Key terms that should be considered in mining economics include the net present value and the cut-off grade. The net present value is defined as the cash flow from the project, currently valued and hence is an essential part when considering whether the project is financially viable. Cut-off grade refers to the minimal level of mineral contained in the ore that makes it financially viable.
The Lane model is a systematic approach to establish the most appropriate cut-off grade strategy for a mine over its entire life cycle (Lane, 1964). Contrary to static breakeven analyses, this approach considers an operation to be an interlinked system composed of three basic steps: mining, processing, and refining. The basic idea is that the economic efficiency of an operation automatically relies on the combined capacities and costs in these steps.
For its application, the algorithm examines potential bottlenecks at each stage of the process. It uses mathematical calculations of limiting economic cut-off grades for mining, processing, and refining separately using particular capacity, cost, and price information (Ahmadi, 2018). Subsequently, it determines balancing cut-off grades. With the comparison of these limitations and the grade-tonnage relationship geologically obtained, it finds the optimum cut-off grade.
One distinctive characteristic of Lane’s algorithm is that it is a dynamic one. As opposed to an unchanging cut-off grade, Lane comes up with a dynamic policy. Higher cut-off grades are suggested for the first few years. The aim of this approach is the early extraction of high-grade ore which is associated with quick money flow and shortened payback periods for investments, which significantly raises the NPV.
The application of the model implies that there is an element of computations. In modern day planning, very sophisticated computer programs are used to make iterations that are required according to the theory of Lane. These iterations are done by calculating tonnage per year, revenues and costs against many possible cut off grades up to the point where NPV is maximized (Ahmadi, 2018). This computerization helps deal with large amounts of information about grade and tonnage, which are characteristic of big open pit mines.
References
Ahmadi, M. R. (2018). Cutoff grade optimization based on maximizing net present value using a computer model. Journal of Sustainable Mining, 17(2), 68-75. https://doi.org/10.46873/2300-3960.1123
Lane, K. F. (1964). Choosing the optimum cut-off grade. Colorado School of Mines Quarterly, 59(4), 811-829.
