Geoscience Canada Volume 18. Number 4 Net Smelter Return Models and Their Use in the Exploration, Evaluation and Exploitation of Polymetailic Deposits Raymond Goldie Richardson Greenshields of Canad Limited Suite 1400, 130 Adelaide St. W. Toronto, Ontario MSH 1TB Poter Tredger Tedgco Mineral Services ‘Suite 1400, 25 Adelaide St. E Toronto, Ontario MBC 1Y2 ABSTRACT Asan aid visualizing a mineral deposit the tive spatial dimensions are often reduced to two, by projection onto plans or sections. Similarly, the concentrations ofiflerent met- alsin the deposit can be represented in a single dimension through the use ofa com- mon denominator, the Net Smelter Return (NSR) per tonne. NSR is defined as the proceeds from the sale of mineral products ater deducting off-site processing and dis- Inibution costs In sulphide deposits in which the econom- iemetals are principally copper, nickel, mo- Iyodenum or platinum group metals, amine’: receipts (the NSR) usualy correspond to about 86%-60% of the gross value of the metals contained inthe ore This figuredrops {toaround 40% for ores with significant quan- tities offead or nc. The presence of old or siver inthe ore wil generally increase these percentages. ‘An NSR model of a deposi is @ represen- tation which atterpts to approximate the ac- tal NSR which would be derved ffom ex- Dlottation of the mineralization being model- led. NSRS are calculated from estimates of ‘grades, recoveries, concentrate treatment schedules and commodity prices. ‘With the adventot cheap, readly availabe ‘computer processing, itis now practicable for geologists to routinely use NSR models. A the exploration stage, NSR models pro- vide a uselul basis for presentation and com parison of dril-hole assays. Atthe evaluation ‘stage ofa project, NSR models are helpful in ‘the estimation of optimum grades, recov- ‘ties, and procuction rates. Al the explota- tion stage, NSR models provide a rigorous basis for grade contr ‘A widely used alternative to the NSR per tonne as acommon denominator the “equit- alent grade” (eg, "gold-equivalent” of “cop- per-equivalent’),is misleading and should be avoided, INTRODUCTION The Net Smetter Return (NSR)is e measure of the value of ore. For example, inthe in- ‘come statements of most Canadian mining ‘companies, the top line (‘sale", “not cals “ravenues" oF "not revenues") is generally the NSR, which is defined ae the proceeds {rom the sale of mineral products after de- ducting all off-mine costs relating to the transportation, treatment and sale of those products In the Preface of Ore Deposit Models, Roberts and Sheahan (1988) noted that “there are two components to an ore deposit ‘modal: the empirical model, whicn consists ofan assemblage of data including observa- tional data. which characterizes the deposit ‘and @ conceptual model tempts 10 Interpret the data through a unifying theory ‘of genesis”. NSR models ae simlar to other ‘ore deposits models: the empirical compo- rent is based on an assemblage of data obtained from operating mines; the cones {ual component provides the economic geo- logist with a ramework forthe evaluation of specific projects, ‘An NSR model of a mineral deposit is a representation which altompls to approx: mate the actuol NSR which would be derived {ror exploitation ofthe mineralization boing modeled. NSRs serve two main purposes forthe economic geologist (a) they provide a ‘common denominator forthe comparison of assays from polymetaic deposits; and (b) ‘thoy instil a heafthy awareness of the ecc- omic factors which determine the value of ‘Comparison of assays. AS an aid in visu- alizng a mineral deposit, the three spatial dimensions are often reduced to two, by projection onto plans or sections. Simtarly, ‘concentrations of aiiarent metals a poly- ‘metallic deposit can be represented in a ‘single dimension through the use ofa com- ‘mon cenomnator. The best such common denominator i the NSR per tonne. ‘A widely used alternative to the NSR per tonne is “equivalent grade’, in which con- ‘centrations of itfereatmetals are converted to one metal equivalent according to the'r {elative prices. This common denominator suffers from two disadvantages: (8) it as- ‘sumes tha treatmentcosts and metallosses in processing are the same for all com rmodities; and (2) despite Mutuating metal 159 prices, the equivalence factors tend to for- fever remain attheirintialycalculatedlevels. ‘Awaronoss of economic factors. The use ‘OINSRS forces geologists to considera wise range of factors which determine whether or rota mineral depositcan bemined profitably. INSRs are determined natonly by ore grades, but also by