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. Discussions were held regarding whether to use a “metal-equivalent grade” to simplify the deposit grade or to use a Net Smelter Return (“NSR”) dollar value.
The NSR represents a $/tonne recovered value rather than a head grade.
I have found that the geologists tend to prefer using a metal-equivalent grade approach. This is likely due to the simpler logic and calculation required for an equivalent grade formula. At an early stage it’s simpler to select the cutoff grade based on similar projects.
Generally I have no concerns on the metal-equivalent approach at the resource estimate stage. However from an engineer’s view, an equivalent-grade does not provide a meaningful representation of the ore quality. It is more difficult to relate the head grade to an operating scenario which may rely on different mining or processing methods generating different final products (e.g. dore versus concentrates). The NSR makes it easier to understand the actual ore quality.
On the downside, the NSR calculation will require more input data. Information such as metallurgical recoveries, concentrate characteristics and costs, and smelter payable parameters will be needed. 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. 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 approach, the operating margin per block is evident.
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.
One drawback to the NSR block value approach is that the calculation will be based on specific metal prices. If one changes the metal prices, then one must recalculate the NSR block values.
In some studies, I have seen higher metal prices used for resource reporting and then lower metal prices for mine planning or reserves. In such cases, one can generate two different NSR values for each block. One can use the same NSR cutoff value for reporting tonnages. This two NSR approach is reasonable in my view.