Production rate optimisation – avoiding the temptation of tonnage

Keynote Address — Strategic Planning and Scheduling 
Strategic versus Tactical Approaches in Mining 2011, Perth, Australia 
5 
mining method and process design can be selected using well-established criteria based on experience, 
field data and test work.
The sensitivity of project value (however defined) to the key parameters of production rate and cutoff 
grade can be determined by varying those parameters in a model. For each combination, it is necessary to 
design and schedule the mine, estimate costs and evaluate the financial result. A discreet (although 
perhaps daunting) set of combinations is sufficient to estimate the shape of the entire value surface and to 
identify the optimum. Optimisation approaches may include linear programming, genetic algorithms and 
Monte Carlo simulation.
The objectives of optimisation must be aligned with the corporate objectives of the owner. Some stated 
corporate objectives, such as maximising annual ounces of gold production or maximising mine life, cannot 
be optimised. A large sub economic project will satisfy the former objective while a small sub economic 
project will satisfy the latter. For short-life projects, increasing the mining rate increases the risk that most 
of the production will be delivered into a trough in the product price. Sensitivity analysis based on a range 
of price scenarios will identify the rate that yields an acceptable risk. 
There is also the problem of capital allocation between competing projects. If there is no restriction on the 
available capital then corporate value is maximised by maximising the Net Present Value (NPV) of every 
available viable project and carrying all of them through to production. In the real world, where available 
capital is restricted, the corporation must select projects for investment using some ranking technique. 
Economic theory says that projects should be ranked using the Present Value Ratio (PVR), which is the ratio 
of NPV to initial capital investment. For simplicity, the capital investment is usually taken to be the total of 
negative cash flows prior to achieving positive cash flows. 
If the perceived risks are similar, projects with higher PVRs are selected before those with lower PVRs. A 
project with a high NPV but a low PVR may require more capital than the corporation (or the investment 
community) is able or willing to risk, or if developed it may displace alternatives which would have provided 
a better aggregate return on investment.
From the above, the mining rate should be optimised to maximise the project NPV at the corporation’s 
agreed discount rate, provided that this leaves it with a PVR that will make it an attractive investment. 
Arguably, the mining rate should be changed (and possibly reduced) to improve the PVR, even at the 
expense of NPV, if this will allow the project to proceed in competition with others. This observation 
emphasises the importance of right-sizing the operation rather than pushing throughput into the limiting 
range. 
4 
Head grade and mining rate 
The grade-tonnage curve is an essential tool in mine planning, allowing the designer to choose a small, 
high-grade option or a large, low-grade option, or any option in between these limits. For each option there 
is a set of corresponding cutoff grades used in planning and operations. Different mining and processing 
rates can be applied to each size option, each having a different NPV. Smith (1997) describes the NPV 
maximum value as a “failure point”, noting that it is an upper economic limit for the possible range of 
production rates rather than an optimum rate. Smith’s (1997) paper deals with economic criteria and not 
with the practical implications of high mining rates, which usually become important well before the NPV 
maximum value is reached. 
The author has observed that mine head grade tends to fall as the mining rate increases in a way that 
cannot be accounted for by changes in the cutoff grade alone. This is well illustrated by Figure 1, which 
shows the history of production rate and head grade at the underground Henty Gold Mine now operated 
by Unity Mining Limited. Unusually, this mine went through a period of more than ten years in which the 
production rate steadily increased while the head grade fell. This raises the obvious question of whether 
the mining rate was increased to compensate for a falling head grade, or whether the falling head grade 
was a result of a reduced cutoff grade and increased mining dilution. Actually both effects occurred and 

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Production rate optimisation – avoiding the temptation of tonnage 
P. McCarthy 
6 
Strategic versus Tactical Approaches in Mining 2011, Perth, Australia 
cannot now be quantified, but the outcome can be seen in Figure 2 which plots the head grade as a 
function of mining rate, where head grade is expressed as a percentage of the weighted mean value and 
production rate as a percentage of the mean. 
Figure 1 Production rate and head grade history at Henty Gold Mine, (head grade in red squares – 
right axis, production rate in blue diamonds – left axis) 
Figure 2 Head grade as a function of mining rate at Henty Gold Mine 
Figure 2 shows that the head grade fell by about 0.9% for each 1% increase in production rate. Subject to 
orebody access it was open to the mine operators to choose an operating point along the best-fit line in 
Figure 2, which combines the influences of cutoff grade and dilution. The figure also suggests that selective 
mining is unlikely to increase the head grade to more than double its historical average value. This 
interpretation can be challenged on the basis that the decline in grade is the irreversible result of ore 
selection in an ageing mine. However, there are examples where the decreasing grade trend has been 
reversed by down-sizing the mining operation. Two examples are the Kambalda nickel mines, which 
substantially increased head grades at lower mining rates when sold off by WMC Ltd, and the CSA mine at 
Cobar, which substantially increased its head grade after 1997 by cutting its mining rate (Figure 3). 
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