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Net smelter return

In this section, the mathematical tools are developed to calculate

the value of a tonne of ore sent to a mill, processed and

concentrated, and sold to a smelter. This section introduces the

concept of the net smelter return (NSR). It discusses the main

components of the equations to calculate NSR, indicating the

sources of information for each as a function of the design stage. The concept of the NSR factor is

presented, along with its uses, applications and limitations.

A complete e ample of the calculations for a pol!metallic ore is wor"ed through and discussed.

An e cel file also is also provided so that the reader can review the equations in detail.

Contents

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1 Net smelter return

2 Components of the calculations

3 Net smelter return factors

o 3.1 Example:

4 References

Net smelter return

The net smelter return (NSR) refers to the revenues e pected from the mill feed, ta"ing into

consideration mill recoveries, transport costs of the concentrate to the smelter, treatment and refining

charges, and other deductions at the smelter.#omponents of the calculations

$hile a few other factors are sometimes mentioned in the literature and in practice, the list presented

here captures %&' of the net smelter return value. Not all items listed are applica le to each metal

concentrate for this reason, the reader will have to review the references provided at the end of this

section to see where each item applies.

The main factors required for the calculations are*

OriginatingAuthor:

Dr. eor!e"c#saac

The contents of this articlehave not been peer reviewed

please use informationcontained herein with duediligence

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Recover! factor of the metal at the mill + to "now what proportion of the metal sent to the

mill is actuall! sold.

#oncentrate grade + to esta lish how much metal is contained in a tonne of concentrate.

Transport cost + from the gate at the mine site to the smelter. Associated costs are

charged for loading and representation at port facilities.

a!a le metals + to esta lish the ase quantit! of metal that the smelter will use to

determine pa!ment. Some deductions are fi ed, while others are ased on a sliding

scale as a function of the grade of the metal in the concentrate.

Treatment charges + to determine the cost of processing one tonne of concentrate at the

smelter.

enalties + the e tra cost of processing deleterious elements present in the concentrate.

rice participation + a proportional escalator cost to capture large metal price variations

during the contract period.

Refining charges + to determine the cost of refining the metal recovered at the smelter.

At the scoping level , most information can e estimated from spot prices discussed in press releases.

At the re+feasi ilit! stud! level, smelter availa ilit! ma! ecome an issue and discussions must e

held with a few smelters. -etailed contracts terms are not necessaril! determined through these

discussions, ut etter estimates can e made. #ontracts must e discussed with specific smelters

at the feasi ilit! level . Ta le presents the est information sources for calculating components at

each of these three stages of mine design.

Table 1: Sources of information at the different stages of the design process

Net smelter return Scoping Pre-feasibility Feasibility

$reatment char!es %pot prices Discussions &ith smelters Ne!otiated contract

Refinin! char!es %pot prices Discussions &ith smelters Ne!otiated contract

'enalties and other deductions Estimated from experience Discussions &ith smelter Ne!otiated contract

$ransport costs %pot prices Discussions &ith transporter Ne!otiated contract

Net smelter return factors

The NSR factors refer to the value a unit of metal grade (/ per gram of gold, / per ' nic"el). These

factors can e used in a variet! of situations*

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0stimate rapidl! the value of ever! loc" in the resources and reserves models !

multipl!ing the grades ! the factors. The loc"s can easil! e sorted as required.

0stimate the value of a mining sector for an economical stud!.

#alculate the revenues of mine plans.

#alculate the value of ro"en minerali1ation in the mine to decide whether to send it to

the mill or to waste.

erform quic" metal price sensitivit! studies.

There are man! advantages to this approach*

ol!metallic ores grades are rapidl! converted to dollars per tonne.

The value of reserves can e quic"l! compared to the applica le costs to determine

their via ilit! cut+off grades ecome cut+off NSRs.

At the design stage, spreadsheets can e used to quic"l! identif! economical reserve

loc"s.

