise the net

present value using whittle 4X

Article in International Journal of Mining and Mineral Engineering · October 2016

DOI: 10.1504/IJMME.2016.10000784

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Int. J. Mining and Mineral Engineering, Vol. 7, No. 4, 2016 313

Cut-off grade optimisation to maximise the net

present value using whittle 4X

J. Githiria
Department of Mining and Mineral Processing Engineering,
School of Mines and Engineering,
Taita Taveta University College,
P.O. Box 635-80300, Voi, Kenya
Email: j.muchiri07@ttuc.ac.ke

Abstract: Cut-off grade optimisation is necessary for operational decision

making in the many different circumstances affecting mine operations.
The cut-off grades are supposed to reflect particular circumstances of specific
mines in order to achieve the maximum economic return over the life of the
mine. The relationship between cut-off grade and NPV provides a means by
which cut-off grades are optimised. Using Lane’s approach, the economics
involved in each stage are identified independently and integrated to provide an
optimum cut-off grade. A block model from a hypothetical gold mine is used to
illustrate how Whittle 4X applies Lane’s approach to generate an optimal cut-
off grade policy for the mine. The cut-off grade in this project slightly changes
along the mine life. Higher grade ore is mined in the early years (years 2 and 4)
while the lower grade ore is mined later.

Keywords: cut-off grade; NPV; net present value; grade-tonnage distribution

curve; mining; processing; refining; whittle 4X.

Reference to this paper should be made as follows: Githiria, J. (2016)

‘Cut-off grade optimisation to maximise the net present value using
whittle 4X’, Int. J. Mining and Mineral Engineering, Vol. 7, No. 4,
pp.313–327.

Biographical notes: J. Githiria holds a Masters of Engineering Science-Mining

in Curtin University (Western Australia School of Mines) and a Bachelor of
Science in Mining and Mineral Processing Engineering and currently doing his
PhD in Mining Engineering at the University of Witwatersrand. His research
interests include: mine planning and optimisation in surface and underground
mining and mine design with the aid of computer and operations research
applications. He is a Member of the Australian Institute of Mining and
Metallurgy (AusIMM) and the Southern African Institute of Mining and
Metallurgy (SAIMM).

This paper is a revised and expanded version of a paper entitled ‘Cut-off

grade optimization to maximize the net present value using lane’s approach
in whittle 4X’ presented at the Proceedings of the 6th International Conference
on Appropriate Technology “Appropriate Technology for the 21st Century:
Technological Innovation to Empower Africa”, Kenyatta University
Conference Centre, Nairobi, Kenya, 25–29 November, 2014.

Copyright © 2016 Inderscience Enterprises Ltd.

314 J. Githiria

1 Introduction

Cut-off grade is traditionally defined as the grade that is normally used to discriminate
between ore and waste within a given ore body. It also differentiates between various ore
types before processing takes place for different metallurgical processing options (Asad,
2002). The choice of cut-off grade affects the cash flow generated in a mine.
The need for cut-off grade optimisation depends on the extraction sequences and
capacities of the whole mining system. The sequence of extraction of ore and waste
blocks involves three stages: the mine, mill/processing plant and the refinery
plant/marketing. In the first stage, the material can be sent to the waste dump, stockpile or
processing plant depending on the cut-off grade chosen. This will eventually affect the
profits gained from this venture.
Using the cut-off grade, ore is sent to the treatment plant for processing while waste is
either left unmined or sent to waste dumps. The sequence of extraction is dependent on
the rates of production, the grade distribution of the deposit and the cut-off grades.
Cut-off grade directly affects profits therefore there is need for its optimisation depending
on the extraction sequences and capacities of the mining operation. The determination of
capacities is directly related to the cut-off grades and extraction sequences. The choice of
a cut-off grade used in mine operations is based on cut-off grade optimisation by the use
of cut-off grade policies that maximises the NPV of the project (Asad and Erkan, 2011).
The cut-off grade policy used in this project is based on Lane’s approach. The
approach uses cut-off grades higher than breakeven grades during early years of mining
for faster recovery of the capital invested. This cut-off grade policy also satisfies
production constraints and accommodates the grade-tonnage distribution of the mineral
deposit. Furthermore, the policy uses the dynamic cut-off grade whereby the NPV
declines with depletion of reserves. This outcome is because the policy tends to mine
higher graded ore during the early years and lower graded ore in the later years (Lane,
1964, 1988).
The objective behind of maximising NPV in the first years is to pay back the capital
invested in the project as quickly as possible. This is referred to as the time value of
money where the maximum economic return is achieved when the highest NPV of the
future cash flows is generated (Dagdelen, 1992). The NPV expected throughout the mine
life from an operation is dependent on interrelated variables such as mining and milling
capacities, extraction sequence and cut-off grade. These interdependent variables interact
in a complex manner in defining the NPV of a project.
Mine planning is the process that defines sets of values for each of these variables
during life of mine (LOM). This paper discusses the approach used to define the capacity
of mining system that is in harmony with the grade distributions of the deposit through
the planned extraction sequence and cut-off grade policy. It analyses the application of
Lane’s approach for a single element in cut-off grade optimisation by looking into
economic and geological factors as applied in the calculation of the optimum cut-off
grade. After optimising the cut-off grade and generating a long-term production schedule,
an after-cash analysis is carried out later in the project to validate its feasibility. Although
the application of Lane’s approach is not complex, it is not however widely appreciated
in maximising the net present value (NPV) of mining operations.
Most mining operations do not consider optimising cut-off grades before they embark
on production scheduling hence generating sub-optimal NPV. Whittle 4X is the only
mining software that has the provision to optimise cut-off grade before a production
 Cut-off grade optimisation to maximise the net present value 315

