Porphyry Cu Cutoff Selection: The Incremental Tonnage Trap
A porphyry Cu-Au deposit has 30 diamond holes at an average spacing of 180 m across a 1.2 × 0.8 km footprint. Testwork gives 88% Cu recovery to a 25% Cu concentrate; treatment and transport charges are $120 per tonne of concentrate. Mining costs $2.20/t moved, processing $9.00/t milled, G&A $2.00/t milled. Two block-model scenarios are on the table: (A) 120 Mt at 0.38% Cu using a 0.20% cutoff; (B) 210 Mt at 0.29% Cu using a 0.15% cutoff. The board is being shown case A at $3.20/lb Cu and case B at $4.00/lb Cu. 1 tonne = 2,204.6 lb.
1. Compute the net smelter return per tonne of rock and the break-even cutoff grade at each copper price, then judge whether the 0.15% cutoff is defensible.
Read the worked answer
Unit conversion: $3.20/lb = $7,055/t Cu; $4.00/lb = $8,818/t Cu.
Per tonne of rock at grade g (decimal):
- Recoverable Cu = g × 0.88
- Revenue = g × 0.88 × price
- Concentrate mass = (g × 0.88)/0.25 = 3.52g tonnes
- TCRC = 3.52g × $120 = $422g
- Net value = g × (0.88 × price − 422)
$3.20/lb: net value per tonne = g × (6,208 − 422) = g × 5,786. Break-even against $13.20/t of cost → g = 0.228% Cu. $4.00/lb: g × (7,760 − 422) = g × 7,338 → g = 0.180% Cu.
Verdict on the 0.15% cutoff: it is below break-even at both prices. Every tonne between 0.15% and 0.18–0.23% loses money before capital is even considered. Case B is therefore not a larger version of the same project - it imports dilutive material. Note also that the TCRC is only ~7% of gross value here, so the conclusion is not sensitive to the treatment charge assumption; it is driven by the grade spread between the two scenarios.
2. Compute the grade of the incremental 90 Mt and use it to decide which scenario should go to feasibility.
Read the worked answer
Incremental grade: ((210 × 0.29) − (120 × 0.38)) / 90 = (60.9 − 45.6)/90 = 0.170% Cu.
Economics of those tonnes at $3.20/lb: 0.0017 × 5,786 − 13.20 = 9.84 − 13.20 = −$3.36/t, i.e. −$0.30 B over 90 Mt. At $4.00/lb: 0.0017 × 7,338 − 13.20 = 12.47 − 13.20 = −$0.73/t, still negative.
So the additional 90 Mt destroy value at every price in the board's deck - the company would be building a larger plant to process material that does not pay for itself.
Full-case comparison:
- Case A: 0.0038 × 5,786 − 13.20 = $8.79/t → ≈ $1.05 B of undiscounted margin over a 120 Mt life.
- Case B: 0.0029 × 7,338 − 13.20 = $8.09/t → ≈ $1.70 B - but only at $4.00/lb, and it requires a larger plant, larger capex, and a longer payback.
Recommendation: take Case A to feasibility. It is robust at a $3.20/lb deck, has the higher margin per tonne, and preserves optionality - the marginal material stays in the ground as a call option on a sustained higher copper price, to be re-cut only when the price deck supports the 0.17% tonnes. Presenting case B at $4.00/lb and case A at $3.20/lb is not two scenarios, it is one scenario shown twice with different assumptions; the board should see both cases at both prices.
3. Assess whether the drilling density supports the resource classification implied by taking either case to feasibility.
Read the worked answer
The spacing is the problem. 30 holes across 1.2 × 0.8 km = 0.96 km² is ~32,000 m² per hole, i.e. an effective spacing near 180 m. For a porphyry, that is at the outer edge of, or beyond, what supports Indicated classification - it is comfortably Inferred over most of the footprint, with a small central cluster possibly Indicated.
Why it matters for the board paper:
- Inferred material cannot be converted to reserves under JORC/NI 43-101. A feasibility study built on the 120 or 210 Mt figures is not bankable until sufficient material is at least Indicated.
- The 180 m spacing is too coarse to resolve the grade shells that the cutoff analysis depends on. The difference between 0.20% and 0.15% cutoffs hinges on the grade of the marginal shell, and that shell is defined by relatively few samples.
- With only 30 holes, the two scenarios' tonnages and grades carry estimation uncertainty that is very likely larger than the 0.05% cutoff difference being debated.
Required before feasibility:
- Infill drilling to roughly 60–80 m in the high-grade core (Measured/Indicated) and 100–120 m over the rest of the proposed pit.
- A variographic study of Cu grade to justify the search ellipse and the classification radii, rather than applying a spacing rule of thumb.
- Re-cut the block model cutoffs after infill, since the grade–tonnage curve will move.
Summary judgement: the cutoff arithmetic says take Case A; the data density says neither case is yet a reserve, and the honest recommendation to the board is Case A plus an infill program sized to convert its core to Indicated.