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Grade is King… Or Is It?

This is an updated post from Sam Ulrich.

The mining industry mantra “Grade is King” is often used, especially in the gold industry. But is it true? Do higher gold grades automatically mean lower costs, potentially higher profits and possibly better returns for investors? What sounds so simple in theory is not in reality.

At the single mine scale, the grade is king holds true. All the costs of extracting the gold and sustaining the operation, known as the All-in Sustaining Cost (AISC) on a per ounce basis varies with gold grade, where at higher grades, AISC is lower and vice versa. But when collectively comparing the Australian gold industry as a whole, such a relationship is not transferable between deposits.

For example, in the September 2016 quarter the Gwalia gold mine processed ore grading 10.00g/t producing 67,118oz of gold at an AISC of A$774/oz (US$587/oz) and the Mt Rawdon gold mine processed ore grading 0.99g/t producing 24,878oz of gold at an AISC of A$764/oz (US$579/oz). Both of these mines will be two of the lowest cost gold mines in the September 2016 quarter, and yet their grades are an order of magnitude different. Most mines in Australia will have gold grades between these two mines and will have AISC higher, than these two mines.

Collectively as an industry “grade is king” does hold true at the ore processing stage, but not at the ore mining stage (Figure 1). Knowing this, additional geological factors other than grade must have an influence over the operating cost structure of the mining operation. The minable geometry of the orebody generally decides the mining method, which influences costs, what derives this minable geometry? Answer, structure, mineralisation style(s) and grade. These factors combined with scale (size of the orebody) determine the costs. A good way to get a feel for this is what is the average gold ounces per vertical metre. Differences obviously exist between open pit and underground operations and the operations that use both mining methods.

Whenever you hear that a gold resource is of good grade and better than, ding, ding, ding projects/mines, ask the additional important questions, what is the underlying structure, mineralisation style, scale of the deposit and how many average gold ounces per vertical metre does that relate to? It is easy to pull out a so-called comparable selection of deposits to show a gold resource in good light with respect to grade, but it does not mean it is any good.

For an excellent recent summary of the Australian and New Zealand gold industry for the 2016 June quarter check out.

The author, Sam Ulrich is a consultant geologist with over 20 years’ experience, primarily in mineral exploration, resource development and mineral asset valuation in Australia and Asia. He is presently undertaking a PhD part-time at The University of Western Australia, investigating the geological controls on the operating cost structure of Australian and New Zealand gold mines. The aim is to link economics with geology to understand the drivers of competitive advantage between gold deposits.

He is contactable at



The information or opinions provided herein do not constitute investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not take into consideration, nor have any regard to your specific investment objectives, financial situation, risk profile, tax position and particular, or unique needs and constraints. Read full Disclaimer.

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