CHAPTER 8

Stripping Ratios, Pit Limits & Cutoff

Grade Optimization
Dr. Teuku Andika R Putra

USM 2014
 Stripping Ratios
The stripping ratio (SR) refers to the amount of waste that must be
removed for a given quantity of ore in open pit mining.

It is most commonly expressed as:

Waste (tons)
SR =
Ore (tons)

A wide variety of other units are used as well. In strip coal mining
operations, the following are sometimes seen:

Overbuden Thickness (ft) Overburden (yd 3 )

SR = SR =
Coal Thickness (ft) Coal (tons)

Stripping Ratios

Instantaneous stripping ratio: The stripping ratio for a given push back

Overall stripping ratio: The stripping ratio for the total amount of
material removed.

Break-even stripping ratio: The instantaneous stripping ratio at the point

where the cost of stripping the waste exactly
equals the value of the ore uncovered.

2
 Example

Waste (volume)
SR =
Ore (volume)

It will be assumed that:

-the pit is deepened in bench height increments of 25 ft;
-the minimum pit width is 100 ft;
-overall slope angle is 45°;
-the density of the ore and waste is the same;
-the ore is of constant grade.

Original Pit
The original pit on this section (Fig. 4.127), consists of 6 benches and
has a depth of 150 ft. The area of ore Ao is:

Ao = A1 = 200 * 100 + 50 *150 = 27,500 ft2

The area of waste Aw is

Aw = 2A2 = 100 * 100 = 10,000 ft2

The overall stripping ratio SR (overall) is:

A w 10,000
SR (overall) = = = 0.36
A o 27,500

3
 Bench 7
Deepening of the pit by one bench (bench 7) requires the removal of 2A3
of waste. The amount of ore uncovered is A4:

A4 = 100 * 25 + 100 * 25 = 5,000 ft2

2A3 = 125 * 125 -100 * 100 = 5,625 ft2

The instantaneous stripping ratio is:

5,625
SR (instantaneous) = = 1.125
5,000

The overall stripping ratio with bench 7 removed is:

15,625
SR (overall) = = 0.48
32,500

Bench 8
With mining of bench 8, another 5,000 ft2 of ore (A6) is removed. This
requires the stripping of:

2A5 = (150)2 -(125)2 = 6,875 ft2

The instantaneous stripping ratio is:

6,875
SR (instantaneous) = = 1.375
5,000

The overall stripping ratio with bench 8 removed is:

22,500
SR (overall) = = 0.60
37,500

4
Bench 9
For bench 9:
A8 = 5, 000 ft2
2A7 = (175)2- (150)2 = 8,125 ft2

The instantaneous stripping ratio is:

8,125
SR (instantaneous) = = 1.625
5,000

The overall stripping ratio with bench 8 removed is:

30,625
SR (overall) = = 0.72
42,500

Summary
As can be seen in this simple example, with each cut, the same amount
of ore 5,000 ft2 must pay for an increasing amount of waste.

The overall stripping ratio is less than the instantaneous value.

There becomes a point where the value of the ore uncovered is just equal
to the associated costs with the slice.

This would yield the maximum pit on this section. Assume that in this
case the breakeven stripping ratio is 1.625. Then the final pit would stop
with the mining of bench 9.

Through pit deepening, the walls of the pit are moved away or 'pushed
back' from their original positions.

The term 'push-back' is used to describe the process by which the pit is
deepened by one bench.

5
 Pit Limits
The establishment of pit limits involves the development and
superposition of a geometric surface called a pit onto the mineral
inventory.

The mineable material becomes that lying within the pit boundaries.

Pit Limits
The size and shape of the pit depends upon economic factors and
design/production constraints.

With an increase in price the pit would expand in size assuming all other
factors remained constant. The inverse is obviously also true.

The pit existing at the end of mining is called the 'final' or the 'ultimate'
pit.

In between the birth

and the death of an
open-pit mine, there
are a series of
'intermediate' pits.

6
Pit Limits
Procedures for generating pit limits are based upon:
(1) hand methods,
(2) computer methods, and
(3) computer assisted hand methods

Within the pit are found materials of differing value. Economic criteria
are applied to assign destinations for these materials based on their value
(i.e. mill, waste dump, leach dump, stock pile, etc.).

