The Cut-Off Grade and the Theory of Extraction
AbstractThe cutoff grade problem arises when technological infeasibility or high cost prevents an extractive firm from exploiting a heterogeneous deposit in strict sequence. The optimal cutoff grade varies directly with anticipated changes in present value price. A stochastic price path induces a higher (lower) initial cutoff grade if the marginal profit function is concave (convex). The optimal response to an unanticipated price change depends on the difference between the rates of change in price along the new and original price paths and whether or not the firm can increase extractive capacity, including the life of the mine.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 21 (1988)
Issue (Month): 1 (February)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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- Azimi, Yousuf & Osanloo, Morteza & Esfahanipour, Akbar, 2013. "An uncertainty based multi-criteria ranking system for open pit mining cut-off grade strategy selection," Resources Policy, Elsevier, vol. 38(2), pages 212-223.
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