mill recoveries, concentrate ‘grades, concentrate treatment charges, freight costs and metal prices. In the early ‘exoloration stages of a project, rough as- ‘sumptions are acceptable. However, n more ‘advanced stages of evaluation, careful es timation ofthese factors becomes crtically Important. NSR models highlight questions = patticularly those pertaining to miner- ‘alogy — which must be considered in any project evaluation. This paper outlines the calculation of INSR fora variety of concentrate types de ‘ved from polymetalic ores, and Mustrates ‘applications of the NSR concept in three ‘areas: exploration, evaluation and exploit. tion NOMENCLATURE ‘The grades of metals contained inthe ore fed o.a mi are termed mil hoad grades or mit heads. In the mull, ore is crushed, ground, 1nd then treated by various processes 10 ‘separate and concentrate the valuable min- frais. The end products from the rill are concentrates ang failings. Concentrates ‘coniain economic metals) at grades higher than those in the mil feed; tangs contain the remainder of the treated mill feed. The most important process in producing con- Centratesiecilferential Notation, which takes ‘advantage of the metalic surface properties ‘of most sulphides and native metals. Conso- quently, most oxide, hydroxide, carbonete {and silicate minerals such as chrysocala (copper), gahnite(zino), nickebferous olivine (ickel), and even some suiphides (such as the nickel mineral, violarite) cannot be ce- covered by conventional flotation tech- riques. The miling of apolymetalic ore gen- erally results Inthe production of more than fone concentrate. A buk concontrate is one which contains significant quantities of more than one economic metal. The mil racovery of a metal aqualsthe amount of metal report: ing to the concentrates, as 3 proportion of the total amount n the mill ads. Concentrates are shipped to smelters andlor refineries, where the contained met- als are extracted and pusiled. A smelter wil not pay orallof the metal the concentrates which t treats: metals for which the miner is paid are termed payable or accountable metals ‘As an example, consider alead-zinc-iver Core containing 100 g/t Ag In the mil, 50% of the siver reports to the lead concentrat 30% to the zine concentrate and 20% to tallings. The ead smeiter pays for 85% ofthe siver in the lead concentrate, bul the zine160 rofinery gives no siver credits, Therelore: ‘contained siver = 100 gt Ag recovered silver = 80 g/t Ag (Go. 100 g/t Ag «(50% + 30%)) payable siver = 425 g/t Ag ie. (100 git Ag » 50% = BS%)) ‘The Net Smeitor Raturnofa tonne otorais ‘equal tothe proceeds rom the sale of miner- ‘al products derives trom thal ore, after de- ‘ucting all related charges incurred outside the mine property. Such charges include ‘concentrate transportation costs. smeiting, Felinng, insurance and marketing costs. ‘The gross value of a tome of ore is the value of the economic meta's contained in the ore ‘We define the mine netback of a tonne of ere astheratioo! the NSRiothe gross value NSRs AND MINE NETBACKS FOR TYPICAL CONCENTRATES In terms of total wrid production, the tr ‘oat important types of base metal concer tates are copper ead and zinc concentrates. Because of ther relevance to Canada, butk lead-2ine, molybdenum, nickel, bulk nickel ‘copper, platinum group metais (PGM) an tn ‘concentrates ate also discussed below. Copper in Copper Concentrates ‘The most common copper ore mineral is chalcopyrite, which als 's the major copper mineral in most copper concentrates. The ‘average grace of the 32 Canadian copper ‘concentrates listed in the Mining Source- ‘book (1985 to 1990 editions, published an- wally by the Canadian Mining Journal| was 2.9% Cv. The concentrates ftom the Beth- lenem and Lornex mils at Highland Vatey British Columbia, graced 40% Cu and were the only ones to exceed the 34.6% Cu con tent of stoichometne chaleopyrite. Borne stoichiometrically 63.3% Cu, is an important ‘ore mineral al Highland Valley. ‘A mine shipping copper concentrate to a smelter typically faces a variety of off-site costs or deductions: (@) Payable cooper, usualy 10 fo 14 “units” Jess than the copper contained in the concentrate (A unit’ isone percentage point. Thus, 2 10 Unit deduction in a concentrate grading 23.9% Cu would mean that (23.8-10)23., (0F 05.8% of the contained copper would be ald fo) ‘4.10 unit decuction is characteristic of low ‘grade concentrates (say, 20% Cu}; higher- ‘grade concentrates are usually subject to higher deductions (e.g. Reynard, 1991), (0) Smetting fees, expressed as dollars per ‘ty tonne of concentrate {6) Penattes, imposed by the