GUEST COLUMN (June 22, 1992)

The value of polymetallic deposits, for many purposes, is best measured by the Net Smelter Return (NSR) per tonne. NSR is the revenue from the sale of mineral products, minus off-site processing and distribution charges.

In sulphide deposits where the economic metals are principally copper, nickel, molybdenum or platinum group metals, a mine’s NSR usually corresponds to 56-60% of the gross value of the contained metals. This figure drops to about 40% for material with significant quantities of lead or zinc. The presence of gold or silver will generally increase these percentages. NSRs are calculated from estimates of grades, recoveries, concentrate treatment charges, freight costs and commodity prices. These factors are crucial in determining whether a mineral deposit can be mined profitably. An economic geologist or investor can make use of NSR calculations at the exploration, evaluation and exploitation stages to get a clearer picture of a deposit’s economic viability. In general, we suggest that companies presenting assays from polymetallic deposits show the estimated NSR per tonne for each assay interval, and note the assumptions behind these estimates. A widely used alternative to the NSR per tonne as a common denominator, the “equivalent grade” (for example, “gold-equivalent” or “copper-equivalent”), is misleading and should be avoided.

The major use of NSR models in exploration is to provide a common basis for comparison of the relative merits of different polymetallic drill-hole intersections. For example, on Sept. 20, 1989, Aur Resources published results from holes 53B and 58 on the Louvicourt project. Based on an NSR model using metal prices as at Sept. 20, 1989, the NSR of the intersection from hole 53B was $57.27 per tonne and that from hole 58 was $64.55 per tonne. At the evaluation stage of a project, NSR models help to estimate optimum grades, recoveries and production rates. For example, VSM Exploration has defined the Grevet B-M-J deposit’s cutoff grades in terms of NSR. One objection to VSM’s approach is that too many assumptions are required. Our response is that this is precisely why the exercise is so valuable: it highlights exactly not only where one’s knowledge is deficient, but also how sensitive the results are to the assumptions one makes.

At the exploitation stage, NSR models provide an approach to determining cutoff grades that recognizes the fluctuation of prices and costs. For example, Audrey Resources decided that the best approach to grade control at its polymetallic Mobrun mine was to convert assays into NSRs, as noted by P.J. Lafleur in his article “Statistical Geology” (The Northern Miner Magazine, November, 1988). All material with an NSR greater than the expected cost of production is treated as ore. “A service raise was developed in waste in 1986 at Mobrun,” Lafleur wrote. “It is now in ore.”

In an article published last year by the Australasian Institute of Mining and Metallurgy, S.N. Border addressed criticism that the NSR approach is too unstable, requiring constant revisions of mine plans. “Resistance to the optimization of cutoff grades during the 1970s and 1980s was partly caused by a lack of widespread computer facilities on mine sites,” he wrote. “Regular changes to cutoff grades at Mount Isa were impractical until very recently. Today . . . virtually every mine has geological and mine planning data stored on computer.”

The most important unit of measurement to the economic geologist is not the percentage of metal in a deposit. It is the value of the minerals in dollars. This value fluctuates. The advent of cheap, readily available computer processing has greatly facilitated the use of this unit of measurement. — Adapted from a paper in Geoscience Canada, Vol. 18, with permission of the Geological Association of Canada. Raymond Goldie is a mining analyst with Richardson Greenshields of Canada and Peter Tredger is an independent Toronto-based consulting geologist.