Once the pit limits have been determined and rules established for
classifying the in-pit materials, then the ore reserves (tonnage and grade)
can be calculated.

Example
Figure 5.2 shows an idealized cross-section through an orebody which
outcrops at the surface and dips to the left at 45°.
There are distinct physical boundaries separating the ore from the over-
and under-lying waste.
It is desired to know how large the open-pit will be.

7
Example
The final pit in this greatly simplified case will appear as in Figure 5.3.

The slope angle of the left wall is 45°.

As can be seen a wedge of waste (area A) has been removed to uncover

the ore (area B).

Example
The location of the final pit wall is determined by examining a series of
slices.

8
 Strip 1
For this example the width of the slice has been selected as 1.25 units (u)
and the thickness of the section (into the page) as 1 unit. Beginning with
strip 1 the volumes of waste (Vw) and ore (Vo) are calculated. The
volumes are:

Strip 1:
Vwl = 9.40u3 , Vol = 6.25u3

The instantaneous stripping ratio (ISR) is defined as:

Vw1
ISR 1 =
Vo1

ISRl = 9.40/6.25 =1.50

Strip 1
Assuming that the net value from selling one unit volume of ore (that
money remaining after all expenses have been paid) is $1.90 and the cost
for mining and disposing of the waste is $l/unit volume, the net value
(NV) for strip 1 is

NV1 = 6.25 * $1.90 - 9.4 * $1.00 = $2.48

9
Strip 2, 3, &4
Strip 2:
Vw2 = 10.50u3
Vo2 = 6.25u3
ISR2 = 1.68
NV2 = 6.25 * $1.90 - 10.5 * $1.00 = $1.38
Strip 3:
Vw3 = 11.80u3 Break-even stripping ratio
Vo3 = 6.25u3
ISR3 = 1.89
NV3 = 6.25 * $1.90 - 11.8 x $1.00 = $0.075 ≅ $0
Strip 4:
Vw4 = 13.10u3
Vo4 = 6.25u3
ISR4 = 2.10
NV4 = 6.25 * $1.90 - 13.10 * $1.00 = -$1.23

Break-even stripping ratio

The breakeven stripping ratio which is strictly applied at the wall is

SR3 = BESR = 1.9 = (Net Revenue)/(Stripping Cost)

Since the net value of 1 unit of ore is $1.90 and the cost for 1 unit of
waste is $1.00, one can mine 1.9 units of waste to recover 1 unit of ore

10
Final Pit Limit
The final pit limit is where the length of waste (Lw) is just equal to 1.9
times the length of ore (Lo) as measured along the midline of the mined
strip.

True if:
•Cost and revenues both expressed in terms of same units (volumes)
•Density of ore and waste the same.

Break-even stripping ratio

Typical Calculation Process
• Find Costs, Ore Grades, Recoveries
• Calculate Gross Recoverable Ore Value (Gross Revenue/ton-ore)
• Calculate Production Costs ($/ton-waste)
• Calculate Net Recoverable Ore Value (Net revenue/ton-ore)
• Calculate BESR: BESR = (Net Revenue)/(Stripping Cost)

11
Overall stripping ratio
The overall stripping ratio (OSR) for the last section is calculated as:
Waste Area A 50u 3
OSR 1 = = = = 0.8
Ore Area B 62u 3
This is compared to the instantaneous stripping ratio at the pit boundary:
ISR (pit limit) = 1.9
The OSR must always be less than the ISR (pit limit).

Overall stripping ratio

The net value for the section (assuming unit thickness) is

NV = Ore area * Net ore value -Waste area * Waste removal cost

= B * $1.90 - A * $1.00 = 62 * $1.90 - 50 * $1 = $68

Whereas the net value is zero at the pit limit, it is positive for the overall
section.

12
 Underground vs. Open Pit

Conversion from Open Pit to Underground at BHP Billiton’s Koala diamond

operations, Canada’s Northwest Territories. (E&MJ, 2006/08)

Underground vs. Open Pit

Compare total mining cost per ton of ore for each method.
Surface costs are dependent on stripping ratios.
UG = Underground cost of mining per ton of ore
OP = Open pit cost of mining per ton of ore
SC = open pit stripping cost per ton of waste
SR = Break-even stripping ratio, surface vs. underground (tons
waste/ton ore)
Equate the underground mining costs per ton of ore to the total surface
mining costs per ton of ore plus the required waste stripping:
UG = OP + SR * SC
Solve for the stripping ratio SR:
SR = (UG - OP)/SC

13
Underground vs. Open Pit
Example:

Porphyry copper can be mined underground by block caving at a cost of

$3.00/ton of ore.