schedule is generated. It has incorporated a proprietary search algorithm combined with

powerful linear programming which optimises cut-off grade with regard to the complex
situations facing mining operations.
It was concluded from research that the results of developing properly optimised
plans are invariably significantly better (5–15% higher NPV) than plans that attempt to
apply the above principles by manual trial and error, or as is sadly often the case where
the above principles are not applied at all (Whittle and Wharton, 1995). This paper tries
to indicate the importance of doing cut-off grade optimisation when doing production
scheduling and its applicability in hard and soft rock mines.

1.1 Research question and relevance

The calculation of cut-off grades in mining operations by manual trial and error generates
non-optimal NPV thus the need to optimise cut-off grade using Lane’s approach.
The main objective of mining companies is to maximise the NPV throughout the mine
life. This study is therefore based on the question that “Is it possible to optimise cut-off
grade policy of an open pit mining operation that constitutes a mine, ore processing
stream and metal refining option with geological and economic uncertainty using Whittle
4X?”.
The application of Lane’s approach is not complex. It is applied in Whittle 4X in
optimising cut-off grade. Whittle 4X has incorporated a proprietary search algorithm
combined with powerful linear programming which optimises cut-off grade with regard
to the complex situations facing mining operations. Although, Whittle 4X has the option
to optimise cut-off grade in open pit mining operations, most mines do not apply it.
It is not is not widely appreciated hence the need for this research study.

1.2 Review of cut-off grade optimisation methods and their effectiveness

in NPV maximisation
Traditionally in open pit mining a cut-off grade is used to determine if a block of material
should be mined or not, and another cut-off grade is used to determine whether or not it
should be milled or taken to the waste dump. The traditional cut-off grade calculation
method is based on the breakeven cut-off grade which remains unaffected throughout the
mine life despite change in geological and economic parameters.
The maximisation of profits without considering the time value of money amounts to
optimisation without the capacity constraints of the mining system and therefore
generating sub-optimal NPVs. This resulted in the need to modify the traditional cut-off
grade policies such that the NPVs from a given operation are improved.
Heuristic cut-off grade optimisation approaches have been incorporated in the
industry since they use cut-off grades higher than breakeven grades during the early years
of the mine operation for faster recovery of capital investments and using breakeven
grades during the later stages of the mine.
Cut-off grade calculation in this approach includes depreciation, fixed cost and
minimum profit per tonne for a period of time. This is done to get a much higher cut-off
grade at early stages of the mine life. At the end of the mine life, the minimum profit
requirement is removed from the equation to lower the cut-off grades further to pay off
the plant’s costs. Then the depreciation charges are removed from the equation thus
leaving the mine to operate on the milling cut-off grades. The whole mining process
316 J. Githiria

involves dynamic cut-off grades which tend to be higher in early years and then lowering
in the consecutive years.
Cut-off grade calculation changes along the mine life in intervals as shown in the
equations below. Assuming a mine having a mine life of 20 years, the cut-off grade
calculations are done using the following equations (Dagdelen, 1992):
Year 1 − 5 : Milling cut − off grade
milling cost+depreciation+minimum profit per tonne
=
(price-(refining cost+marketing cost) × recovery)
Years 6 – 10 : Milling cut − off grade
milling cost+depreciation
=
(price-(refining cost+marketing cost) × recovery)
Year 11 − depletion: Milling cut − off grade
milling cost
= .
(price-(refining cost+marketing cost) × recovery)