smelter if the concentrate contains unduly high con- centrations of certain substances. (6) Retning charges, expressed as cenis per ‘pound of payable copper. (©) Freight charges, expressed as dalars per Wet tome of concentrate. (1) Insurance costs, marketing expenses and physical losses of concentrate during trans- portation. ‘Copper concentrate sales contracts may alow smetters to participate in some of the benefits should copper prices nis. n a typ= cal price participation arrangement, the cop- per refining charge increases by a percen tage ofthe amount by which the copper price exceeds @ negotiated trigger price. Ocea sionaly, contracts also provide for lower re- finng charges when the copper price falls below the vigger price (Reynard, 1991), ‘When expressed per pound of payable copper, deductions (a) (b) and e) decine as the grade of the concentrate increases. Thus, all ese being equal, an ore grading 415% Cu containad in Dorrie is more vali- ‘able than an ore with the same grade con- tained in chalcopyrite, because bornite makes alugher rade concentratethan does cchaleopyr Inallof the examples of NSR calculations ‘which flow, dollar amounts are in US dolars ‘and it's assumed that: the deposits ae ree- Sonably accessible, with 9 freight charge of 'S3sitonne of wet concentrate; the concen: trates contain 20% moisture; 9 stondard de- duction of 2.0% of he valve of payable met ‘als cavers item (7) above; and thatthe con- centrates contain fow concentrations of oleterious materials. INSR Calculation for Copper ‘Copper concentrate terms fuctuate depenc- ing on the supplyidemanc balance the ‘concentrate market. A typical 1990 copper ‘schedule was: 100% ofthe contained.copper payable after a1 Ounitdeduction: asmetting fee of $70icry tonne; and a refining fee of 50.090 with price participation of 10% of the ‘amount by which the price of copper ex- ‘ceeded $0.901b, With a copper price al the 1990 average spottevel ($1.21) and agrede Of 239% Cu, a dry tonne of typical copper concentrate contained 22046 = 22.9/100 = ‘5121 = $698 worth of copper. However, pay- fable copper was worth 22046 » (23.910) 100 ~ $121 = $6t1onae. After our 2% al- fowance for ingurance, marketing and metal losses duting transportation, not payablcop- por was $599itonne. Smelting charges were 's70ldry tonne of concentrate, the refining charge was 22046 » (23.9-10} 1100 « {0.09+0.031) = $8titry tonne, and eight charges were S3Bldry tonne, Because some ‘ofthe concentrates osten route, the mine's ‘smelting and reining charges ona net payable basis ware sighlly lower than as shown ‘above: to accourt for this, we assume @ 2% ‘eduction ine refining charge, to S60Htome. INSR. therefore, was $599 - $70 $60 $08 = ‘$43ittonne of concentrate, representing {676% ofthe value of the copper in the copper ‘concentra in the 30 operations cited in the Mining ‘Sourcebook (1985-1990 editions}, an aver ‘age of 84.7% ofthe copper contained in the mil feed was recovered to copper concen- trates. Applying this mil recovery to the above example, the typical mine netbock was 676% » 847% = 57% ofthe gross value ‘ofthe copper contained inthe ore. Column A fof Table 7 summarizes the foregoing terms ‘and calculations. Lead in Lead Concontrates Load treatment charges may be expressed, ‘as in the case of copper as a smelter charge {per tonne of concentrate) plus a refining charge (per pound of payable metal). Alter- natively, a smelter might quote a single charge for treatment (smelting plus refining) per tonne afconcentate. Lead smelters usu- ally particpate In 15%-28% of any upward or donnard moves in lead prices. Price par- Uicipation works as folows: the priceoflead were to rise by 10% above a reference level ‘and ifthe smelters price participation were ‘set af 20%, the smelting charge per tonne ‘would tse by 2% ‘Column Bin Table 1 summarizes the load treatment terms prevalent in 1990 and the NSR calculation. AS shown, a typical nel bbock for @ Canadian lead mine was 35% of the gross value ofthe loadin its oe. Zinc in Zine Concontrates Some facities are able to produce refined zine direcily from concentrates. Hence, ‘weatment fees for zinc ate commonly 1 ported as a singe fure per tonne of con- Centrate, rather than as a separate smelting charge and a tefining charge. AS was the case with copper, treatment fees decine (when expressed per pound of payable zinc) 2 the grade of the concentrate increases, Furthermore, zinc plants penalize zine con- cenitates which ae high ron. Thus, alelse beng equal, an ore grading 10% Zn, with the 2ne conlained iniron-poor ephalerit, s more valuable than an ore grading 10% Zn, wih the