For open pit mining the costs are $0.40/ton ore and a stripping cost of
$0.50/ton of waste.

SR = (3.00 –0.40)/0.50 = 5.2 tons of waste/ ton of ore

i.e. while the stripping ratio is less than 5.2 it is most economical to mine
the deposit by open pit.

When the stripping ratio exceeds 5.2 it will be more economical to mine
using the underground mining method block caving.

Floating Cone

14
Floating Cone

Final Pit

Missing Combinations of Profitable Blocks

Both cones
negative

Combination
positive

15
Interface with block model

Changing Ultimate Pit Limits

16
Scheduling

17
 Factors Influencing The Cutoff
Grades
• As the Cutoff Grade increases in a given operation cash
flow also increases

• The ultimate adjustment of the dial is influenced by the

available capacities in the mining system

• The Cutoff Grade is not only function of economic

parameters but also capacities of the mining system with
respect to mining, milling and the market (refining)

3
 What Is Cutoff Grade

1. Cutoff Grade is defined as the grade that is normally

used to discriminate between ore and waste within a
given deposit
2. Cutoff Grade is the dial that is used to adjust the cash
flow coming from the mining operations in a given year
3. The Cutoff Grade policy allows a mining company to fine
tune their operation with respect to a given financial
objective
4. The Cutoff Grade dial also controls how much ore is
available to the mill from a given bench and how much of
final product to be produced in a given period
5. The overall influence of Cutoff Grade policy on the
economics of an operation is profound

4
 Economic Objectives And The Cutoff
Grade
• The cash costs related to mining, milling and refining along
with the commodity price determines the lower limit to
cutoff in a given period.

• If the financial objective of the company is to maximize

undiscounted profits, the cutoff grade should be lowered
all the way down to process breakeven cutoff grade.

• Processing every ton of ore that pays for itself will

maximize the undiscounted profits for the operation.

5
 Economic Objectives And The Cutoff
Grade (Cont.)
• If the financial objective of the company is to maximize the
discounted profits that is Net Present Value (NPV), the
Cutoff Grade in a given period has to be adjusted upwards
to pay for the opportunity cost of mining low grade ore now
while the higher grades are still available.

• The mining rate, milling rate, the ultimate rate of

production for the commodity being sold, and the
production costs determine how far the cutoff grade has to
be adjusted upwards to maximize the NPV.

6
 Ultimate Pit Cutoff

• Defined as the breakeven grade that equates cost of

mining, milling and refining to the value of the block in
terms of recovered metal and the selling price.

• Any administrative overhead expense which would

stop if mining were stopped must be included in the
cost calculations.

• Overhead costs should be divided between mining

and processing.

7
 Ultimate Pit Cutoff
• Price (P) $400/oz
• Sales Cost (s) $5 /oz
• Processing Cost (c) $ 10/ ton
ore
• Recovery (y) 90 %
• Mining Cost (m) $ 1.20/ ton
• Overhead
(Included in c and m )

8
 Ultimate Pit Cutoff

Milling Cost + Mining Cost

gm =
(Pr ice − Sales Cost ) * Re cov ery

$10 + $1.2
gm = = 0.0315 oz / ton
($400 − $5) * 0.9

9
 Milling Cutoff

• Defined as the breakeven grade that equates cost of

milling and refining to the value of the block in terms
of recovered metal and the selling price.

• Any administrative overhead expense which would

stop if mining were stopped must be included in the
cost calculations.

10
 Milling Cutoff

Milling Cost
gc =
(Pr ice − Sales Cost ) * Re cov ery

$10
gc = = 0.0281 oz / ton
($400 − $5) * 0.9

11
 Block Value

Block Grade = gB
if gc < gm < gB then
Block Value = (P-S)* gB * y – c – m

Else if gB < gm < gc then

Block Value = -m

12
 Block Value

Block Grade = gB
if gc < gB < gm then
Block contains marginal ore.

• Marginal ore pays for processing

cost but not for mining cost.

