OPTIMISING THE CUT-OFF GRADE FOR TABULAR GOLD DEPOSITS CONSIDERING THE SOUTH AFRICAN GOLD TAX AND MINERAL RESOURCE ROYALTY REGIME
DOI:
https://doi.org/10.17159/Abstract
The South African mineral resource royalty system, initiated in 2010, employs a hybrid ad valorem approach tied to profitability ratios. This rate is then applied to the total revenue from mineral sales. This article explores how the profitability ratio in the mineral resource royalty formulae interacts with the gold tax formula in South African gold mines, devising a strategy for cut-off grade optimisation. The study focuses on eleven narrow, tabular (Witwatersrand) gold mines.
The approach involves a mixed-integer cut-off grade optimiser utilizing Excel Solver, incorporating relevant royalty and income tax formulas. Different mineral resource royalty cost scenarios were examined. Ignoring these costs in the break-even analysis lowers the cut-off grade but slightly boosts profits compared to considering expected costs. The developed optimiser model, recognizing the profitability aspect of the mineral resource royalty and income tax formulas, yielded a 7.3% lower cut-off grade than the base case. This is significant for increasing mine life.
While the profit differences are marginal (0.5% compared to the break-even base case), substantial improvements were noted: a 9% increase in stope tonnes above cut-off grade, and a 5.9% rise in total revenue. Enhanced resource utilization (5.7% extra gold kilograms) reduces necessary development and overall costs, allowing for a reduction in the cut-off grade and ultimately, more profit.
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Copyright (c) 2024 Clinton Charles Birch, Frederick T Cawood
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