Here is where the importance of getting the costs (and cut-off grade) right comes in. If a cut-off cost (and grade) is set significantly lower than the actual costs that are expected, a significant amount of low-grade material may be kept in the mine plan. This material will reduce the margin and total revenue of the mine. This error is one of the most common and serious mistakes I see when reviewing both new projects and operating mines. The assumed base cost fails to adequately cover all the costs that will ultimately be incurred.
Establishing a realistic cut-off cost will establish a realistic cut-off grade which will establish the tonnage and grade of the resources and reserves for the deposit or mine. Simple block counts from a resource model will not provide a realistic (potentially recoverable) tonnage and grade to evaluate the deposits economics. The physical continuity and grade distribution throughout the orebody must be taken into consideration to adjust the resource tonnage/grade curves to approximate a potentially mineable resource. Mine design tools can create very good approximations of reserve potential very quickly. All-In Sustaining Costs (AISC) should be used to establish the cut-off cost (and cut-off grade).
Given that OD6 hasn't got any type of study, let alone a MRE, it cannot feasibly estimate its costs with reference to just the adjacent deposits nor use an arbitrary number like 1,000 ppm accurately etc. With a cut-off grade only slightly below the overall grade of the mine it has massive red flags.
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- Ann: Chairman's Address and AGM Presentation
Ann: Chairman's Address and AGM Presentation, page-71
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