ZEne contained in on ich ephaleite Like load smelters, zinc plants generally participate in moves in meatal prices. One ‘such arrangement is shown in Columa G of ‘Table 1. Years ago, zinc plants recovered ‘only 85% of the zinc in the concentrates. In ‘comparison, the recovery at a modern zinc plant is about 939%, However itis stl stan- {ard practice forthe pfantto pay only 85% of the contained zinc: the diference of 8% is ‘considered to be part ofthe smelting fee (Column Cin Table 1 summarizes the 1280 2ing treatment terms and the NSR calcula: tion, Typical Canadian zinc ores yielded a 443% mine netoack Gold and Sliver in ‘Copper, Lead and Zine Concentrates Lemieux of at. (1988) have estimated that ‘only 49% ofthe gold contained in Canadas total reserves of base metal ores wil be acqvered to concentrates. It is diffcul to justify this conclusion — or its extension to ‘silver — because fow operations publish theGeoscience Canada Volume 18 Number 4 diettbuton of precious metals among the diferent mil products. Two operations which do pubishthese data are the Trout Lakemine in Manitoba (Healey and Petruk. 1980; Ming ‘Sourcebook, 1985 0 1990 esitions) and the Brunswick #12 mine in New Brunswick Grunswick Mining and Smelting Lid 1980). ‘The Trout Lake data show hatin 1989, 74.5% ofthe contained gold was recovered: 59.2% to cooper concentrate and 15.3% to zinc Concentrate, Brunswick’ figures show that in 1969, mill heads graced 109.5 g/t Ag, and thet 56.3% of this amount was recovered: 22% to lead concentrate, 264% to copper concentrate and 67% to bulk concentrate. Precious metals in base metal concen- trates are subject o a series of charges and deductions by smelters and refineries. For example, we estimate thal about 87% of the gold recovered at Trout Lake would have been payable, and that god refining charges in 1989 were about 13% of the gold price. Hence, the mine netback onthe gold content Of this ore would have been about 745% x 87% x (100%-13%) = 64%. Similarly, at Brunswick, about 92% ofthe recovered siver \wouichave been payable. Since siverrefning charges in 1869 were about 75% ofthe siver price. themineretbeck on thesivercontentof Brunswick's ore would have been about 158 39% x 92% x (100%-75%) = 48%. ‘Atypical schedule for gold in @ copper or lead concentrate would provide that the miner be paid the lesser of (a) 90% of the Contained gold or (b)the gold content of the concentrate less 10 git Au. A typical ‘iver payment schedule for such concen- Uuates would be 95% ofthe siver content of the concentrate, lass 25 git Ag. For 8 zinc concentrate. payment I usually for the esea of elthor a) B0% ofthe contained gold ‘and 90% of the contained siver, or (b) the precious metal cortent of the concentrate lege 9 deduction of 12 g/t Au and 110 g/t Ag Both gold and siver are subject to refining charges (currently about $0.30-$0.400 for slver and $5.00-88 O0er for gol). ‘These schedules have two important Implications: (() Precious metals are moce valuable ifihey reportto copper ortead concentratesthan to 2ine concentra, (2) A deposttin which the precious metatsall port toa single concentrate is more valu- ‘able than a similar deposit in which the pre cious metals report to several concentrates. Thus, an important task for an economic, geologist is to evaluate the habitat of pre lous metalsin a potential orebody (Beruvé, 1982; Gasparin, 1980, Potruk, 1989). For ‘example, inclusions of gold in chalcopyrite Fe worth more than inclusions of gold in sphaleite. Other Conetituente of ‘Copper, Lead and Zine Concentrates ‘Tho owner of a metallurgially complex ‘erebody must do a lt of comparison shop- ping because smelters vary widely in their ‘treatment terms for other constituents of concentrates. One smelter, for example, ‘may pay forthe lead and zine contained in 2 ‘copper concentrate, minus 3 units. For the ‘same concentrate, another smelter may charge a penalty of $2.50 per unit for the ‘contained lead and zine beyond a deduction ‘f4 units of combined lead and zinc, Further more, when cadmium prices are low (eg. below $100%b), a smeiter might penalize 3 miner for the cadmium in zine concent Yet, when cadmium prices ore high (eg, above $3,00ib), the same smeltor might pay ‘a credit for the seme cadmium in tho same ine concentrate (Other than for some special bulk concen- trates (see below), tis 2 good approximation {0 assume that copper, lead and zinc wil have no value Ifthey report to concentrates ‘other than their respective concentrates. Dirty" constituents — especialy antimony, bismuth, arsenic, furine, cadmium, mercu- 'y, selenium. tellrium an thalium —gener- ally