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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.

  • Lower cut-off = more tonnes, lower average grade
  • Higher cut-off = fewer tonnes, higher average grade
  • Companies can manipulate the headline by adjusting cut-off. Always check the footnote.

Strip ratio

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

  • 1:1 = excellent (ore right at surface)
  • 3:1 to 5:1 = typical for most metals
  • 8:1+ = high cost; only justified for high-grade or high-value ore
  • 15:1+ = usually marginal at best

Recovery rate

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

  • 90–95% = excellent (typical for clean sulphides)
  • 70–85% = average
  • <60% = problematic ("refractory" ore — needs expensive processing like roasting, pressure oxidation, or fine grinding)

Head grade vs in-situ grade

  • In-situ grade = grade of rock in the ground (the resource grade)
  • Head grade = grade of rock fed to the processing plant
  • They're often different because of dilution from waste rock during mining and selective mining (taking only the best stuff first in early years).

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:

  • Open pit: 0.3–0.8 g/t
  • Underground: 2–4 g/t

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?

Lithium

Spodumene (hard rock): measured in % Li₂O

  • Greenbushes (WA, world's best): ~2.0%+ Li₂O
  • Pilgangoora, Mt Marion, Wodgina: 1.0–1.5% Li₂O typical
  • Cut-off: 0.5–0.7% Li₂O
  • Below 1% is generally marginal in the current market

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

  • Atacama (Chile, world's best): 1500–2700 mg/L
  • Argentine salars: typically 200–800 mg/L
  • Mg:Li ratio matters — high magnesium = expensive processing

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

Nickel

Sulphide nickel: % Ni

  • 0.5–1% = marginal
  • 1–2% = average
  • 2%+ = high grade
  • World-class: Voisey's Bay, Norilsk, Mt Keith

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

  • 0.8–1.5% typical
  • Capex-intensive; HPAL plants have a brutal history of cost overruns and operational issues

Iron Ore (% Fe)

  • DSO (Direct Shipping Ore): >58% Fe is the rough benchmark for sale
  • Premium: >62% Fe (the Pilbara benchmark)
  • Magnetite concentrates: 65–70% Fe after beneficiation
  • Hematite from raw mining: 55–62% typical
  • Below 50%: marginal without significant beneficiation

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.

  • TREO grade: 1–5% typical for hard rock; 0.05–0.2% for ionic clay deposits (much lower but easier to process)
  • The split matters more than total grade. What % of the TREO is the magnet rare earths — Nd, Pr, Dy, Tb? Cerium and Lanthanum are oversupplied and worth little.
  • "NdPr%" of TREO is the key second number. >20% is good.
  • Mt Weld and Mountain Pass are world-class because of grade and split.

Uranium (U₃O₈ or % eU₃O₈)

  • 0.05–0.1% U₃O₈ (500–1000 ppm): low grade but mineable in Australia (e.g., in-situ leach amenable)
  • 0.2–1% U₃O₈: average to good
  • 1%+ U₃O₈: world-class (Athabasca Basin, Canada)
  • Cigar Lake / McArthur River: 15%+ U₃O₈ (the only deposits in this league globally)

Silver (g/t Ag)

Often a by-product. As primary commodity:

  • 50–150 g/t Ag = average
  • 150–400 g/t = high grade
  • 500+ g/t = bonanza

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

Zinc / Lead (% Zn, % Pb)

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

  • 5% Pb+Zn = marginal
  • 8–12% Pb+Zn = average
  • 15%+ Pb+Zn = high grade
  • Often by-product silver credits

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
  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

  • Grade close to or below the cut-off for that commodity
  • Strip ratio above 6:1 for non-precious metals
  • Metallurgical recovery below 75%
  • Remote with no infrastructure
  • Sovereign risk jurisdiction
  • High capex relative to projected NPV (capex > NPV is a red flag)

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.

  • Large/low-grade (e.g., porphyry copper at 0.5%): high capex, long mine life, leverage to commodity price, harder to permit. Good for majors, harder for juniors.
  • Small/high-grade (e.g., narrow-vein gold at 15 g/t): lower capex, shorter mine life, faster payback, easier to permit. Good for juniors and mid-tiers.

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. Strip ratio (if open pit)
  4. Recovery rate from met testwork
  5. Cut-off applied to the resource
  6. 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

  • "Marginal" thresholds shift with commodity prices. A 1 g/t Au open pit was uneconomic at $400/oz gold; it's clearly economic at $3000+/oz. Always think in current/forward price context.
  • REE economics are unusually complex because pricing varies enormously across the 17 elements and end-market demand is policy-driven (magnet demand for EVs, wind turbines, defence). Specific cut-offs change with NdPr pricing.
  • Lithium grade thresholds have moved a lot through the 2022–2025 cycle; some marginal projects that were viable at $80k/t spodumene are deeply uneconomic at $700/t. Verify against current commodity prices.
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