For conducting a mining project’s break even analysis, you first need to know about the operational expenses (OPEX). When the OPEX is known, you can calculate the mineral’s cut off grade, which is the break even grade, below which it is not economically viable to mine the ore. When the cost price per tonne (OPEX) cannot be found in the mining company’s feasibility study, I kindly ask the mining company’s management to give me their best estimate.
Calculating the cut-off grade helps mining companies decide whether a deposit is worth pursuing and aids in the optimization of mine planning and resource allocation. It is important to note that the cut-off grade can change over time as market prices fluctuate, mining costs evolve, and new technologies are developed.
Before I can calculate the cut-off grade, I first need to show a basic equation which converts a troy ounce into grams per ton:
1 troy ounce = 31.1034768 grams per ton = 34.2857143 grams per tonne
As you can see, the difference between a ton and a tonne is approximately 10%.
Then, you need to be aware of the following conversions:
1 ton = 2,000 pounds
1 tonne = 2,204.62262 pounds = 1,000 kilograms
1 kilogram = 2.20462262 pounds
1% of a tonne = 22.0462262 pounds = 22 pounds (rounded)
This last conversion is quite convenient because, when I read a mining company’s press release in which they announce a drill result of 2% copper, I now quickly know this equals 44 pounds (lbs) or – assuming a copper price of $3 per pound – a mineral value of $132 per tonne. To learn more about how you can determine the mineral value per tonne, I recommend you to read the metal value page.
In the following example, you will find the hypothetical cut-off grade for an ounce of gold (which is actually the break even analysis for gold mining):
Mining Costs per Tonne (OPEX) – $150
Current Price per Ounce – $1,500
Cut-Off Grade (ounces per tonne) – ($150 / $1,500 =) 0.10 ounce / tonne
Cut-Off Grade (grams per tonne) – (0.10 x 28.349523125 =) 2.835 grams / tonne
I have also included an example to find the hypothetical cut-off grade for a pound of copper (which is actually the break even analysis for copper mining):
Mining Costs per Tonne (OPEX) – $33
Current Price per Pound – $3
Cut-Off Grade (pounds per tonne) – ($33 / $3 =) 11 pounds / tonne
Cut-Off Grade (percentage per tonne) – (11 / 22 x 1% =) 0.50 percentage /tonne