result in penalties, Typcally, such penal- {las are in the order of $10-$40 per tonne per Unit of antimony, arsenic or bismuth. For mercury, penalties are hundreds of dotars per tonne per unit, Minimum concentrations, below which no penalties are charged, range from 0% to 3% for diferent materisis and diferent smelters. High concentrations of Iron, water or silica may also attract penalties, “The Equity Siver and Samatosum opera: tions in British Columbia end the Ok Todi mine in Papua New Guinea ilustrate the importance of considering penally charges in assessing the economic potential of a deposit. Ar Equity ivr, 78% of the ant ‘mony (Sb) and 21% ofthe arsenic (As) inthe Southern Tail zone reported to the copper. siver-gold concentrate. As 2 result thiscon- ‘contrate graded 70% Sb and 4.0% As and ‘was judged to be unsaleatle. Equity Siver ‘consiructedateachplant which. withvarying ‘degrees of success, reduced the grades 10 ‘0.8% Sb and 2.0% As. Although subject to penalties, this material was acceptable to a Japanese smelter which had the right to Teject material containing over 5.0% Sb. Ar ter mining the Southern Tal zone, Equity Sliver moved on tothe Main zone. Concer trates produced from the Main zone aver. ‘aged3.0%-3 5% Sband0.30%-0.35% As. It was more economical to ship unleached ‘concentrates trom the Main zone than to ‘continue operating the leach plant Dayton, 1982; Edwards, 1986. ‘There are lwo main mineralized zones at the Samatosum doposit:the Discovery zone ‘andthe Siver zone. The Discovery zone has. reported recorves of 240,000 tonnes grading 72 git Ag plus other metals. It aiso containe 8.0% As. Altnough such concentrations of arsenicmightbe worth special reatmentin a larger deposit (as was the case with Equity, Siver’s Southern Tal zone), thay wil goner- ally destroy he economies ofa small depos- It Indeed, the Discovery zone has no! been 18 mined. However, the Silver zones in produc- tion because, although the copper-siver ‘gold concentrate is rich in both Sb and As, Ihe ore grade and tonnage are sufficiently high to make tis zone cornmercial Coppergold ores at Ok Tedi are of two main types, porphyry and skarn. All of Ok ‘Ted's ore is rich in fuoring; the skarn ore especially 20 (3,000 ppm F is typical), How- fever, most smelters impose penalties on copper concentrates containing more than 500 ppm F. By carefully blending mil feed, (Ok Teds operators have been generally suc- ‘cossful in maintaining Muorine levels in the concentrates at just below 500 ppm F Bulk Lead-Zine Concentrates: A bulk concentrate is ane contalning signif cant quantities of more than one economic metal. When pelymetalic orebodies are small or when they Nave high grades but complex mineralogy, it may be cheaper to ship a bulk concentrate and suffer 3 lower smelter return than toinstal and operate the ‘equipment necessary to provide a cleaner separation of minerals. A "standard™ butk Concentrate, which would be cited in estab- lishing @ base price in smelter contracts, ‘would contain about 30% Zn and 15% Pb. Only one producer of bulk lead-zinc con- centrates is listed inthe Mining Sourcebook (1985 to 1980 editions): Brunswick Mining ‘and Smelting Ltd, which produces a zinc- lead-liver bulk concentrate in addition to ‘copper, lead and zinc concentrates. In 1989, tho bulk concentrate averaged 33.2% Zn, 19.8% Ph and 390 git Ag (Brunswick Mining ang Smelting Ltd, 1990). This concentrate is soldtea European smelter Payable levels of metals are as folows: 2ine, 85% o less 7 Unite: lead, 95% or less Suns; svar, 95% oF less 100 git (M. Power, Noranda Treasury. pers. comm. 1988), In all cases, the appto- Palate caduction i the one which results in ‘the least amount payable, In recent years, Duk lead-zinc concen- trates have become more marketable. This development nas enhanced the prospects for the McArthur River zinclead-siver pro- ject in Northern Territory. Australia (Gerrard, 1990), and has also benefited the Red Dog tine in Alaska, Red Dog produces zinc ‘concentrate, alead-siver concentrate and a bulk lead-zine-sver concentrate (Millbank 1990), Column D in Tale 1 presents 1990 treat- ‘moat terms and the mine netback fora hypo thetic! producer of abulklead-2inc concen- Irate, assuring arocovery to concantratoof {85% for both lead and zinc. Note that smelt- ing charges (per tonne of concentrate) are similar to those for zine concentrates, In this ‘ca80, the mina netback ss 33% ofthe gross value ofthe lead and zinc in the ore. Molybdenum Concentrates Concentrates are priced on theit contained rmolyodenum, but at @ discount to the price quoted for molyodic oxide. This discount,