Abstract

BIRCH, C.C.  and  CAWOOD, F.T.. Optimizing the cut-off grade for tabular gold deposits, considering the South African gold tax and mineral resource royalty regime. J. S. Afr. Inst. Min. Metall. [online]. 2024, vol.124, n.7, pp.387-396. ISSN 2411-9717.  https://doi.org/10.17159/2411-9717/3195/2024.

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. In this article we explore how the profitability ratio in the mineral resource royalty formulae interacts with the gold tax formula as applied to South African gold mines, devising a strategy for cut-off grade optimization. The study focuses on nine narrow, tabular-reef (Witwatersrand) gold mines. The approach involves a mixed-integer cut-off grade optimizer utilizing Excel Solver, incorporating relevant royalty and income tax formulae. 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 optimizer model, recognizing the profitability aspect of the mineral resource royalty and income tax formulae, yielded a 6% lower cut-off grade than the base case. This is significant for increasing mine life. While the profit differences are marginal (0.2% compared to the break-even base case), substantial improvements were noted: a 6% increase in stope tons above cut-off grade, and a 4% rise in total revenue. Enhanced resource utilization (3% extra gold kilograms) reduces necessary development and overall costs, allowing for a reduction in the cut-off grade and ultimately, more profit.

Keywords : cut-off grade; Excel Solver; mineral resource royalties; gold tax formula; financial optimization; cash flow.

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