Evaluating a mining exploration stock requires some level of knowledge of the terminology used within the sector and the ability to review and understand assay results. Assaying is the process of determining the amount of minerals that are present in an ore body or a number of ore bodies, collectively called a deposit.

An ore body is a solid and fairly continuous mass of ore with gangue (valueless mineral particles), distinctly distinguishable from the host rocks. There are a number of common ore body formations. Isometric ore bodies are approximately equal in all dimensions, flat ore bodies include veins, sheets, and lenses and have one short dimension, and ore bodies elongated in one particular direction are called ore pipes.

There are numerous factors that combine to determine whether a mineralisation discovery is worth developing. Generally, how easy it is to mine, the size of the find, and the concentration of the minerals are the main considerations. Existing profitable mining activities close by naturally increases the odds of a useful discovery being made, and a site having such operations nearby is often referred to as having ‘closeology’.

Near-surface deposits are cheaper to extract via open pit mining, as long as the orebody is large enough to be mined in bulk. Generally open pit mines are no more than 300 metres deep and are several hundred metres wide. Open pit mines can be used in hard rock mining for ores such as metal ores, copper, gold, iron, aluminum, as well as coal mining and many minerals. As you might expect, the costs of underground mining are considerably higher. As a comparison, if the cost of extracting ore at an open pit mine is approximately $10 per tonne, an underground mine may cost around $25-$50 per tonne.

Does it make the grade?

Once a discovery is made, its economic viability needs to be assessed. Assuming the depth and size of the orebody make it attractive for development, the next thing to consider is its mineralisation grade. This is the density of target minerals and is usually expressed either as grams per tonne (g/t) in the case of precious metals, or a percentage (%) of the ore in most other cases.

Exploration companies generally calculate the average grade across a deposit and compare it with what’s called the ‘cut-off grade’ – the minimum grade the deposit can be, below which mining becomes uneconomic. A mini-feasibility study is usually undertaken to determine the cut-off grade. The study will ascertain what the costs will be to extract the ore and process it, including transportation. Of course, commodity prices ultimately have a big impact on the viability of a project.

Below is a table of ‘ballpark’ low and high mining grades for various minerals. These are by no means definitive as there are a number of external factors that will influence whether or not a deposit is economically viable. In addition to commodity prices, these factors include accessibility, existing infrastructure, existing processing facilities, transport costs and local exchange rates. Location is also a key factor when considering risk/reward with local regulations and the stability of the host country potential considerations.

When reviewing grades, it is important to note the sample size. The more drill holes intersecting the orebody the more reliable the data. Grades can vary quite significantly too with the highest grades frequently grabbing the headlines, but large samples sizes and average grades are the best indicators of a potential resource. Assay results are often mapped out in order to pinpoint likely targets for future drilling campaigns.

Other useful metrics to consider include the expected Life of Mine (LoM) and the payback period required to recoup the initial investment.

Author: Stuart Langelaan