-uring the e traction of a sector, its value can e quic"l! estimated ! comparing the

reconciled grades to the design.

The effect of commodit! price fluctuations can e evaluated quic"l!.

The method does have some limitations*

This approach tends to smooth out the statistical distri ution of the loc" values. This

will happen if the metal recover! at the mill is proportional to the feed grade. This wa!,

lower grade loc"s are over+valued and higher grade loc"s are undervalued.

This approach is valid onl! within the operating parameters of the mill.

Example:

2et3s assume that chalcop!rite and sphalerite produced in the mine are sent to a mill with copper and

1inc flotation circuits, and that the copper concentrate is sold to two smelters and that the 1inc

concentrate is sold to a 1inc smelter. The detailed calculations can e found in the 0 cel file NSR

calculations. ls .

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Figure 1: The milling process

In this e ample, the mill feed is 456,777 tonnes grading 4.84' #u, 4.66 g9t Au, and 6.:%' ;n. This

mill feed can represent three months3 or a !ear3s production from the mine, or is the grade of a sector

on which an economical stud! is conducted. 0ither wa!, the NSR factors calculated for this feed can

e applied to ever! individual reserve loc"s or stopes to calculate their value.

As shown in Ta le 4, copper and gold are recovered in the copper concentrate and 1inc and minor gold are recovered in the 1inc concentrate. The copper concentrate grades 4 ' and the 1inc con

grades 68'. <alues mar"ed in !ellow are given and others are calculated.

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Table 2: Metallurgical balance

Ta le 8 details the steps to calculate the value of the copper and gold in the copper concentrate sold

to smelter A. In the case of copper*

A fi ed deduction of . units (44.76 l s = . ) is charged.

The treatment charge is equal to /56 per tonne of concentrate. Transport, with loading

and representation, cost /8% per tonne.

The refining charges are equal to /7.756 per pound of pa!a le copper.

As for gold*

The metal deduction is equal to 4.6 grams. This deduction can e ased on a sliding

scale set as a function of the concentrate gold grade.

No treatment or transport costs are applied. This is a >udgment call on the part of the

user to decide if the costs appl! or not and in which proportions the! do. In the e ample,

it is assumed that this is the amount of gold present (or a sent) in the ore and

concentrate will have no influence on the treatment and transport costs of the copper

concentrate and that therefore the gold should not have to pa! for that portion of costs.

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Refining charges are equal to /: per pa!a le ounce of gold.

As a result, the copper and gold net smelter returns for copper concentrate sold to Smelter A are

equal to /6 and /6 6 per tonne of concentrate, or /?&.7 and /?&.85 per tonne of ore. $hen

these num ers are divided ! the mill feed grade, the copper and gold NSR factors are equal to

/47.:% per ' #u and / &.%5 per gram of gold.

Table 3: Estimation of the value of metals in the copper concentrate sold to smelter

The e ercise is repeated for copper concentrate sold to smelter @ and 1inc concentrate sold tosmelter #, and the results are com ined in Ta le ?.

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Table !: "ompilation of NS# returns

These factors can e used to estimate the value of reserve loc"s, stopes, dail! production, or the

average value of the mill feed, as shown in Ta le 6.

Table $% Net Smelter #eturn of mill feed

References

oldie, R. A. ( %%4). Net smelter return models and their use in the e ploration, evaluation and

e ploitation of pol!metallic deposits. Ore Deposit Models V. II, Geoscience Canada Reprint Series

6, (pp. :8+56). This reference gives clear information on the components included in the equations

for man! metal concentrates.

oldie, R. B. ( %%:). The dollar* An economic geologistCs most important unit of measurement. CIM

Bulletin , 89 (%%5), pp. 8%+? .

2afleur, .+B. ( %&&, Novem er ). Statistical eolog!. The orthern Minin! Ma!a"ine , 46+4%. This

reference gives an e ample of an NSR factor calculation for a pol!metallic ore.