Letter to the Editor: Valuation of Multi-Element Metal Deposits

Some consultants are reporting the value of their client’s base metal resources in terms of “silver equivalent.” Accordingly, the descriptions provided, calculation of this “equivalent” begins with recoveries of base and precious metals obtained in bench flotation tests. The appropriate recovery factor is first applied to each metal that is then multiplied by a chosen price for each metal in dollar terms. The total of these dollar amounts is divided by a chosen price per ounce of silver to arrive at the “silver equivalent.” The arithmetic of this procedure is easy to follow but in my opinion yields a misleading result.

The procedure is wrong because it does not take into account the way the precious metals report in the concentrates of the different metals. By avoiding this, important differences in smelter treatments are ignored. For example, consider a deposit containing copper, lead, and zinc with interesting silver values.

When the smelter receives a zinc concentrate with silver values, it is common practice for the smelter to regard several of the contained ounces as lost in the process and so will not pay for them. More often than not, silver reports in the lead concentrate. If this is so, and the deposit is in a remote location, then the zinc concentrate may have no immediate commercial value due to high shipping charges and for the low value of contained base metal values.

A more informative procedure combines the results of bench tests, current metals prices and smelter contracts and applies this information to concentrate of each metal to obtain an estimate of the expected dollar value.

Shareholders should not be misled by reports that use “silver equivalent” (or “gold equivalent”) as this number will consistently overstate the value of the deposit. The difference can be substantial and especially so where the silver values occur in several mineral forms. Management has that information. Shareholders must insist on its use in reports.

Brian Hester

Vineland, Ont.