6. Metal Equivalent Grade versus NSR for multi-metals – Preference?
Date: May 1, 2015Author: Ken Kuchling
Some of the mining studies that I have worked on were for deposits containing multiple recoverable metals, for example Ag-Pb-Zn mineralization or Cu-Pb-Zn-Au-Ag mineralization. Management discussions were held regarding whether to use a “metal-equivalent grade” to simplify the deposit grade or to use a Net Smelter Return (“NSR”) value. The NSR would represent a $/tonne recovered value rather than a head grade value.
I have found that the geologists tended to prefer using a metal-equivalent grade approach. This is likely due to the simpler logic and calculation required for an equivalent formula and it’s somewhat easier to select the cutoff grade based on similar projects. Generally I have no reservations on the metal-equivalent approach for a resource estimate. However from an engineering standpoint, I feel an equivalent-grade doesn’t provide a meaningful representation of the ore quality. It is more difficult to relate to the head grades to an operating scenario that may rely on different mining and processing methods generating different final products (e.g. dore versus concentrates). The NSR makes it easier for me to relate to the actual ore quality.
The NSR calculation will require more input data, such as metallurgical recoveries, concentrate characteristics and costs, and smelter payable parameters. However the end result is an NSR block value that can be related directly to the operating costs. For example if a certain ore type has an on-site processing cost of $20/tonne and G&A cost of $5/tonne, then in order to breakeven the ore NSR block value must exceed $25/tonne. If one decides to include mining costs and sustaining capital costs, then the NSR cutoff value would be higher. However in all cases one can directly relate the ore block value to the operating cost and use that to determine if it is ore or waste. This is more difficult to do with equivalent grades. Using the NSR, the operating margin per block is evident immediately.
If using pit phases to start mining in high grade areas, one can immediately get a sense for the incremental benefit by looking at the profit margin per pit phase.
A drawback to the NSR block value approach is that its calculation will be based on specific metal prices. If one chooses to change the metal prices then one must recalculate all the NSR block values. In some studies, I have seen higher metal prices used for resource reporting and then different metal prices for mine planning or reserves. In such cases, one must generate two different NSR values for each block but one can use the same NSR cutoff value for reporting tonnages. This two NSR approach is reasonable.
Pit optimizations can be undertaken using the block NSR values rather than calculated block revenue values, so the use of NSR’s should not create any problems for pit optimization.
For projects that involve concentrates the detailed cashflow models usually incorporate detailed net smelter return calculations, which include penalties, deductions, different transport costs, etc. The formulae used for the calculation of NSR block values should be a simpler calculation than the cashflow NSR calculation. For example, one could try to build in penalties for arsenic content thereby lowering the NSR block value; however in actuality such ore blocks may be blended and the overall arsenic content in the concentrate may be low enough not to trigger the penalty. Since the NSR block value is mainly being used for the ore/waste cutoff, I don’t feel it is critical to get too detailed in its calculation.
My bottom line is that from an engineering standpoint and to improve project clarity, I would recommend the use of NSR values rather than equivalent grades. Geologists may feel differently.