S 27 Mineral Economic 27

EVALUATION OF GEOLOGIC
PROJECTS
 MINERAL ECONOMICS XII

 NSR
Juan Peralta
26/08/2016
Mineral Economics XII
Geologic Data into data for Mineral Deposit Evaluation
Ore Reserves
Delineation of a mineral deposit provides the basis for estimating ore
reserves. Initially, estimates of tonnage and grade are made on the basis of
increasing degrees of confidence in resource measures moving from inferred
to indicated and measured
General relationship
between exploration results /
exploration information,
mineral resources
and ore reserves / mineral
reserves according to
Canadian and Australian
definitions (CIM 2004 and
JORC 2004)
from: F.W. Wellmer Economic Evaluations in Exploration
ESCUELA DE POSTGRADO GERENS 2

Ore Reserves
Then, at the feasibility study stage mine recovery and dilution factors are
applied to convert the resource to recoverable reserves in the proven and
probable category. The recoverable reserves estimate the overall tonnage
and grade, which will actually be extracted from the mine and processed.
Proven Measured and Indicated Reserves at the “La Quebrada” project are
250Mtonnes of ore with an average grade of 1.5 Au g/t and 8.1 Ag g/t, recovery
is estimated in 82% gold and 65% silver.
What are the Au and Ag recoverable reserves?
Dilution
Part of the resource inevitably has to be left behind in pillars and remnants. The
mine recovery factor defines the percentage of the resource that can be mined.
The rate of dilution depends on the geometry and grade distribution in the
deposit and on the nature of the mining method.
Dilution
In underground mining a 100% recovery is virtually impossible. Pillars are often

left, so that actual recovery depends on the particular mining method, and may
range from below 70% for room and pillar operations to >90% for cut and fill
operations.
In many cases a recovery of 85–90% may reasonably be assumed, with

complementary loss of ore or tonnages, i.e. a 90% mining recovery means a
10% loss of tonnages. Even for open pit mines one should not assume 100%
recovery but allow for 5% loss, for example as ore that is to be left in the pit shell
due to the open pit design.

Metal Recovery
Recovery rate during beneficiation can be determined from:
Determine the recovery for the following data from a zinc mine:
feed grade = 10% Zn
concentrate grade = 54% Zn
tailings grade = 0.5% Zn

Metal Recovery
Determine the concentrate grade for the following data from a porphyry
copper mine:
Head grade at the mill = 0.72% Cu
Cu recovery = 86.5% Cu
tailings grade = 0.1% Cu

NSR net smelter return
It is a provision that considers downstream costs which are not included in the
operating cost and capital expenditure estimates. Product transportation, smelting
and refining, insurance, and marketing charges can be incorporated.
The NSR is expressed as a percentage of the projected commodity price which
would be paid for the commodity contained in the saleable product at a specified
location, usually the minesite.

For example, consider the gold development project. A gold price of $US 500 per
ounce is forecast. The processing plant would produce an impure gold bullion. A
charge of $US 5 per ounce is estimated for transportation, insurance, final
refining, and marketing of the bullion. Thus, the net smelter return is:
[(500-5)/500] (100) = 99.0%1
Next, consider the case of a heap leach, solvent extraction, electro-winning

copper project. The cathode copper product would realize the refined copper
price, projected at $US 1.50 per pound. However, an overall transportation cost of
$US 140 per tonne of copper would be incurred for delivery of the product to
market. In this example, the net smelter return at the minesite is determined as
follows:
[[(1.50)(2204.6) - 140]/(1.50) (2204.6)](100) = 95.8%.

The overall capacities of mines and smelters worldwide are seldom really
in balance. In a buyer’s market, when there is an abundance of
concentrates and the buyer (the smelter) determines the market the lower
values apply; in a seller’s market, when concentrates are scarce and the
mine determines the market, the higher values apply.
Since in the initial stage of development of a deposit it is not possible to

predict the behaviour of markets or the changes that might occur during
the lifetime of the mine, it is justified to work with average values.

NSV net smelter value
For mineral concentrate products, the downstream charges tend to be much
more onerous. In these cases, the net smelter return is derived from the following
formulation
NSV = (M-D) (P-r) -T +C

100
NSV = net smelter value of concentrate at the smelter, $/tonne concentrate;

M = grade of concentrate, %;
D = unit deduction, %;
P = metal price, $/tonne metal;
r = refining charge, $/tonne metal;
T = treatment charge, $/tonne concentrate; and
C = credits for other metals contained, $/tonne concentrate.

