It is often difficult for investors to assess the potential economic value of exploration results. In particular, the low grades that are characteristic of large, disseminated, copper-gold systems.

These systems are typically Porphyry-style deposits, but can also be of Iron Ore Copper Gold or Replacement style. Either copper or gold may be dominant, and they often have associated silver and molybdenum, which may be important, and even dominant, contributors to ore value.

Disseminated deposits range in size from 200 to 300 million tonnes up to several billion tonnes. The world’s largest is Escondida in Chile, with 11.5 billion tonnes of resources at a grade of 0.59% copper. This is in addition to a total reserve of 5 billion tonnes at a grade of 0.71% copper.

Worldwide distribution is dominated by Chile, Peru, Argentina, Mexico, southern USA, Alaska, China, PNG, Indonesia, Mongolia and Iran.

Cut-off grade is perhaps the simplest way to understand the economics of large, low grade mining operations. This is the grade above which a particular mine is profitable. Freeport-McMoRan Copper & Gold Inc. is the world’s largest, listed copper producer. It has operations in the America’s, Indonesia and Africa. It also happens to mine some of the lowest copper grades in the world.

Cut-off grade depends, inter alia, upon the processing method used.  Freeport uses three processing methods at its open pit operations in the Americas. Milling, crushed or agitation leach, and run of mine (ROM) leach. The lowest cut-off grade for milling is 0.18% copper equivalent, for crushed leach 0.12% and for ROM leach 0.05%.

In 2012 the Paracatu mine, operated by Kinross Gold Corporation in Brazil, treated around 58 million tonnes of ore at a grade of around 0.4grams per tonne (“g/t”) to produce 466,709 ounces of gold. At December 2012 it had reserves of 1.4 billion tonnes at grade of 0.40g/t gold for a total of 18 million ounces of gold. The cut-off grade is around 0.2g/t gold.

For the 2011 year Boliden’s Aitik mine (within the Arctic Circle in Sweden) milled 31.5 million tonnes at a head grade of 0.24% copper, 0.16g/t gold and 2.0g/t silver. At the end of 2011 it had reserves of 710 million tonnes at a grade of 0.25% copper, 0.13g/t gold and 1.6g/t silver. Resources totalled 1.7 billion tonnes at 0.18% copper, 0.11g/t gold and 1.0g/t silver.

The point is that large, disseminated, copper-gold systems can be profitable at very low grades. The investor therefore needs to know the style of mineralisation and the potential size of the deposit in addition to grades. Conversely, narrow, discontinuous, but high grade deposits may require a very high cut-off grade to be economically mined.

5 march 2013

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