Dynamic Cut-Off and its Application to Maximize Mineral Reserves Inventory

CONTENT

Introduction

Methodology

Results and Discussion

Conclusion

IV Región

de Coquimbo

Provincia Limarí

Comuna Punitaqui

Latitud : 30º43’ S

Longitud : 71º12’ W

400-600 msnm

30°

71°

LOCATION

71°

30°

Introduction

Development Preparation Exploitation Unnderground

Transport

Transport

Mine to Plant

Treatment

Plant

OPERATION

Transport Mine to Plant 24 Kilometers

Sub Level Open Stoping

Flotation Plant 3100 tpd

Introduction

ECONOMIC EVALUATION (Max. NPV)

LONG TERM PLAN

ESTIMATE OF RESOURCES

AND RESERVES

CUT –OFF GRADE

(COG)

METALLURGICAL RESULTS (GRADES&RECOVERY)

TECHNOLOGY HUMAN PROCESS

MARKET CONDITIONS

PAYMENTS (+) AND DEDUCTIONS (-)

MARKETING AGREEMENT

VALUE OF MINERAL OPERATIONAL AND

CAPITAL COST

MINERAL OCCURRENCE (MINERAL DEPOSITS)

TECHNOLOGY HUMAN PROCESS

SUPPLIES AND SERVICES

INCREASE PRODUCTION

IMPROVE METALLURGICAL

RESULTS (GRADES/RECOVERY)

CHEAPER METHODS

ITERATION PROCESS

OPTIMIZATION MINING BUSINESS MODEL

K. Lane's algorithm

rsp

NPVifcpcmCOG

*)(

)*(

)(COGfNPV

K. Lane's algorithm

Methodology

LERCH-GROSSMAN ALGORITHM

•The optimization process is based on incremental prices, where only economic blocks within particular price limits are defined as mineral reserves. •It is a marginal cost analysis, which sensitizes the mining cost (ore + waste), where higher value blocks absorb higher pre-stripping areas, and marginal blocks only absorb the minor stripping areas, giving a positive balance, thus leading to the maximization of ore reserves.

Open Pit Mine

Methodology

LERCH-GROSSMAN ALGORITHM

•The minimum cut-off grade (COG), applied to a block is that the present net cash flow value generated, must be equal to the investment capital needed to exploit this block. •In our case, with Underground Mining, each mining block, in addition to its marginal cost, has a capital or opportunity cost assigned, which is the cost of development and/or preparation (i * NPV ). •For blocks that have already been prepared, the equation (i * NPV = 0) is equal zero, and hence COG is less, since adjacent exploited blocks have assumed the primary development and preparation costs.

Methodology

Underground Mine

CONVERSION OF MINERAL RESOURCES TO RESERVES

USING DYNAMIC CUT-OFF

The application of the dynamic cut-off, assigns a cut-off value to each block of ore,

according to the stage where the block is or will be each time the deposit is evaluated,

and assigns only remaining costs to be absorbed in any new status in the future.

5%7%

12%

5%

27%

10%

0%5%10%15%20%25%30%35%40%45%50%55%60%65%70%75%80%85%90%95%100%

Unit Cost AnalysisProfit

Financial

Capex

Deductions

Smelting

Concentrate FreightIndirect

Mill

Transport

Explotation

Preparation

P. Development Costing by Process

Have the mine infrastructure design according to the

Mined Method, which will allow variables of primary

development ratios and preparation to be defined by

sector.

Define mining recovery and dilution variables by

sector. Ore grades, and subsequently ore values, are

adjusted with these variables.

Have proficient management of the “Activity-Based

Costing” (ABC) method, which will allow each block to be

assigned a marginal and capital cost at each stage or

process.

K. Lane's algorithm

Methodology

Parameter Unit Amount

Mining Dilution % 10

Mining Recovery % 90

Pillar Recovery % 70

Primary Development (US$/t) 4.00

Preparation (US$/t) 5.57

Parameter Unit Amount

Explotation (US$/t) 10.27

Transport to Plant (US$/t) 4.65

Plant Cost (US$/t) 23.08

Indirect Cost (US$/t) 8.75

Concentrate Freight (US$/t) 0.79

Total Cost (US$/t) 47.55

Copper Price (US$/t) 8,000

Silver Price (US$/Oz) 27

Copper recovery % 77

Silver recovery % 55

Copper Conc.Grade % 27

NSR Copper (US$/tmf) 7,109

In terms of the following parameters, each mining block should be assigned a

status, which will change in time and in function of the depth and development,

hence the opportunity cost will decrease in time.

COG 1 is applied to blocks that have not been through

primary development or subsequent stages (SDP).

COG 2 is applied to blocks (Rendu, J.M., 2008) that have

already been through primary development and need to go

through the preparation stage and subsequent stages (DP).

COG 3 is applied to blocks that have been through the

primary development and pereparation stages, but have yet to

undergo the exploration stage or subsequent stages (DP+ P).

CUT-OFF-GRADE ESTİMATE (COG)

Methodology

RESULTS AND DISCUSSION

With the following parameters assigned to each mining block, one can proceed to

convert all indicated and measured resources to proven and probable reserves.

Results

Our reserves increased 12.0% in tons of mineral and 11.4% in

metallic fine tons. It is increasing the life of the mine (LOM).

This methodology allowed us to increase our reserves by 12.0% in tons of mineral and 11.4% in

metallic fine tons, increasing the life of the mine (LOM).

The total reserve value increased by 11.14% in tonnes of fine copper which is equivalent to an

additional 46.6 million dollars in the company’s cash flow.

This dynamic cut-off grade estimation methodology assigns a cut-off value to each mineral block,

according to the stage in which it is found, each time the deposit is evaluated. This block is only assigned

the remaining costs, which will be absorbed in a future state.

This demonstrates that ore blocks with greater values support all costs associated with the primary

development phase, and in many cases, the preparation of the exploration phase. Consequently, the

blocks adjacent to these sectors should be evaluated only with costs that complement the process chain

around the mining business (Camus, J. P. 2002).

This methodology is applicable when there is cost management by activities, which allows one to define

the costs of each mining process (primary development + preparation + mining + transport to metallurgical

plant) and subsequent processes, which will have an estimate of dynamic cut-off for each block according

to the status in which it is at every moment.

CONCLUSIONS

Conclusion

Thanks