Heuristic approaches gives sub-optimal NPV for any given deposit therefore returns on
investment needs to be improved.
Research on cut-off grade optimisation as done by Lane (1964, 1988) discusses in
detail the theoretical background, general formulation and an algorithm used in
maximising NPV. The cut-off grade calculations that maximise NPV have to include
opportunity costs associated with not receiving the future cash flows quicker due to the
cut-off grade decision taken now. Cut-off grade optimisation using Lane’s algorithm
incorporates all stages involved in any mining operation. There are three different stages
involved, mining milling or concentrating and refining. Each of these components has its
own capacities to handle either ore or product and has its own set of associated costs.
Cut-off grade in this approach uses grade-tonnage distribution in the calculation of
cut-off grade as well as the capacities which constrain the mining operation. Lane’s
approach aims at maximising the NPV of the cash flow of the whole operation. In the
process of calculating the cut-off grade in each year of the mine life, the time value of
money is taken into account reflecting the costs and benefits of bringing forward or
delaying extraction of any one ore block.

1.3 Lane’s approach

Lane’s approach uses mathematical formulation in selecting cut-off grades by
maximising NPV subject to mining, concentrating and refining constraints. This can be
represented mathematically as follows (Asad, 2005):
N
Pi
Max NPV = ∑ . (1)
i =1 (1 + d )i

Subject to: Qmi ≤ M for i = 1, … N

Qci ≤ C for i = 1, … N
Qri ≤ r for i = 1, … N,
 Cut-off grade optimisation to maximise the net present value 317

where (Profit) Pi = ( si − ri ) Qri − cQci − mQmi − f i , (2)

d represents discount rate.

The terminologies used in this mathematical formulation are described in Lane’s model
as shown in Figure A1.
It can be used to calculate the profit, P from the next Qm of material mined. The basic
profit expression is formulated by considering the next unit of material to be mined which
is Qm. Therefore the cost of mining the material will be m × Qm. Some of the mined
material will be sent to the concentrator depending on the capacity of the concentrator
which is denoted as Qc. The cost incurred in processing this material is c × Qc.
The refining costs are incurred on the final product, Qr thus having a cost of r × Qr.
Total fixed costs, fT, are incurred over a time period T.
The first question to be asked is whether some other combination of mine production
rate and concentrator cut-off grade would yield a better NPV from this deposit or not.
The variations are done on the constraints to optimise the NPV. The constraints (mine,
concentrator and refining capacities) are varied to determine the optimum set of
capacities to be used over the mine life.
The present value is calculated using the following basic equation:
v = ( S − r ) Qr − cQc − mQm − T ( f + Vd ). (3)

1.3.1 Limiting cut-off grades

The limiting cut-off grades are based upon capacities, costs and the price. The cut-off
grades are determined based on the operations involved such as mining, concentrating
and refining. One of these constraints is used as the governing constraint, i.e., controlling
factor in the system while the rest of the constraints are varied with respect to the grade
distribution.
The basic expression is used to calculate the economic cut-off grade based on mining
as the governing constraint (Lane, 1964).
 f + d ×V 
vm = ( S − r ) × Qr − c × Qc −  m +  × Qm . (4)
 M 
If mining throughput is the governing limitation, the optimum cut-off grade is therefore,
c
gm = . (5)
(S − r ) × y

If milling throughput is the governing limitation, the optimum cut-off grade is given by
equation (6):
f + d ×V
c+
gc = C . (6)
(S − r ) × y

