How to Evaluate or Appraise a Mining Company’s Metal Value

Mining companies and investors often make mistakes when calculating the value of mineral deposits. One of the most common errors is a simple calculation wherein reported percentages of metals are multiplied by the current market prices for those metals, yielding what is known as the grow value of the reserves. This figure is virtually meaningless.

Consider a lead-zinc orebody with reserves grading 8.5% zinc (85 kg of zinc per tonne of ore) and 4% lead (40 kg per tonne). If the current market price for zinc is 75 per lb. ($1.65 per kg) and for lead is 28 per lb. (62 per kg), a simple computation suggests that the ore has a gross value of $165.05 per tonne. But this calculation is misleading, and can, in some cases, be downright dangerous. The costs of transporting, smelting, refining and marketing all affect the payment made by a smelter to the mine. Premiums for valuable byproducts mined can be a bonus, but penalties that a smelter charges for elements that present metallurgical or environmental problems (like mercury and arsenic) can be costly.

After these deductions, we may find that our ore has a value of $65 per tonne, a drop of more than 60% from the gross value figure of $165 which had once seemed so promising. And it is this $65 received by the mining company that must cover the cost of mining, milling, administration and taxes, as well as provide a profit.

Studies have shown that a typical base metal mine will generally get about 45% to 65% of the gross metal value as a net return from the smelter, Some complex ores, which will tend to have higher smelting costs, can return as little as 35% of the gross metal value.

Gold mines differ somewhat in that smelter charges do not apply to simple gold ores (unless we are considering the gold content of a base metal concentrate). This is because a very high percentage of the gold contained in the ore can usually be recovered at the mine site without the need for shipping a concentrate to a third party. Typically, as much as 85% to 95% of the gold contained in a gold ore can be recovered at the mine site and a doré bar can be produced on the premises. The only transportation charges involve the cost of sending the gold bars to a refinery or mint, whose charges are minimal. The same applies to the ores of silver and other precious metals.