Within this general framework, the following smelter return conditions for copper
concentrate are set out to illustrate.
NSV = ⎡ (M-D) (P-210) ⎤ -100 +C

⎣ 100 ⎦
Unit deduction (D): function of M
M D .
<30% 1.0
30%-40% 1.2
>40% 1.4
Credits (C):
Au: pay for 98% above 1 gram per tonne in concentrate;
Ag: pay for 98% above 30 grams per tonne in concentrate.

If a 28% copper concentrate is produced and the copper price is $1.20 per
pound, what is the net smelter return for the contained copper as delivered to the
smelter? .
NSV = (28 – 1.0) [(1.20) (2204.6) – 210] – 100 = $557.59 /tonne conc at minesite
100
The NSV at the smelter has to include the transportation cost from the mine to
the smelter. For the purpose of the exercise consider a cost of $75/tonne of
concentrate.
NSV = 557.59 - 75 = $482.59 / tonne conc at minesite.

What is the NSR for the contained copper at the mine site?.
NSRCu = . ($482.59) (100) = 65.1%

(0.28)(2204.62)(1.2)
If the copper concentrate also contains 5.5 grams of gold per tonne, and the gold
price is $500 per ounce, what is the net smelter return for the gold content?
C = (.98)(5.5-1.0)(500/31.1034)
= $70.89 per tonne of concentrate
NSRAu = . ($70.89) (100) = 80.2%

(5.5)(500/31.1034)

NSR net smelter value (part II)
Smelting and refining charges have to be deducted in determining the value of
non ferrous concentrate products. While smelter contract conditions vary,
depending on concentrate grade, metal prices, etc. They generally include the
following provisions: a unit deduction for metallurgical losses, a treatment charge
per tonne of concentrate, a refining charge per tonne of contained metal, credits
for precious metals, and penalties and contaminants.
NSV = (M – D) (P – r) - [T + t(P – Pev)] + C

100
NSV = net smelter value of concentrate at the smelter, $/tonne concentrate;
M = grade of concentrate, %;
D = unit deduction, %;
P = metal price, $/tonne metal;
Pev = expected value metal price, $/tonne;
r = refining charge, $/tonne metal;
T = treatment charge, $/tonne concentrate;
t = treatment charge price adjustment;
C = credits for other metals contained, $/tonne concentrate.

Cu deductions Credits (C )
M D
T= 80 <30% 1.0 Au pay 98% above 1 g/tonne in conc.
r=220 30%-40% 1.2 Ag pay 98% above 30 g/tonne in
conc.
t=0.0 >40% 1.4
Copper concentrate
NSV = (M – D) (P – 220) - [80] + CAu + CAg

100
CAu = (MAu – 1)(0.98 PAu) + CAg = (MAg – 30)(0.98 PAg)
from: B. Mackenzie Economic Guidelines for Mineral exploration 1993 course notes

Pb deductions Credits (C )
D deduction
T= 115 Pev =1,984 Minus the greater Au pay 96% above 1 g/tonne in conc.
of 0.05(M) or 3
r= 90 P = 0.85 $/lb Ag pay 96% above 46 g/tonne in conc.
t= 0.075
Lead concentrate
NSV = (M – D) (P – 90) - [115 + 0.075(1,873.9 –1,984)] + CAu + CAg

100
CAu = (MAu – 1)(0.96 PAu) + CAg = (MAg – 45)(0.96 PAg)

Zn deductions Credits (C )
D deduction
T= 190 Pev =1984 Minus the greater Ag pay 80% above 50 g/tonne in
of 0.15(M) or 8 conc.
r= 0 P = 0.85 $/lb Cd pay 65% above 0.15%
g/tonne in conc.
t= 0.10
Zinc concentrate
NSV = (M – D) (P – 90) - [115 + 0.075(1,873.9 –1,984)] + CAu + CAg
100
CAg = (MAg – 50)(0.80 PAu) + CCd = (MCd – 0.15)(0.65 PCd)
The overall effects of these net smelter conditions may be illustrated by expressing
the value of metal contained in concentrate form at the smelter as a percentage of
refined metal price. Given the long-term metal price projections presented in table
1, results are shown in table 2 for a range of concentrate grades and as a function
of metal price. Does not include transportation charges.
Table 1 Long Term Metal Price Projections (1980 US$/lb)