If refining throughput is the governing limitation, the optimum cut-off grade is given by
equation (7):
318 J. Githiria

c
gr = . (7)
 f + d ×V 
S −r − × y
 R 

1.3.2 Balancing cut-off grades

For the balancing cut-off grades two constraints are to be in balance, i.e., operating in full
capacity. The calculations are based on the distribution of the grades of the mined
material. The average grade of the treated material can be found as a function of the
chosen cut-off. Balancing cut-off grades can be calculated analytically using a technique
developed by Dagdelen (1992).
Assuming that grade-tonnage distribution of a given mine deposit consists of ‘K’
individual grade values we have a set of grade values as:
{ g (1) , g ( 2 )} , { g ( 2 ) , g ( 3)} , − − − − − − − − − − − − − − , { g ( K − 1) , g ( K )} .
By using the lower grade limit g(k) for a given grade values {g(k), g(k + 1)} as the cut-off
grade representing interval k*, calculate the tons above cut-off grade, i.e., ore tonnes,
tonnes below cut-off grade, i.e., waste tons, and the average grade of ore above cut-off
grade as shown in the following equations (Asad, 1997):
K
qo(k * ) = ∑q k (8)
k = k*

k*
qw(k * ) = ∑ qk (9)
k =1

K
  g (k ) + g (k + 1)  
∑  q *
k ×
 2  
,
g avg (k * ) = k =k
(10)
qo

Where qo represent the quantity of ore, qw represent the quantity of waste and qk
represent the quantity of ore in a particular grade interval k*
The ratio of ore tonnes to total tonnes mined ‘mc’, the ratio of quantity of metal to
total tons ‘rm’ and quantity of metal ‘rc’ can be calculated if ore tonnes, waste tonnes and
average grade of ore are known.
qo( g )
mc( g ) = (11)
qo( g ) + qw( g )

(qo( g ))( g avg ( g ))( y )

mr ( g ) = (12)
qo( g ) + qw( g )

rc( g ) = ( g avg )( g )( y ). (13)

In calculation of mine and concentrator balancing cut-off grade, the ratio (C/M) is
determined and the grade interval is located as shown below.
 Cut-off grade optimisation to maximise the net present value 319

mc( g ′) ≥ C ( M ) ≥ mc( g ). (14)

The optimum cut-off grade is then determined using equation (15):

C
− mc( g )
gmc = M
mc ( g ′ ) − mc ( g )
+ g. (15)
g ′− g

This is repeated for the other balancing cut-off grades using the following equations:
R
− rc( g )
grc = C
rc ( g ′ ) − rc ( g )
+g (16)
g ′− g

R
− mr ( g )
gmr = M
mr ( g ′ ) − mr ( g )
+ g. (17)
g ′− g

The balancing cut-off grades do not depend on economic factors entirely and they are
dynamic such that they vary as the grades vary in the deposit. They depend on the grade
distribution of the deposit.

1.3.3 Optimum cut-off grade

The optimum cut-off grade policy determines the optimum cut-off grade among the
limiting economic and balancing cut-off grades that maximises the NPV of the operation
(Lane, 1964, 1988). The three limiting economic cut-off grades (gm, gc, gr) are changed
with change in economic parameters. They are based upon capacities, costs and the price
of the commodity. The other three (gmc, grc, gmr) are based upon the grade distribution of
the mined material and capacities.
The objective is to find the cut-off grade which produces the overall maximum profit
with respect to the mining, concentrating and refining constraints. An optimum grade will
be determined for each of the three pairs of operations. For example, the mine and the
concentrator considered as a pair, there are three possible options for the optimum cut-off
grade Gmc. These are gm, gc and gmc.
The overall effective optimum cut-off grade is the middle value among Gmc, Grc and
Gmr and subsequently Qm, Qc and Qr and NPV can be computed.

1.4 Previous research

Previous research has led to development of optimum cut-off grade policies which are
relevant to the daily mining operations. Taylor (1972) used Lane’s approach whereby
three stages in a mine operation are involved also having balancing and limiting cut-off
grades. He introduced a different calculation of the balancing cut-off grades by using
statistical parameters to describe the grade distribution.
Dagdelen (1992) discussed the theories used to calculate the cut-off grade nowadays.
He illustrated difference between the traditional cut-off grade approach and heuristic
techniques by comparing the outputs. He proved that a technique with declining cut-off
grades with time maximises the NPV rather than that of traditional and heuristic
techniques. He discussed the concept of optimum cut-off grade policy as outlined by
Lane and formulated an algorithm used to maximise the NPV of a project.
320 J. Githiria

