By: Ron Stewart Managing Director, Mining Analyst, Red Cloud Securities
The pursuit of the alchemical practice of turning base metals into gold was a long, sought goal by many. Among them, Sir Isaac Newton in his capacity as Master of the Royal Mint documented his efforts to find the philosophers stone, believed to be the key facilitate the transformation of elements into gold. Ultimately, he abandoned the notion and deemed his notes unsuitable for publishing. His papers only became public when John Maynard Keynes purchased some of them at a Sotheby’s auction in 1936.
The modern day practice of transforming base metals into gold, or other metals for that matter, can be achieved by converting multiple metals into a single metal equivalent value. It is a practice that is widely accepted by industry, commonly appearing in news releases, technical and regulatory reports as a means to present the most favourable values possible. It is important, therefore, that investors are aware of the mechanics of the mathematical transformation and impact of the applied assumptions.
The most common metric is gold-equivalent (AuEq or GEO) where the contribution of by-product silver is translated into gold. It is generated using the price differential of the two metals, as since prices are quoted on the same unit basis the math is really quite simple:
AuEq = Gold (g/t) + Silver (g/t) x Silver Price (US$/oz) / Gold Price (US$/oz)
It follows that equivalence is a function of the price ratio between the two metals, which has changed dramatically over time. Over the past 15 years the ratio of silver to gold has varied from a low of 35:1 to a high of over 110:1 and averaged around 73:1. Awareness of the price assumptions used in the calculation is therefore very important.
A more accurate translation takes into account the difference in the recoveries of the metals. In many deposits, silver recovery is considerably lower than gold such as a typical oxidized heap leach operation where gold recovery might be on the order of 70% but silver recoveries can range below 50%. In that case the gold equivalent silver contribution is multiplied by the ratio of the two recoveries. This discounts the initial price adjusted value of silver by an additional 29% in our example.
AuEq = Gold (g/t) + Silver (g/t) x Silver Price (US$/oz) / Gold Price (US$/oz)
x Silver (50%)/Gold (70%) OR x (0.71)
While gold-equivalent can be a useful metric to gain a sense of the overall quality of the deposit, taken at face value it can be somewhat misleading. Now consider the case of a typical copper equivalent value generated from a typical porphyry copper deposit with contributions of gold, silver and molybdenum or a silver equivalent calculation from a silver-lead-zinc+ gold deposit.
Not only can prices distort the resulting outcome, but recoveries and payabilities can have a meaningful impact. It becomes more challenging to intuitively appreciate the significance of an equivalent grade value when multiple metals are considered. We’d like to highlight a couple of simple examples to demonstrate just how significant the impact can be.
Let’s consider different price assumptions first. A porphyry Cu-Mo deposit with a CuEq grade of 0.47% may be of interest, but if the assumed price of copper is low and the corresponding price of Mo is high, then the Mo contribution can improve the apparent grade by a considerable margin. Investors might be attracted to a porphyry with a 0.47% CuEq grade and ignore the same deposit if the stated grade is 0.38%.
The pursuit of the alchemical practice of turning base metals into gold was a long, sought goal by many. Among them, Sir Isaac Newton in his capacity as Master of the Royal Mint documented his efforts to find the philosopher’s stone, believed to be the key facilitate the transformation of elements into gold. Ultimately, he abandoned the notion and deemed his notes unsuitable for publishing. His papers only became public when John Maynard Keynes purchased some of them at a Sotheby’s auction in 1936.
The modern day practice of transforming base metals into gold, or other metals for that matter, can be achieved by converting multiple metals into a single metal equivalent value. It is a practice that is widely accepted by industry, commonly appearing in news releases, technical and regulatory reports as a means to present the most favourable values possible. It is important, therefore, that investors are aware of the mechanics of the mathematical transformation and impact of the applied assumptions.
The most common metric is gold-equivalent (AuEq or GEO) where the contribution of by-product silver is translated into gold. It is generated using the price differential of the two metals, as since prices are quoted on the same unit basis the math is really quite simple:
AuEq = Gold (g/t) + Silver (g/t) x Silver Price (US$/oz) / Price (US$/oz))
It follows that equivalence is a function of the price ratio between the two metals, which has changed dramatically over time. Over the past 15 years the ratio of silver to gold has varied from a low of 35:1 to a high of over 110:1 and averaged around 73:1. Awareness of the price assumptions used in the calculation is therefore very important.
A more accurate translation takes into account the difference in the recoveries of the metals. In many deposits, silver
recovery is considerably lower than gold such as a typical oxidized heap leach operation where gold recovery might be on the order of 70% but silver recoveries can range below 50%. In that case the gold equivalent silver contribution is multiplied by the ratio of the two recoveries. This discounts the initial price adjusted value of silver by an additional 29% in our example.
AuEq = Gold (g/t) + Silver (g/t) x Silver Price (US$/oz) / Gold Prive (US$/oz) x Silver (50%)/Gold (70%) OR x (0.71)
While gold-equivalent can be a useful metric to gain a sense of the overall quality of the deposit, taken at face value it can be somewhat misleading. Now consider the case of a typical copper equivalent value generated from a typical porphyry copper deposit with contributions of gold, silver and molybdenum or a silver equivalent calculation from a silver-lead-zinc+ gold deposit.
Not only can prices distort the resulting outcome, but recoveries and payabilities can have a meaningful impact. It becomes more challenging to intuitively appreciate the significance of an equivalent grade value when multiple metals are considered. We’d like to highlight a couple of simple examples to demonstrate just how significant the impact can be.
Let’s consider different price assumptions first. A porphyry Cu-Mo deposit with a CuEq grade of 0.47% may be of interest, but if the assumed price of copper is low and the corresponding price of Mo is high, then the Mo contribution can improve the apparent grade by a considerable margin. Investors might be attracted to a porphyry with a 0.47% CuEq grade and ignore the same deposit if the stated grade is 0.38%.
Metal recoveries should also be considered. Take Vizsla Silver (TSX:VZLA, Not Rated) for example. The Company reported a MRE for Panuco, Mexico in September 2024 having a AgEq average M&I resource grade of 534 g/t and inferred resource grade of 412 g/t. However, in the same PEA technical report, the company assessed the economics of the deposit based on the production of silver and gold without the base metals. Using the Company’s stated price and recovery assumptions, the M&I grade drops 8% when the contribution of lead and zinc is removed and the Inferred grade decreases by 12%.
While we acknowledge that grade-equivalent values provide a useful metric to describe the quality of a prospect or deposit, we caution investors to read the footnotes and be aware of the assumptions that are applied in the calculation.
