How to Calculate the Potential Value of a Mining Project :

When the preliminary feasibility study of a mineral project has not been
completed yet, but you do want to estimate the mineral deposit value, you can
calculate the potential value of a mining project by the back-of-the-envelope
calculation described in this article.

Before you can calculate the potential mineral deposit value, you first need to
gather some specific data regarding the ore body and the individual drill results.

This required data can be found in the mining company’s press releases in which
they announce their drill results. Make sure that this data is announced according
to the guidelines of National Instrument 43-101 (i.e. approved by a Qualified
Person) or similar international reporting standard.

The required data for calculating the potential mineral deposit value is explained
in the table below.

Required Data Description Example

Average The concentration of a 2% Copper &
grade mineral in the ore body 1.5 gram Gold
Strike length The length of mineralized 500 meters
area
Depth Vertically depth of the 100 meters
mineralized area.
Specific Density of the rock 2.5
gravity (weight per Cubic meter)

To find out what I do in case some of the required data is missing or incomplete,
or what I do when I need someone to verify some of the data provided in the
mining company’s press release, I recommend you to read the first note at the
bottom of this page.

FOUR (4) Steps in Calculating the Mineral Deposit Value:

1. Calculate the Tonnage of the Mineral Deposit. Convert Copper to

Pounds and Gold to Ounces’

FORMULA:
Strike length X Depth X width X specific Gravity = ----------- Tons
EXAMPLE:
500 X 200 X 100 X2.5 = 25,000,000 Tons
 2. To find out how I come up with the numbers 2,204.62262 and 34.2857
I recommend you to read the break even analysis page, on which I
explained How to Calculate the Cut Off Grade.

3. Convert the Pounds and Ounces to the Corresponding Metal Value.

4. To find out how I come up with the numbers 2,204.62262 and 34.2857
I recommend you to read the break even analysis page, on which I
explained How to Calculate the Cut Off Grade.

5. Convert the Pounds and Ounces to the Corresponding Metal Value. As

you can see in the example above, the deposit does not have to be
enormous in size (only 500 meters long by 100 meters wide) to contain
a valuable deposit (approximately $6 billion worth of minerals).

6. However, in order to be as realistic as possible about this valuation,

you can not assume that the complete ore body contains the same
grade (i.e. 2% copper and 1.5 gram per tonne gold). In addition, you
have to keep in mind that a typical ore body does not fit into a right
angled box of three dimensions (strike length, depth and width), as the
shape and continuity of the minerals found will be different in every
deposit. Consequently, it is very important to deduct a certain
percentage of the calculated mineral deposit value. Ideally, this
percentage should be your best estimate of the overburden3 and
tailings4 combined from the right angled three dimensional box,
calculated in the example above. The outcome of this estimate is what
I refer to as the adjusted mineral deposit value.

7. You also can not expect that this adjusted mineral deposit value, is the
price the mining company will receive from a buyer when this property
is sold, as for instance, the costs of extracting the metal from the ore
and other operating expenses are not deducted from the mineral
deposit value. Therefore you could see a major or mid-tier mining
company that wants to replace their mined reserves just pay a small
percentage of this metal value for the deposit (i.e. 5% to 10%).

To find out how much of this mineral deposit value I assign to the mining
company’s value as a whole, I recommend you to read the second note at the
bottom of this page.
Note: Whenever I conclude that (a part of) the required data is missing or
incomplete, I always contact the mining company’s management directly, to
kindly ask them to provide me the missing data. I also contact the management
directly, whenever I need some of the data provided in the mining company’s
press release to be verified.

Note: Personally, I estimate the adjusted mineral deposit value, conservatively at

5%. (Dividing this outcome by the total).