A METHODOLOGY FOR OPTIMAL SELECTION OF CUTOFF GRADES AND PRODUCTION RATES OF UNDERGROUND URANIUM MINING OPERATIONS (DYNAMIC PROGRAMMING

Since the decision-making process consists of a sequence of interrelated decisions to find an optimal production schedule for the mineral deposit, a solution to the problem is sought through dynamic programming approach. The formulation of the problem includes both deterministic and probabilistic future market price assumptions. The optimizing criterion is assumed to be the maximum net present value of the project.;The following summarizes the significant conclusions reached from the evaluation of the results: (1) Over a sufficiently large range of discount rates, mining and milling of the mineral deposit at a constant cutoff grade and a constant production rate consistently results in smaller annual discounted cash flows than the optimal schedule determined by the dynamic programming model where the cutoff grade and mining rate are allowed to vary in response to fluctuating product price. (2) With an increasing discount rate, under the optimal schedule determined by the dynamic programming model, the annual discounted cash flows decrease at a slower rate than if the mineral inventory is mined and milled at a constant cutoff grade and a constant production rate. (3) Under the optimal schedule determined by the dynamic programming model, cutoff grade increases only where higher quality ore is available. Consequently, in order to maintain the mill feed requirement, the mining rate also increases. (4) Not withstanding an anamolous mineral deposit of high quality, the mining rate determined by the dynamic programming model generally tends to approximate the nominal mill capacity. This occurs when the quality of the ore is not sufficiently high to allow cutoff grade to rise while simultaneously satisfying the mill feed requirement. Consequently, at the limits, the cutoff grade and mining rate approach the minimum grade of the ore and the nominal mill capacity respectively. (5) The conclusions reached from the evaluation of the results are generally consistent with most of the earlier microeconomic studies of production arbitrage in open pit mining operations. However, under a much more restrictive operating parameters in underground mining operations, the results, as summarized in conclusions 3 and 4, differ from earlier studies.