13
 Block Value Calculation Example

a) Ore Block
Block grade = gB = 0.11 oz/ton
gc < gm < gB
0.0281 < 0.0315 < 0.11
Block Value = (P-S)* gB * y – c – m

Block Value = (400 - 5)*0.11*0.9 - 10 - 1.20

= $27.9/ton of block

14
 Block Value Calculation Example

b) Waste Block
Block Grade = gB = 0.01 oz/ton
gB < gc < gm
0.01 < 0.0281 < 0.0315

therefore
Block Value = - $1.20/ton
= Mining Cost

15
 Mine Design Parameters For The
Case Study
• Price (P) $600/oz
• Sales Cost (s) $5 /oz
• Processing Cost (c) $ 19/ ton ore
• Recovery (y) 90 %
• Mining Cost (m) $ 1.20/ ton
• Fixed Costs (fa) 8.35 M/year
• Mining Capacity (M) Unlimited
• Milling Capacity (C) 1.05 M
• Capital Costs (CC) 105 M
• Discount Rate (d) 15%

16
 Calculation of Ultimate Pit
Cutoff Grade

Milling Cost + Mining Cost

gm =
(Pr ice − Sales Cost ) * Re cov ery

$19 + $1.2
gm = = 0.038 oz / ton
($600 − $5) * 0.9

17
Calculation of Milling Cutoff Grade

Milling Cost
gc =
(Pr ice − Sales Cost ) * Re cov ery

$19
gc = = 0.035 oz / ton
($600 − $5) * 0.9

18
 Grade Tonnage Distribution

Avg. Interval
Grade Interval KTons KTons Grade
Grade
0.000 - 0.020 70,000 0.0100
0.020 - 0.025 7,257 0.0225
89,167 Waste
0.025 - 0.030 6,319 0.0275
0.030 - 0.035 5,591 0.0325
Cutoff Grade 0.035
0.035 - 0.040 4,598 0.0375
0.040 - 0.045 4,277 0.0425
0.045 - 0.050 3,465 0.0475 Ore
0.050 - 0.055 2,428 0.0525
0.055 - 0.060 2,307 0.0575
0.060 - 0.065 1,747 0.0625 36,348 0.1023
0.065 - 0.070 1,640 0.0675 Oz/ton
0.070 - 0.075 1,485 0.0725
0.075 - 0.080 1,227 0.0775
0.080 - 0.100 3,598 0.0900
0.100 - 0.358 9,576 0.2290
19
 Constant Cutoff Grades.
Yearly Tons and Grade Schedules.
Table 3
Year Cutoff Avg QM Qc Qr Profits
Grade Grade $M/year
1 0.035 0.102 3.6 1.05 96.3 33.0
2 0.035 0.102 3.6 1.05 96.3 33.0
3 0.035 0.102 3.6 1.05 96.3 33.0
4 0.035 0.102 3.6 1.05 96.3 33.0
5 0.035 0.102 3.6 1.05 96.3 33.0
6 0.035 0.102 3.6 1.05 96.3 33.0
7 0.035 0.102 3.6 1.05 96.3 33.0
8 0.035 0.102 3.6 1.05 96.3 33.0
9 0.035 0.102 3.6 1.05 96.3 33.0
10 0.035 0.102 3.6 1.05 96.3 33.0
For 11 to 34 0.035 0.102 3.6 1.05 96.3 33.0
35 0.035 0.102 3.4 1.00 91.7 31.4
TOTAL 0.035 0.102 125.8 36.70 3365.9 1154.2
NPV $M 218.5

20
 Profit

Profits ($M) = (P – s ) x Qr – Qc x c – Qm x m

P – Price
S – Sales Cost
Qm – Total Material Mined
Qc – Ore Tonnage Processed By The Mill
Qr – Recovered Ounces
c – Milling Costs ($/ton)
m – Mining Costs ($/ton)
21
 Shortcomings of the traditional
cutoff grades
• They are established to satisfy the objective of
maximizing the undiscounted profits from a
given mining operation.

