According to Mining.com, “The grade or concentration of a mineral or metal in ore directly affects costs associated with mining as well as its subsequent beneficiation and extraction of precious components.”
All other things being equal, a higher grade means a lower total cost per ounce. The average grade of ore is the average proportion of gold or silver contained in the ore at a particular site.
Highest average grade
Among the silver miners this series focuses on, Hecla Mining (HL) has the highest reserve grade. Its high-grade deposits led to an overall high reserve grade. Its San Sebastian, Lucky Friday, and Greens Creek operations have silver grades of 16.2, 12.9, and 11.7 ounces per ton. In comparison, Coeur Mining (CDE) had an overall silver grade of 0.61 ounces per ton at the end of 2016. Hecla is continuing to drill for higher grades at most of its mines.
Lower reserve grade
First Majestic Silver (AG) has yet to publish its reserve and resource statement for the year ended 2016. Its average reserve grade for the year ended 2015 was 5.7 ounces per ton. Pan American Silver (PAAS) also had a lower silver grade, with a grade of 2.9 ounces per ton at the end of 2016. A lower grade usually leads to higher costs, and vice versa.
Grades and costs
Hecla’s higher grade should translate to lower costs to access the same level of production from ore, because higher-grade ore has less waste material and it is possible to extract more metal.
Mining-based leveraged funds such as the ProShares Ultra Silver ETF (AGQ) and the Direxion Daily Gold Miners ETF (NUGT) are other ways to get exposure to precious metal prices. While grade is one factor that impacts gold miners’ costs, there are many other variables. In the next part of our series, we’ll take a look at the selected gold miners’ costs.