The two key nature-driven factors in the overall economics of a mining project are the ore grade and the ore tonnage. In simplistic terms, the ore grade will determine how much incremental profit can be generated by each ore tonne processed. The ore tonnage will determine whether the total profit generated all the ore will be sufficient to pay back the capital investment for the project plus provide some reasonable financial return to the investor.
Does the Ore Grade Generate a Profit ?
In order to understand the incremental profit generated by each ore tonne one must first convert the ore grade into a dollar revenue value. This calculation will obviously depend on metal prices and the amount of metal recovered. For some deposits with multiple metals, the total revenue per tonne will be based on the summation of value from each metal, some of which may have different process recoveries and different net smelter payable factors.
To help calculate the value of the insitu rock, I have created a simplistic interactive spreadsheet at this link (Rock Value Calculator). A screenshot is shown below. The user simply enters their data in the yellow shaded cells and the rock values are calculated as a “$ per tonne”. One can zero out the values for the metals of no interest.
Price: represents the metal prices, in US dollars for the metals of interest.
Ore Grade: represents that head grades for the metals of interest in the units as shown (g/t and %).
Process Recovery: represents the average percent recovery for each of the metals of interest.
Payable Factor: represents the net payable percentage after various treatment, smelting, refining, penalty charges. This is simply a rough estimate depending on the specific products produced at site. For example, concentrates would have an overall lower payable factor than say gold-silver dore production.
Insitu Rock Value: this is the dollar value of the insitu rock (in US dollars), without any recovery or payable factors being applied.
NSR Rock Value: this represents the net smelter return dollar value after applying the recovery and payable factors. This represents the actual revenue that could be generated and used to pay back operating costs.
Profit = Revenue – Cost
The final profit margin will be determined by subtracting the operating cost from the NSR Rock Value. These costs would include mining, processing, G&A, and offsite costs. Typically large capacity open pit operations may have total costs in the range of $10-15/tonne while underground operations could be much higher.
The bottom line is that very early on it is important to understand the net revenue that your project’s head grades may deliver.
This will give sense for whether you are a high margin project from an operating cost perspective or whether the ore grades are marginal and higher metal prices or low operating costs will be required by a project.
The earlier one understands the potential economics of the different ore types, the better.
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