Mine size optimization using marginal analysis

In this study, a model to estimate the optimum mine size is developed. The model is developed on the basis of marginal analysis. The model solves for the production rate at which the present value of marginal costs equals the present value of marginal revenues—the rate that microeconomic theory shows will maximize the net present value of production from the mine.In addition, the article discusses the effects on the optimum production rate of: the physical characteristics of the deposit, economic factors, and financial factors. It has been found that, not surprisingly, as the reserve tonnage increases, the optimum mine size increases. Also, the optimum production rate increases as the ore grade increases. A direct relationship has been found between the mineral price and the optimum production rate. The optimum mine size is found to be inversely related to the expected growth rate of mineral price, while it is directly related to the expected growth rate of mining costs. A concave relationship has been found between the cost of capital and the optimum mine size.