Dagdelen (1993) modified Lane’s approach by introducing an analytical method

instead of the graphical method in finding balancing cut-off grades thus simplifying the
problem.
King (2001), Cetin and Dowd (2002) and Asad (2005) modified the approach by
considering multi-element mineralisation. King (2001) incorporated variations in ore type
throughput for multi-element mineralisation. This enhanced Lane’s approach by
considering the variations of geological parameters. Cetin and Dowd (2002) applied
generic algorithms in optimisation of cut-off grade for multi-mineral mine while Asad
(2005) developed a cut-off grade optimisation algorithm with stockpiling option for open
pit mining operations of two economic minerals. Asad (2007) later optimised cut-off
grade optimisation by considering metal price and cost escalation.
Other factors incorporated into the cut-off grade optimisation model are
environmental issues (Osanloo et al., 2008), operating and administrative costs (King,
2011) among others. Asad and Dimitrakopoulos (2013) developed a heuristic approach
using stochastic integer programming that accounts for uncertainty in ore supply to the
multiple ore processing streams. The aim of these cut-off grade optimisation approaches
is to incorporate all factors that are affecting open pit mining operation.
Whittle and Wharton (1995) followed the theory given by Lane (1964, 1988) and
applied it in Whittle 4X. However, they explained the idea of using opportunity cost in a
better way. NPV can be improved by bringing forward revenues and/or deferring costs;
even if that means that total net cash flow generated over the life of the project is less.
Whittle 4X introduced optimisation which determined simultaneously for a mining
operation involving some or all of the complications such as stockpiling of mined
material, blending, multiple minerals and others.

2 Methodology

A block model of a hypothetical gold mine is imported into Whittle 4X prior to

production scheduling. Production scheduling is done on the basis of real market
conditions involving price, mining cost, milling cost, processing cost and other factors
affecting the mine operation. In carrying out pit optimisation scenarios, many factors are
considered in order to curb economic discrepancies due to changes in mining conditions.
These factors include mining capacities, milling capacities, refining capacities and the
costs associated with them.
A production plan with the NPV is selected whereby an optimal scenario is utilised to
establish the production schedule that included ore and waste tonnage in each period. It is
vital in mine planning to maximise NPV in all the stages of mine planning since it is
directly related to the initial capital investment, discount rate and the LOM. Thus, the
mining and milling capacities are matched to maximise the NPV of future discounted
cash flows. A given set of capacities and the economic costs associated with each
capacity, an extraction sequence and price are considered in the mining parameters
shown in Table A1. These parameters are based on a hypothetical gold mine which is the
benchmark study of this paper.
 Cut-off grade optimisation to maximise the net present value 321

2.1 Pit optimisation

The pit optimisation yielded a nest of pits by calculating the optimal outline for a range of
economic scenarios (price and mining cost). This process ensured that the smallest pit
generated by the lowest price or cost will be the best pit to start mining.
The mechanism used in pit and schedule optimisation improves the value of a project
by mining high grade ore in the early years. In doing so NPV can be improved by
bringing forward revenues and/or deferring costs, even if that means that total net cash
flow generated over the life of the project is less.
When generating pit phases using Whittle Four-X (Lersch–Grossman algorithm),
inner high value pit shells which are mined early, will have low stripping ratios, and/or
higher grades than the average of the ultimate economic pit. When scheduling a pit with
phases generated through pit optimisation (if higher grade is a component driving the
optimisation), then the average grade of ore mined will be higher in the early years than
later.
Therefore, using pit phases based on pit optimisation it is likely to raise the early
average grade processed by focusing on high grade areas for early mining. Higher early
grades mean more early cash flow, at the expense of lower later cash flows, but with an
increase in NPV.

2.2 Pushback selection

Whittle 4X creates a series of pit shells to make sequencing and scheduling easier by
grouping all blocks on a bench. A series of pushbacks as indicated in the pit by pit graph
are selected by analysis of discounted cash flows from the graph for each set of selected
pushbacks.
The criteria used involves identifying areas on the pit by pit graph where significant
increases in material (ore and waste) are obvious as shown in Figure A2 indicated by
arrows. This indicates that for enough ore to be exposed, a pushback is required at a
certain period prior to this increase. Each pushback is chosen by an iterative process that
involves looking at how the output graph (NPV in US$) behaves according to each
pushback selected. The pushback that gives a higher NPV is chosen and in doing this
process continually an optimal scenario is achieved.

