Break Even Analysis – How to Calculate the Cut Off Grade

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. To find out how I come up with the cost price per tonne (OPEX) if a feasibility study isn’t available, I refer you to the note at the bottom of this page.

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 = 28.349523125 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)

I believe this last conversion is really 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 to 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)Current Price per OunceCut-Off Grade (ounces per tonne)Cut-Off Grade (grams per tonne)
$ 150$ 1,500($ 150 / $ 1,500 =) 0.10 ounce / 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)Current Price per PoundCut-Off Grade (pounds per tonne)Cut-Off Grade (percentage per tonne)
$ 33$ 3($ 33 / $ 3 =) 11 pounds / tonne((11 / 22) x 1% =) 0.50 percentage /tonne

Note: When the cost price per tonne can not be found in the mining company’s feasibility study, I kindly ask the mining company’s management to give me their best estimate. In order to be extra conservative in my calculation, I normally apply a discount rate of 20% on the numbers received.

You may also want to read...

  1. Mining Companies Analysis - Learn How to Invest in Mining Stocks. To execute your own mining companies analysis, I have created a lot of (sub)pages about the relevant terminology and working methods from the mining sector.
  2. Oil and Gas Companies Analysis - How to Invest in Energy Stocks. I created different pages about the relevant terminology and working methods from the energy sector to conduct your own analysis for oil and gas companies.
  3. Understanding the Stock Market - How Do Stocks Work. To help you with understanding the stock market, I have created some articles to explain how stocks work and I also reveal my own stock market analysis in this chapter.
  4. How to Invest in Shares - Learn How to Start Investing in Stocks. In this chapter I inform you how to invest in shares - the way. I also reveal which (free) resources I use to execute my due diligence.
  5. How I Invest in Stocks - My Preconditions for Selecting Undervalued Stocks. In this chapter I answer the question: how do I invest in stocks? Thus, I explain which investment rules I follow whilst selecting companies for my stock portfolio.
  6. Stock Investment Analysis - A More Detailed Elaboration on How to Buy Stocks. When a company complies with my preconditions for selecting undervalued stocks, I will elaborate my stock investment analysis to assess the quality of it's assets, management, etc.

If my articles are helpful to you, please consider supporting my work by making a small donation...

Leave a Comment