The Cut-off Grade and the Rationality of “The Rule of Thumb of Mines”

There exists a rule of thumb of mines, which requires that the cut-off grade should decrease (increase) when the price of metal increases (decreases). The mining rule, however, has been considered as irrational by both resource economists and mining engineers. This work derives the conditions under which this rule has economic rationality. The mining process of development has an important role in resolving the contradiction between practice and theory. If the marginal development cost is sufficiently large, the rule has economic rationality.