2.3 Production scheduling

Production scheduling in this project is done using a suitable set of selected mining and
milling capacities as specified in Figure A3. Using the same set of pushbacks as used in
pit optimisation a balance of ore and waste tonnages is found by whittle 4X using Milawa
NPV and Milawa balanced algorithms. The optimal scenario is then utilised to establish a
production schedule that included ore and waste tonnage in each period.
To start with, it is vital to appreciate the core factors that influence the NPV.
In general, the present value of future discounted cash flow is considered NPV that is
directly related to the initial capital investment, discount rate and the LOM. Among these
factors, the initial capital investment has an influence on the truck fleet capacity, the
larger the capacity required, the more capital intensive the project becomes.
322 J. Githiria

The mining and milling/processing capacities are matched to maximise the NPV. This
is achieved by an iterative process that involves alternating economic variables, mining
and milling capacities, respectively, until an optimal result is achieved.
In the case of pits, applying the Lerchs–Grossman (L-G) algorithm with varying
revenue factors (say from 0.5 to 1.5) provided useful guidance for a value-based phasing
strategy. The early mining pit shells are generated by high-grade and/or low stripping
ratio. Once a set of optimal pit shapes have been generated the production schedule,
subject to defined operational constraints, is optimised. The optimisation analysis is
performed properly resulting in a LOM plan that maximised the NPV of the project for
specified set of assumptions (geological, geotechnical, metallurgical, market,
environmental, etc.).

3 Results and discussion

After production scheduling, cut-off grade optimisation is done using Lane’s approach
incorporated in Whittle 4X. Calculation of cut-off grade is done based on Lane’s
approach by interacting the interdependent variables in this mine.

3.1 Cut-off grade policy as reported from whittle 4X per period

The cut-off grade policy used in Whittle 4X is based on Lane’s algorithm whereby the
approach uses the concept of using cut-off grades higher than breakeven grades during
early years for faster recovery of the capital invested.
The cut-off grade calculation satisfies the production constraints and accommodates
the grade-tonnage distribution. The policy uses dynamic cut-off grade whereby the NPV
declines with depletion of the reserves. This is because the policy tends to mine the
higher cut-off grade during the early years and lower cut-off grade in the later years.
Using the original data in the optimal scenario, optimisation of the cut-off grade is done
by adding a “New Stockpile and Cut-off Optimisation (Type 2)” node to the optimised
schedule graph node.
After running the software, the cut-off grade policy generated is tabulated as shown in
Table A3. The cut-off grade slightly changes along the mine life such that the higher
grade ore is mined in the early years while the lower grade ore is mined later. This is
done in the aim of maximising the NPV of future cash flows. The highest cut-off grades
in this gold mine are in periods 2 and 4. The mine generates a significant high NPV of
US$ 258,499,159 and 255,634,310, respectively.
The cut-off grade optimisation maximises undiscounted profit for a given mining
operation thus increasing the return of investment. The discounted cash-flows increased
in the early years and then decreased later as the ore deposit got depleted.

3.2 After-tax cash analysis

After-tax cash analysis (using Microsoft Excel) is used to calculate after tax cash flows,
NPV and IRR for the mine project. NPV and internal rate of return (IRR) in the summary
below is used in checking the feasibility of the project.
 Cut-off grade optimisation to maximise the net present value 323

4 Conclusions and recommendations

In this paper, a block model of a hypothetical gold deposit is used as input to Whittle 4X
to generate a grade-tonnage distribution of the deposit. The grade tonnage distribution
and current economic parameters are then used to create an optimum cut-off grade policy
using Whittle 4X. Cut-off grade optimisation is done to generate a production schedule
which is used further for after-cash analysis.
Whittle 4X is used in optimisation of cut-off grade for the open pit (disregarding the
underground mine). The open pit mine has 138,214,349 tonnes of ore that is mineable
over a period of 8 years. The underground mine has 21,499,245 tonnes of ore that is
mineable over a period of 8 years. These figures were derived from a mine design
software, Maptek Vulcan. The underground mine has an annual ore production of
2,500,000 tonnes.
Whittle 4X is concerned with designing open pits and had no direct relevance to
underground mining. It was found that if both open pit and underground methods are to
be used, this can affect the design of the open pit, and Whittle 4X can take account of
this. Although Whittle 4X takes account for the presence of the underground mine,
it does not schedule underground material or include underground material in any limits.
This limits the usage of the software in mine planning of the entire project.
Further study is required to find how Whittle 4X applies all other complex mining
situations into the cut-off grade optimisation algorithm. For instance, an investigation
into how Whittle 4X applies situations such as stockpiling, blending and ore body with
multiple minerals is necessary.
In conclusion, this research paper provides an insight into Whittle 4X’s application
in optimising cut-off grade. The research identified how Whittle software can
optimise cut-off grade and its applicability in daily mine planning of any given mine
project.

