Present value maximisation studies are a useful aid in enhancing the
economic performance of open pit mining operations. Maximising
present value helps to reduce the risk of financial failure. Maximisation
of present value also means that the capital invested is being used most
efficiently. A characteristic step in determining the present value of an open pit
mining operation is to set out the sequence in which increments of
material (ore of various grades and waste rock) are mined. Traditionally,
present value maximisation has been performed by selecting a cut-off
grade for each increment so as to maximise the present value of the total
operation, by an iterative process using computers. Kenneth F Lane has
developed a method and applied it to many mining operations. An alternative method for determining the maximum present value of
an open pit mining operation is given. In this method the maximum
present value is determined by working backwards from the end of the
operation life, progressively asking the question of each increment `what
cut-off grade maximises the the present value at the start of mining of that
increment?' The method allows calculations to be performed by a
`spreadsheet' package. Present value determinations are characteristically performed under
constant conditions (eg prices, costs) throughout the operation life.
Unfortunately real life circumstances are rarely constant, with the costs of
mining inputs rising at variable rates. The prices received for mineral
products have been shown to broadly trend downwards with time in real
terms. Treatment of such changes in the determination of the maximum
present value of an operation is discussed.