• They are constant unless the commodity price

and the costs change during the life of mine
AND

• They do not consider grade distribution of the

deposit.
22
 Traditional

Milling Cost + Depreciation + Minimum Pr ofit

gc =
(Pr ice − Sales Cost ) * Re cov ery

$19 + $10 + $3
gc = = 0.060 oz / ton
($600 − $5) * 0.9

23
 Nontraditional ????????

Milling Cost + Depreciation

gc =
(Pr ice − Sales Cost ) * Re cov ery

$19 + $10
gc = = 0.054 oz / ton
($600 − $5) * 0.9

24
 Constant Cutoff Grades
Yearly Tons and Grade Schedules
Table 4
Year Cutoff Avg Qm Qc Qr Profits
Grade Grade $M/year
1 0.060 0.153 6.90 1.05 144.60 57.8
2 0.060 0.153 6.90 1.05 144.60 57.8
3 0.060 0.153 6.90 1.05 144.60 57.8
4 0.060 0.153 6.90 1.05 144.60 57.8
5 0.060 0.153 6.90 1.05 144.60 57.8
6 0.054 0.141 6.00 1.05 132.80 51.9
7 0.054 0.141 6.00 1.05 132.80 51.9
8 0.054 0.141 6.00 1.05 132.80 51.9
9 0.054 0.141 6.00 1.05 132.80 51.9
10 0.054 0.141 6.00 1.05 132.80 51.9
For 11 to 27 0.035 0.102 3.60 1.05 96.30 33.0
28 0.035 0.102 0.30 0.09 8.10 2.8
TOTAL 0.035 0.102 125.80 28.44 3032.10 1112.7
NPV $M 355.7

25
 Declining Cutoff Grades

Milling Cost + Depreciation + Fixed Cost

gc =
(Pr ice − Sales Cost ) * Re cov ery

$19 + $10 + $7.95

gc = = 0.069 oz / ton
($600 − $5) * 0.9

26
 Declining Cutoff Grades

Milling Cost + Fixed Cost

gc =
(Pr ice − Sales Cost ) * Re cov ery

$19 + $7.95
gc = = 0.050 oz / ton
($600 − $5) * 0.9

27
 Declining Cutoff Grades

Milling Cost + Depreciation + Minimum Pr of . + Fixed Cost

gc =
(Pr ice − Sales Cost ) * Re cov ery

$19 + $10 + $3 + $7.95

gc = = 0.075 oz / ton
($600 − $5) * 0.9

28
 Declining Cutoff Grades

Milling Cost
gc =
(Pr ice − Sales Cost ) * Re cov ery

$19
gc = = 0.035 oz / ton
($600 − $5) * 0.9

29
 Declining Cutoff Grades
Yearly Tons and Grade Schedules.
Table 5
Year Cutoff Avg QM Qc Qr **Profits
Grade Grade $M/year

1 0.075 0.182 9.2 1.05 171.6 62.8

2 0.075 0.182 9.2 1.05 171.6 62.8
3 0.075 0.182 9.2 1.05 171.6 62.8
4 0.075 0.182 9.2 1.05 171.6 62.8
5 0.075 0.182 9.2 1.05 171.6 62.8
6 0.069 0.169 8.2 1.05 160.0 57.1
7 0.069 0.169 8.2 1.05 160.0 57.1
8 0.069 0.169 8.2 1.05 160.0 57.1
9 0.069 0.169 8.2 1.05 160.0 57.1
10 0.069 0.169 8.2 1.05 160.0 57.1
For 11 to 17 0.050 0.132 5.4 1.05 124.8 39.5
18 0.050 0.132 1.3 0.26 30.5 9.6

TOTAL 125.8 18.11 2562.5 885.6

NPV $M 357.7

**Profits ($M)= (P-s) x Qr – Qc x c – Qm x m – f 30

a
Cutoff Grade Optimization

Determination Of
Optimum Cutoff Grades
When The Mill
Is Bottleneck
 Formula for Optimum Cutoff Grade

c + f + Fi
g c (i ) =
(P − S ) * y

• Where
Fi = d x NPVi /C
f = fa/C
and fa is annual fixed costs
32
 Optimum Cutoff Grades
Yearly Tons and Grade Schedules
Table 6
Year Cutoff Avg QM Qc Qr **Profits NPV
Grade Grade $M $M

