CALCULATION OF THE NET SMELTER RETURN (NSR) OF A MINE

7.1.- Simple cases on the basic of prices per Unit or Direct concéntrate prices

As a rule a mine produces concentrates. In rare cases it mines rich ore which can be shipped
directly. In some cases proce quotations for concetrates and ore are available, i.e iron ore,
tungsten and antmony concentrates or “yellow cake” the end product of uranium mines.
These quotations are supplied by the Price lists of the weekly “Metal Bulletin”, the “
Engineering and Minin Journal”, the “Mining Magazine” or numerous web pages. Generally
these prices are quoted in “units”, whit ¡ unit being 1% of the metal in the concéntrate. From
this the net smelter return of the mine can easily derived.

1. Example: For iron ore we asume a unit of 0.50 US$/u. Accordingly, a mine producing high
grade direct shipping ore of 64% Fe has a revenue of

64 x 0.50 = 32.00 US$/t iron ore

To arrive at the return f.o.b mine ( free on board, see Sect 9.4.1) freight costs have to be
subtracted.

2. Example: For scheelite concentrates the Price the Price shall be 40 US$/unit WO3. A deposit
has grade of 0.8% Wo3. This ore has to be beneficiated first before yielding a saleable product.
Recovery is assumed to be 85%. Hence th return from 1t of in situ ore with 0.8% WO3 is

40 x 0.8 x 0.85 = 27.20 US$/t

As in the case of iron ore, freight costs should be taken into consideration. While freight costs
contribute considerably to the purchase Price of iron ore for the Steel Plants ( iron ore is a low-
value bulk product) this is not true for tungsten concentrates which are a high-value product.
For initial rough estimates the freight aspect can in such cases be neglected.

For initial Evaluations we asume that beneficiation Will yield a saleable standard product,
unless pior microscopic or beneficiation test preclude this. If, however, only low-grade
concentrates are produced, the mine has to accept penalties. In such cases specialists should
be consulted since individual rules aplly to each mineral. It is only for tin that the “Metal
Bulletin” publishes smelter terms for low-grade concentrates

Returning to the above scheelite example: The unit-price in Example 2 above applies to
standard concéntrate with a minimun quality of 65% WO3. Here the rule applies that for each
percent below 65% WO3 l US$/u is deducted if the concentrste grade has only 60% WO3 the
prie per unit Will be 40-(65-60) x 1 =35 US$/unit.

7.2. NON-FERROUS METALS

Calculating with smelter formulae

For common non-ferrous metal such as Cu, Al , Pb , Zn, Sn or Ni , the Situation is more
complicated tan for the examples given in sect . Quotations are available for the metals i.e the
saleable end product, but not fot the intermediate products. One might come across the
information that a deposit of 100 million t containing 1% cu at a Price of 0.90 US$/lb has a
value of almost US$ 2 billion. This is a totally misleading and incorrect estimation. Th metal
xchange quotation of 0.90US$/lb refers to refined copper. The mine, however, prodcues
concentrates.
To obtain the return for the mine we have to subtract from the Price for refined copper every
expense incurred at each stage in the production of refined cooper from copper concentrates,
the final mine product.

To determine the return from concentrates, particular formulae are used. For the sake of
completeness the are listed in Table D13. Below, the example of copper is used to
demonstrate the application of such a formula.

Since we are dealing with the Evaluation of deposits in an early stage of Development, rules-
of-thumb Will almost always be used which simplify the calculation considerably

Example. We are to evaluate a porphyry copper deposit with an ore grade of 0.7% Cu. For the
sake of simplicity, we asume that the Mo, Au or Ag grades, common in this type of deposit, are
so low that the metals are not paid for in the concéntrate. What is the revenue per tonne of
ore?

For the calculation of revenues we have to make certain assumptions:

a. Recovery in the beneficiation process: We asume 90% i.e of the 0.7% Cu , 0.63% cu. Are
recovered

b.Grade of concéntrate: Grades of concentrates normally lie between 25 and 30% cu . We

asume 25% cu

c.Freight for concentrates from mine to smelter is assumed to be 20 US$/t

d. Treatment charge (T/C) of the smelter: This refers to a tonne of concéntrate. A reasonable
assumption at present is T/C = 85 US$/t concéntrate.

e. Treatment losses: since losses occur during treatment in the smelter, these losses are
subtracted from the metal content of the concéntrate. Treatment losses can vary with copper
the normally amount to 1 unit

f. Refining charge (R/C): this is based on the paid metal (minus treatment losses) in the
concéntrate. A reasonable assumption at present is R/C =8 US/lb paid cu

g. metal Price : This is the most importan assumption. We asume 0.90 US$/lb

The calculation is carried out as follows:

a. The concéntrate grade is 25% from this we have to subtract the treatment los of 1 u , so that
24% cu Will be paid. 1% correspond to 22.046 lb per tonne. Thus the gross value of the
concéntrate is

