A look at the so-called cutoff grades reveals how much mining has changed over the past 50 years. They refer to the minimum metal content in the ore required for economically viable extraction at a given site. Just 40 years ago, the industry-standard cutoff grade was 2.0 g/t, and young geologists were told by their senior managers that any ore falling below this cutoff grade was to be considered worthless waste.
Drill results with only 2.0 g/t gold or less were therefore considered a failure. Projects were abandoned relatively quickly and not revisited for the next 20 to 30 years, as no company could or would afford to invest significant capital in developing an obviously unprofitable deposit.
Two developments, initially seemingly unrelated but mutually reinforcing, have led over the past two decades to the reconsideration of projects ignored 30 to 40 years ago. The first reason is the technical advancement of the entire industry. This made it possible to develop projects with lower gold grades, provided they are easily accessible and economies of scale can be realized.
Technical progress and higher metal prices are making previously ignored projects profitable again, but…
The second reason bringing projects ignored 40 years ago back into focus is the sharply increased metal prices. This has not only made profitable gold mining possible even with gold grades significantly below 2.0 g/t, provided the general conditions are right. For platinum, palladium, silver, and copper projects, current cutoff grades are also significantly lower than levels 40 years ago.
However, the small addendum “provided the general conditions are right” is of crucial importance, as it expresses that not only certain minimum grades must be present, but also in sufficient quantity. In other words: far more decisive than the mere number of ounces or the size of a resource is its quality.
For mining companies and investors who put their money into these companies, there is therefore a risk of misjudging a project if one only looks at the number of ounces or only at the ore grade, because the quality of a resource is not only determined by its size and average metal content.
Three important factors to consider: Location, Location, Location
Equally important is its location, because a site with already well-developed infrastructure justifies a lower cutoff grade, whereas deposits located far from existing infrastructure, even with higher cutoff grades, have no realistic chance of going into production in the near future, despite currently high metal prices.
Investors are therefore well advised not to look solely at drill results and resource size. The location factor is at least as important. This strongly resembles the real estate sector, and the comparison is entirely appropriate, as a good real estate buyer will not focus solely on the size of the property and its year of completion, but primarily evaluate its location. This is unchangeable.
This is what apartments and houses have in common with geological deposits, and just as a buyer in the real estate market, for good reason, only invests in so-called prime locations, one should not settle for second-rate geological occurrences in the raw materials sector.
Experienced investors therefore always remember that there are factors that have little to do with the metal content in the ore but nevertheless massively lower the cutoff grade.
For precisely this reason, for example, Gold Terra Resource (WKN A2P0BS / TSXV YGT) has a unique selling proposition among the many hundreds of exploration and development companies listed in Canada on the Canadian Securities Exchange (CSE) or the TSX Venture Exchange, because the company is not only developing a district-sized gold project with the Con Mine but also possesses excellent mine infrastructure with existing power lines and roads.
Gold Terra Resource can therefore offer its future mine workers jobs in a few years, when the project is scheduled to go into production, that can be reached by car from the city of Yellowknife in about ten minutes. This “soft” factor initially has very little to do with hard rock. However, it significantly lowers the cutoff grade.
