NSR for poly-metallics
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.

Pit Optimization

Pit optimizations can also be undertaken using the block NSR values rather than ore grade values, so the application of NSR’s should not create any additional problems.
For projects that involve metal concentrates, the cashflow model usually incorporates detailed net smelter return calculations, which include penalties, deductions, different transport costs, etc.  The formula used for the calculation of NSR block values can be simpler 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 necessary to get too detailed in its calculation.
The bottom line is that from an engineering standpoint and to improve project clarity, I recommend the use of NSR values rather than equivalent grades.   Geologists may feel differently.
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4 thoughts on “Metal Equivalent Grade versus NSR for Poly-Metallics. Preference?

  1. Carlos A. Espinoza

    How do you relate equivalent grade to cutoff grade when deciding to mine a block on a daily basis?.
    It seems that the equivalent ore grade is suitable for the pre and feasibility stage of a mining project.

  2. Ken Kuchling Post author

    I generally prefer the use of NSR$ values than equivalent grade, however one can still use equivalent grade. The equivalent grade is based on a ratio of metal prices so may not change much day to day but could change monthly. For example if gold price is high and silver is low, then silver grade might not add much revenue so mining may avoid some material with moderate silver content. Now if the silver prices increase, those moderate silver grades may now generate more revenue so that same material would now become interesting. So what you decide to send to the mill will depends on what the current metal prices are and not just what was used in the feasibility study.

  3. Ron Simpson

    Ken – I completely agree that NSR is far superior to equivalent grade. However, when it comes to mineral resource reporting I have had negative feedback from securities reviewers on using the term NSR outside of a feasibility study. I usually have to call it something else like ‘recoverable metal value’ to be acceptable.

  4. Ken Kuchling Post author

    Thus far I have not gotten negative feedback when using NSR in a PEA, but that’s not to say others haven’t. For an early stage resource tech report, I agree using the NSR is a stretch given the limited met data that may be on hand.

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