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Gold/Mining/Energy : ECHARTERS
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To: Al Cern who wrote (2569)4/25/1998 4:38:00 PM
From: E. Charters  Read Replies (2) of 3744
 
You are forbidden by Snogworth's third law of economics to mine any ore below the cutoff grade. It is that magic grade where if a company mines everything above that grade they will make a maximum profit. And how pray tell do they define that for any particular orebody?

Good question. I don't think anybody knows. IF you put all the available ore in any orebody on a curve of grade versus tons it might get you a better picture. The idea is to keep your averages just above the max-profit-grade. A better way to figure cutoffs is to look at that extra unit ore that if taken and added to the mix would be equal to cost. Everything above that maximizes profit over time. In an open pit you deepen the pit unit by unit until (with x degree slant of walls) the extra unit volume of ore cash flow equals the cost of extraction. Everything inside that line is profit and therefore is maximal total volume profit. This presupposes that costs are figured to max volume of ore and fixed interest rates. Change volume or interest rate, or metal price and the whole thing changes and pit depth too. For day to day ore control within a pit you strive to grade mix such that your averages equal a certain level. If the overall study of grade says that material below a certain grade has such volume as it will tend to lower averages too much then you stay above that grade.

EC<:-}
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