Metal Lower-limit Prices Expected-value Prices Upper-limit Prices
Copper 0.85 1.00 1.35
Lead 0.32 0.42 0.62
Tin 5.25 6.0 7.50
Zinc 0.35 0.4 0.55
US$/CAN$ 1.0 0.85 0.75
Table 2 Net Smelter Payments (percent of metal price at Smelter)
Concentrate Concentrate Lower-limit Expected-value Upper-limit

Grade Prices Prices Prices
Copper 15% 53 65 75
20% 62 71 80
25% 68 75 83
Lead 50% 58 65 71
55% 60 67 73
60% 62 70 75
Tin 20% 64 71 76
35% 76 80 84
50% 88 90 92
65% 91 93 94
Zinc 50% 42 47 53
55% 46 52 57
60% 50 54 59
from: F.W.Wellmer Economic Evaluations in Exploration

NSRR net smelter return royalty
Mineral properties can be paid for in several ways
1. Cash: Lump sum.
2. Company stock of the buyer.
3. By royalty payments
Before production starts, and these are in reality rentals
Payments against future production royalties.
After production.
4. Royalty cap: payments made until the aggregate equals a specified amount,
whereupon further royalties cease.
Certain charges and costs are deducted, such as freight and insurance from mine
to the buyer’s facility, deductions and penalties for impurities, and
subsequent treatment charges, sales taxes, etc.
Minimum, no matter how small the production royalty is, a minimum payment is
made regardless (monthly or annually).
From T.N. Walthier - Management and Negociations
NSRR net smelter return royalty
Royalties may be based as a percentage of the profit made by the

miner. Profit has to be carefully defined. It may be gross cash
operating profits, but paper charges, like depreciation and
amortization, may be deducted, or it may be a percentage of “taxable
profits” where additional costs, such as corporate (general and
administrative, G&A), can be deducted before calculating the royalty
amount. Such royalties can be refereed to as net profits royalties
(NPR) or net profits interest (NPI).
From T.N. Walthier - Management and Negociations

Readings:
1.- “A Royalty Renaissance” G. Campbell June 2008.
define the difference between NSR and NSRR
2.- NSRR agreement.doc
3.- NSR LT - problem

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EVALUATION OF GEOLOGIC

 MINERAL ECONOMICS XII

ESCUELA DE POSTGRADO GERENS 2

What are the Au and Ag recoverable reserves?

In underground mining a 100% recovery is virtually impossible. Pillars are often

In many cases a recovery of 85–90% may reasonably be assumed, with

from: F.W. Wellmer Economic Evaluations in Exploration

ESCUELA DE POSTGRADO GERENS 4

Recovery rate during beneficiation can be determined from:

from: F.W. Wellmer Economic Evaluations in Exploration

ESCUELA DE POSTGRADO GERENS 5

ESCUELA DE POSTGRADO GERENS 6

from: F.W. Wellmer Economic Evaluations in Exploration

Next, consider the case of a heap leach, solvent extraction, electro-winning

ESCUELA DE POSTGRADO GERENS 8

Since in the initial stage of development of a deposit it is not possible to

ESCUELA DE POSTGRADO GERENS 9

NSV = (M-D) (P-r) -T +C

NSV = net smelter value of concentrate at the smelter, $/tonne concentrate;

ESCUELA DE POSTGRADO GERENS 10

NSV = ⎡ (M-D) (P-210) ⎤ -100 +C

ESCUELA DE POSTGRADO GERENS 11

NSV = 557.59 - 75 = $482.59 / tonne conc at minesite.

ESCUELA DE POSTGRADO GERENS 12

NSRCu = . ($482.59) (100) = 65.1%

NSRAu = . ($70.89) (100) = 80.2%

ESCUELA DE POSTGRADO GERENS 13

NSV = (M – D) (P – r) - [T + t(P – Pev)] + C

ESCUELA DE POSTGRADO GERENS 14

NSV = (M – D) (P – 220) - [80] + CAu + CAg

ESCUELA DE POSTGRADO GERENS 15

NSV = (M – D) (P – 90) - [115 + 0.075(1,873.9 –1,984)] + CAu + CAg

ESCUELA DE POSTGRADO GERENS 16

Table 1 Long Term Metal Price Projections (1980 US$/lb)

Concentrate Concentrate Lower-limit Expected-value Upper-limit

from: F.W.Wellmer Economic Evaluations in Exploration

Royalties may be based as a percentage of the profit made by the

From T.N. Walthier - Management and Negociations

ESCUELA DE POSTGRADO GERENS 22

ESCUELA DE POSTGRADO GERENS 23

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