References
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pit mining operations’, Journal of Engineering and Applied Sciences, Vol. 21, No. 2,
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mining operations of two economic minerals’, International Journal of Surface Mining,
Reclamation and Environment, Vol. 19, No. 3, pp.176–187.
Asad, M.W.A. (2007) ‘Optimum cut-off grade policy for open pit mining operations through net
present value algorithm considering metal price and cost escalation’, Engineering
Computations, Vol. 24, No. 7, pp.723–736.
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Appendix

Table A1 shows the parameters used in this project.

Table A1 Units of parameters used in Whittle 4X

Parameters Value
Slope angle 45°
Mining cost US$6 per tonne
Processing cost US$20 per tonne
Refining/selling cost US$2.4 per gram
Initial capital cost US$300,000,000
Replacement capital cost (10% of the capital cost US$30,000,000
each year)
Gold price US$48 per gram
Mining recovery 95%
Mining dilution 5%
Gold recovery 85%
Discount rate 10%
Mining capacity 45,000,000 tonnes
Milling capacity Period 1(4,000,000) Period 2(9,000,000)
Period 3(12,000,000)
 Cut-off grade optimisation to maximise the net present value 325

Table A2 shows a summary of the gold mine with respect to the quantity of ore and
waste, grade of the mineral and quantity of the mineral to be mined.

Table A2 Summary by rock type as shown in Whittle 4X

Rock type Total tonnes Minimum grade Average grade Maximum grade
Ore 163,924,800 0.1049 2.228 6.5331
Waste 9,572,472,000
Total tonnage of both ore and waste = 9,736,396,800
Total Au = 365,226,487 grams

The cut-off grade policy generated from Whittle 4X is tabulated as shown in Table A3.

Table A3 Cut-off grade policy as reported from Whittle 4X per period

Quantity Quantity of ore Quantity of gold Open pit disc.

Cut-off of ore mined processed produced Open-pit cash- cash-flow
Period grade (tonnes) (tonnes) (tonnes) flow (US$) (US$)
1 1.519 6120977 5809534 4938104 22738110 20671009
2 1.804 16274288 15460573 13141487 312783982 258499159
3 1.762 21303702 20212259 17180420 308012976 231414708
4 1.858 22394827 21265616 18075774 374274193 255634310
5 1.689 20411775 19363974 16459378 245563846 152475828
6 1.791 21530732 20454195 17386066 288211499 162687878
7 1.786 21244060 20171329 17145630 280084774 143727775
8 1.654 8933988 8487289 7214195 86117105 42101738
1,917,786,485 1,267,212,405

Using Microsoft Excel an after-tax cash analysis is done to get the NPV and IRR as
shown in Table A4.

Table A4 Summary of the after-tax cash analysis (US$)

Year Taxable income Net income Cash-flow

0 –1000000 –1000000 –301000000
1 –2000000 –2000000 –1000000
2 188904063 122787641 141454307.6
3 536508109 348730270.8 365396937.5
4 703575122 457323829.2 473990495.9
5 735295680 477942191.9 494608858.5
6 663578993 431326345.4 447993012
7 695622646 452154720 468821386.7
326 J. Githiria

Table A4 Summary of the after-tax cash analysis (US$) (continued)

Year Taxable income Net income Cash-flow

8 680749807 442487374.2 459154040.9
9 105885371 68825491.08 252158824.4
NPV @15% (US$) 1,153,962,866
IRR (%) 62.68

The terminologies used in the mathematical formulation are described in Lane’s model as
shown in Figure A1.

Figure A1 The model described by Lane’s algorithm

Source: Lane (1964)

The criteria used in identifying pit shells involves identifying areas on the pit by pit graph
where significant increases in material (ore and waste) are obvious as shown in Figure A2
indicated by arrows.

Figure A2 Pit by pit showing the pushback selection (see online version for colours)
 Cut-off grade optimisation to maximise the net present value 327

Production scheduling in this project is done using a suitable set of selected mining and
milling capacities as specified in Figure A3.

Figure A3 Mining and milling capacities/limits used in Whittle in different periods (see online
version for colours)

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