Module 3: Ore Grades, Cut-Offs & What "Good" Actually Looks Like

Why this matters

A resource is just tonnage × grade. The grade tells you whether the project is economic. Without grade context, you can't tell a tier-1 deposit from a moose pasture.

This module gives you benchmarks by commodity so when you see a drill hit or resource update, you immediately know whether it's interesting or marketing.

Key concepts first

Cut-off grade

The minimum grade above which rock is classified as economic to mine. Below cut-off = waste.

Strip ratio

Open-pit mining only. Tonnes of waste that must be moved per tonne of ore.

Recovery rate

% of contained metal that can actually be extracted through processing.

Head grade vs in-situ grade

Mining dilution

Waste rock that gets mixed with ore during extraction. Typically 5–15% in open pit, sometimes more in narrow-vein underground. Reduces head grade vs in-situ.

Grade benchmarks by commodity

Gold (g/t Au)

Context Grade
Bulk-tonnage open pit 0.5–1.5 g/t
Average open pit 1–3 g/t
High-grade open pit 3–5 g/t
Underground average 4–8 g/t
High-grade underground 8–15 g/t
Bonanza 30+ g/t
World-class deposit usually >5 g/t with scale, or 1–2 g/t at very large scale (Cadia, Boddington)

Cut-off grades typically:

ASX framing: PC2 drill intercepts in the 5–15 g/t Au range over meaningful widths place it in the high-grade open pit / underground crossover zone — well above marginal, well above the cut-off. MI6 discoveries in similar high-grade ranges. The grade range matters more than any single eye-catching intercept — Module 4 covers how to read drill announcements properly.

Copper (% Cu)

Deposit type Typical grade
Porphyry (large open pit) 0.3–0.8% Cu
World-class porphyry >0.6% Cu with billion-tonne scale
IOCG (Olympic Dam style) variable; 0.5–2% Cu often with Au, U, REE credits
Sediment-hosted (Zambian/Congo style) 1–5% Cu
Underground vein 1–5% Cu typical

Often quoted as CuEq (copper equivalent) — combines Cu with by-product credits (Au, Ag, Mo). Always check the assumptions: which prices, which recoveries, are by-product recoveries realistic? See the dedicated section below — equivalent grades are the single most common misread in mining announcements.

Lithium

Spodumene (hard rock): measured in % Li₂O

Brine (Salar): measured in mg/L Li or ppm

ASX framing: GLN's Hombre Muerto West sits at 859 mg/L average (with recent tests hitting 981 mg/L) — upper tier for Argentine brines, but well below Atacama. Critically, the Mg:Li ratio is low at HMW, which is why the project is economic where higher-grade salars with worse impurity profiles aren't. ELV's spodumene operation in Quebec operates in the typical 1.0–1.5% Li₂O range; the economics there depend on hard-rock conversion costs and spodumene pricing more than on grade differentiation.

Sedimentary / clay: newer, no proven commercial production at scale (yet). Treat with skepticism.

Nickel

Sulphide nickel: % Ni

Laterite nickel: % Ni (different processing — HPAL or ferronickel)

Iron Ore (% Fe)

Impurities matter as much as grade — silica, alumina, phosphorus all carry penalties. Discounts and premiums are real money.

Rare Earths (REE)

Reported as TREO% (Total Rare Earth Oxide). But TREO alone is misleading.

Uranium (U₃O₈ or % eU₃O₈)

Silver (g/t Ag)

Often a by-product. As primary commodity:

Silver-equivalent (AgEq) calculations are common — same caveats as CuEq below.

Zinc / Lead (% Zn, % Pb)

Usually reported together as Pb+Zn% or as Zn-equivalent:

Equivalent grades — the recurring trap

This is the single most common way mining announcements mislead retail. It deserves a dedicated section because it sits at the intersection of every other concept in this module.

What equivalent grades are

When a deposit contains multiple commodities, companies often report a single "equivalent" grade by converting all by-products into units of the primary commodity at assumed prices and recoveries.

So a deposit with 1.0 g/t Au, 5 g/t Ag, and 0.5% Cu might be reported as "1.8 g/t AuEq" or "8.5 g/t AgEq" or "1.1% CuEq" depending on which metal the company chooses as the primary.