(25 – 1 ) x 22046 x 0.90 =476.19 US$/t

b. From this we subtract the treatment charge : T/C = 85 US$/t

c. we also have to subtract the refining charge. If refers to the paid metal content. The R/C is :
(25 – 1 ) x 22046 x 0.80 = 42.33 US$/t concéntrate

d. As a last step we have to subtract the freight

Summarised the calculation method looks like this

Gross value of the concéntrate

This is the net smelter return of the mine. However, we are not so much interested in the
concéntrate but in the net value of the ore: the ore has a grade od 0.7% cu , we recover 90%
and the concéntrate has a grade of 25% cu

Hence we need

To produce 1t of concéntrate

Thus the concetration factor KF is 39.68. From this we arrive at a net smelter return for the ore
which is of course rounded to 8.30 US$/t

CALCULATING WITH RULES-OF-THUMB

As shown a host of assumptions has to be made to obtain the net smelter return of the ore. In
the early stages of evaluating a deposit which might take 10 years to reach production (
common lead time at present) this calculation is overaccurate.

If metal prices rise , treatment and refining charges usually rise as well. An analysis of
concéntrate contracts shows that the mines receive a percentage of the final Price of the end
product which fluctuates only within a certain range. For our estimates we can therefore work
with approximate factors in the copper exameple we reaplce the following assumptions and
variables

 Concentrate content
 Treatmen charge
 Treatment losses
 Refining charge
 Metal Price

By a single variable, the metal Price and cover all other assumptions by one factor

These factors are listed in table 7.1 . in combination with the recovery in the beneficiation
process this is a very simple way to calculate the value of the ore.

The range of value in table 71 indicates the ranges within mine returns fluctuate normally due
to market changes. Recently one could observe larger fluctuations which are cannot be
considered normal. The overall capacities of mines and smelters worldwide are seldom Really
in balance. In a buyers market when there is an abundance of concentrates and the buyer( the
smelter) determines the market the lower values apply in a Sellers market , when concentrates
are scarce an the mine determines the market, the higher values apply. Since in the initial
stage of Development of a deposit it is not possible to preduct the behaviour of markets or the
changes that might occur during the lifetime of the mine, it is justified to work with average
values.

For the recovery in the beneficiation plant, ranges are given in brackets. Recovery is highly
dependent on grain size and the Degree of intergrowth. When dealing with complex, fine-
grained ore one should therefore work with the low values.

Cu in table 7.1 requires the following explanation: the Japanese copper market ( as well as he
south korean, taiwanese and BRazilian) is protected, allowing local smelters to offer mines
very favourable terms. If an Exploration geologist Works for a european firm intendin to ship
the concentrates to europe, he has of course to work with european terms. If his mine is
looking for the best terms avaliable worldwide, he Will opt for the Japanese terms

Assignment. A complex volcanogenic deposit contains 2% Cu, 1.5%pb,6%zn, 1.3 oz/t Ag.

What is the net smelter return of the ore? For Cu European term are to apply. Price
assumptions: Cu 0.90 US$ /lb ; Pb:0.35 US$ /lb ; Zn: 0.45 US$ / lb ; Ag:5 US$ / oz.

The factor from table 7.1 will be used. The coversion factor of lb into is 22.046. The ore is
good-natured, so that average recovery values can be expected.

Numerooos

With regard to the precios metal content in base metal concentrates it is recomended that the
NF factors for precios metal in table 7,1 are corss-checked by carrying out a rough-and-ready
comparison with the NF factors for the base metal concentrates of table 7.1 and corrected if
found to bee too high

Example. We have to evaluate a pb-ore with 8% Pb and 80 g/t . A normal Pb-concentrate has a
grade of 65% Pb. We calculate with recovery values of table 7.1 90% for Pb and 80% fo Ag. The
concentration factor KF for the lead concéntrate therefore is

Numero

This concentration factor 9.0 we apply now to Ag. With a recovery of 80% Ag is enriched to 80
x 0.8 x 0.9 = 576 g/t concéntrate
With a smelter deduction of 50g per tonne of concéntrate the mine Will be credited only with
526 g/t meaning 91%. In such a case the NF-factor for Ag on table 7.1 has to be reduced to
91% ( or better rounded to 90% since this is a rough estimate only) aluminium is a special case.
The initial raw materual is bauxite with Al2O3 grades between 35 and %0%. This is a low grade
bulk raw material which cannot be further enriched by mechanical beneficiation, but is
chemically processed into aluminium oxide , also called alumina at he Refinery. This is the
starting materual for the aluminium plant turning out the finished insdutrial product( attention
: the sequence mine-refinery-smelter is the reverse of that for other metals)

For a first rule-of-thumb Evaluation the “ 10-in-10-rule” is sometimes employed: 10 t of

alumina has the value of 1t of aluminium and 10t of bauxite the value of 1t of alumnia. This
ratio of course fluctuates as much as the alumnimium prices itself. A recent analysis based on
Australia customs statistics covering 23 years shows that the average spread from 8 to 16%

In evaluating bauxite deposits, freight costs to the Refinery must not be neglected the are
crucial cost factor.