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Break-Even Analysis - How to Calculate the Cut-Off Grade

This article about how to calculate the cut off grade is a great resource for investors in individual mining stocks. However, when you are investing in mining stocks through a Stock Based mineral ETF I recommend you to read this article too.

Break Even Analysis - UndervaluedEquity.com

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 economical 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 on UndervaluedEquity.com.

First, I need to explain a basic conversion which converts a troy ounce into grams per ton:

1 troy ounce = 31.103481 grams per ton = 34.2857 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 conversion to convert a tonne to pounds:

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 it announces 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, 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 Ounce  Cut-Off Grade (ounces per tonne) 

Cut-Off Grade (grams per tonne) 

$ 150  $ 1,500  ($ 150 / $ 1,500 =) 0.10 ounce / tonne  (0.10 x 34.2857 =) 3.43 grams / tonne 

Included is also 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 Pound  Cut-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 

About the author:

UndervaluedEquity.com
Jeroen Snoeks is the founder of UndervaluedEquity.com, a website for investors passionate about investing in undervalued stocks. Through www.undervaluedequity.com, he shares his experience and knowledge and will soon reveal his personal stock portfolio.

Visit UndervaluedEquity.com's Website


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