1 0.161 0.259 18.0 1.05 245.2 95.9 413.8

2 0.152 0.255 17.2 1.05 241.0 94.4 380.0
3 0.142 0.250 16.5 1.05 236.4 92.6 342.6
4 0.131 0.245 15.7 1.05 231.3 90.5 301.4
5 0.120 0.239 14.9 1.05 225.7 88.1 256.1
6 0.107 0.232 14.1 1.05 219.6 85.4 206.4
7 0.092 0.213 12.1 1.05 200.9 76.7 152.0
8 0.079 0.188 9.8 1.05 177.9 65.9 98.1
9 0.065 0.163 7.6 1.05 153.6 53.9 46.9

TOTAL 125.8 9.45 1931.4 743.4

NPV $M 413.8

**Profits ($M)= (P-s) x Qr – Qc x c – Qm x m –

fa 33
 Summary

Avg Total Total Strip Profits NPV Life Undiscounted NPV

Grade Amount Amount Ratio % Reduction % Increase
mined processed INC CUM INC CUM
Qm Qr $M $M yrs

Traditional 0.102 125.8 36.70 2.43 4453.4 218.5 35 n/a n/a n/a n/a

Heuristic 0.125 125.8 28.44 3.42 1127.4 355.7 28 3.6 3.6 63.0 63.0
(Depr)

Heuristic 0.164 125.8 18.11 5.95 885.6 357.1 18 20.4 23.3 0.3 63.4
(Depr and
Fixed Costs)

Lanes's 0.235 125.8 9.45 12.31 743.4 413.8 9 16.0 35.6 15.9 89.0
Approach

34
Cutoff Grade Optimization

One Constraint
Cutoff Grade
Optimization Algorithm
 Steps Of The Algorithm

1. Start with Grade-Tonnage Curve.

2. Define: P - Price
C - Milling Capacity
s - Marketing Costs
m - Mining Costs
c - Milling Costs
fa - Fixed Costs
d - Discount Rate

36
 Steps Of The Algorithm (Cont.)

3. Determine the cutoff grade gc for year (i).

c + f + Fi
g c (i ) =
(P − S ) * y
• Where
Fi = d x NPVi /C
f = fa/C
and fa is annual fixed costs
37
 Steps Of The Algorithm (Cont.)

4. For Cutoff Grade gmilling (i):

• Determine Ore Tonnage Tc and Grade gc

• Determine the Waste Tonnage Tw

• Stripping Ratio (sr) = Tw/Tc

38
 Steps Of The Algorithm (Cont.)

5. Set

Qc = C if Tc > C
Qc = Tc if Tc < C

And

Qm = Qc(1+sr)
39
 Steps Of The Algorithm (Cont.)
6. Determine the annual profit (Pi) by using the
following equation
Pi =(P-s) x Qc x gc x y – Qc x (c + f) – Qm x m
P - Price
s - Marketing Costs
Qm - Total material mined
Qc - Ore tonnage processed by the mill
c - Milling Costs ($/ton)
m - Mining Costs ($/ton)
gc - Average Grade (Opt)
y - Recovery
f - Fixed Cost ($/ton) 40
 Steps Of The Algorithm (Cont.)

7. Adjust the Grade-Tonnage Curve of the

deposit for Qc and
Qw = Qm – Qc .

8. If Qc < C in year (i) go to step 9

otherwise
Set i = i+1 and go to Step 3.

41
 Steps Of The Algorithm (Cont.)

9. Calculate incremental NPV for each year (i)

N Pj
NPVi = ∑ j −i +1
j =i (1 + d )

42
 Steps Of The Algorithm (Cont.)

10. If NPV1 for this iteration is not within some

tolerance
(say plus-minus $500K ) on the NPV1 of the
previous iteration go to Step 1
otherwise
Stop the cutoff grade gc (i) for years i = 1,
1
N is Optimum Policy.

43
Example:

Using the following information, calculate the mining and milling cutoff grade

• % Recovery through mill and smelter = 90%

• Value of recovered copper = $2.10/lb
• Mining and transportation cost = $0.35/ton
• Processing, smelting and refining = $1/ton
• General overhead, administration, etc., (chargeable only to ore block) = $0.50/ton

k) Assuming NPV of the future cash flows is $300M and the milling capacity is 15M
tons per year, determine the optimum cutoff grades using Lane’s approach with the
discount rate of 5% and the given information above.

Lane's Approach:

dNPVi
Fi =
C

c + f + Fi
g c (i ) =
( P − S )* y