Why this is a trap

The headline equivalent grade can be misleading in three different directions, and you need to check all three:

1. Price assumptions. The conversion uses commodity prices set by the company. If gold is priced at US$3000/oz and copper at US$10,000/t in the calculation, the equivalent figure looks great. If gold drops to US$2000/oz, the "AuEq" calculation no longer reflects reality. Always check the price deck in the footnote and ask: do these prices look conservative, current, or aggressive?

2. Recovery assumptions. Different metals recover at different rates from the same ore. Gold might recover at 92%, copper at 88%, silver at 75%. If the company assumes 90% recovery across all metals to simplify the equivalent calculation, the number is inflated. Real plants don't recover all metals equally.

3. By-product reality. Some by-product credits never get realised because:

The "low primary grade hidden by big credits" pattern

When you see a low equivalent grade for the primary metal, it usually means the actual primary grade is much worse than what the equivalent suggests.

Example pattern: a company announces "1.5 g/t AuEq" sounds reasonable for an open pit. But when you read the footnotes:

This is structurally different from a project that's actually 1.5 g/t Au with no by-products. The risk profile is different. The investor case is different. But the headline reads identically.

How to read equivalent-grade announcements

Always do this short check:

  1. What's the primary metal grade alone? The footnotes will state it. If they don't, that itself is a flag.
  2. What's the by-product split? What % of the equivalent is coming from each metal?
  3. What price deck is used? Are those prices current, lagged, or forward?
  4. What recoveries are assumed? Are they consistent with the metallurgical testwork actually done?
  5. Does the off-take or smelter pay for those by-products? Polymetallic concentrates have notoriously complex terms.

If the actual primary grade is below the marginal threshold for that commodity (Module 3 benchmarks above), the project's economics live or die on the by-products — even if the equivalent number looks healthy.

When equivalent grades are legitimate

They are not always misleading. A genuine polymetallic deposit (think Olympic Dam — copper, gold, uranium, REE, silver) genuinely produces all those metals and the equivalent is a useful summary measure. A genuine VMS deposit (zinc, lead, copper, silver, gold) is sold as a polymetallic concentrate and the equivalent reflects realised value.

The trap is when equivalent grades get used to dress up a project where the primary metal isn't economic on its own and the by-product credits are speculative.

One-line rule

Always check the primary grade alone. If the primary alone is below the marginal threshold, the equivalent grade is doing real work in the announcement — find out exactly what work, before the equivalent goes into your thesis.

How to spot a tier-1 deposit in 30 seconds

A tier-1 deposit generally combines:

  1. Scale — billion-tonne+ for porphyry, 100Mt+ for sulphide-hosted base metals, multi-Moz for gold
  2. Grade — well above the marginal threshold for that deposit type (and on the primary metal, not equivalent)
  3. Strip ratio — favourable, especially in early years
  4. Metallurgy — clean, high recovery, no refractory issues
  5. Infrastructure — close to power, water, roads, port
  6. Jurisdiction — Australia, Canada, USA, Scandinavia, parts of South America are tier-1; many parts of Africa/Asia carry sovereign risk discounts

If a deposit checks 5/6 of those, it'll get built. If it checks 2/6, it'll bounce around as a "story" stock for years.

How to spot a marginal deposit

These projects often "become economic" only at peak commodity prices, then disappear when prices normalise.

The grade-tonnage trade-off

Big and low-grade vs small and high-grade — both can work, but not always for the same investor.

A junior pursuing a 1bn tonne porphyry needs $2bn capex — they will get diluted to oblivion or sell to a major. A junior with a 500koz high-grade UG project at 8 g/t can self-fund construction.

Match the deposit to the company's ability to develop it.

Practical exercise

For every deposit you're tracking, write down:

  1. Commodity and deposit type
  2. Resource grade and where it sits on the benchmark above
  3. If reported as an equivalent grade — what's the primary metal grade alone?
  4. Strip ratio (if open pit)
  5. Recovery rate from met testwork
  6. Cut-off applied to the resource
  7. Is this a tier-1, tier-2, or marginal deposit?

If grade context is missing from your thesis, you are speculating on the story, not the rock.

What I'm uncertain about

Revision #3
Created 22 April 2026 02:14:56 by Conor
Updated 25 April 2026 02:46:46 by Conor