When exploration and mining companies release data on their efforts, it’s common for them to express grades in “equivalent” terms. Instead of grams per tonne (g/t) of gold or silver, or percentages of copper or iron, we see press releases report:
- g/t gold-equivalent (AuEq)
- g/t silver-equivalent (AgEq)
- % copper-equivalent (CuEq)
- % zinc-equivalent (ZnEq)
- etc.
Note that 1 g/t = 1 part per million (ppm). It’s less common to express it this way, but we do see it from time to time. Also, 10,000 g/t = 1%, which is why it’s common for the grades of bulk commodities like aluminum and copper to be expressed in percentages.
But different metals have different values and properties—is this whole idea legit?
Well, it may not be necessary, by the practice can be a reasonable simplification for investors. It can give us a comprehensive idea of the grade and potential value of minerals discovered or produced.
Consider that gold and silver often occur together. In high-grade deposits, that can be as an alloy (electrum) that gets recovered as a single product. If the product is mostly gold, the miner gets paid for the silver as well. It simplifies things to calculate the value of the silver, add it to the value of the gold, and then work backward to get an equivalent grade of gold produced.
They’d do the opposite if it’s mostly silver, with some gold in it. The same would go for copper-gold and gold-copper, as well as polymetallic mineralization, such as common lead-zinc-silver ores.
An example would be a drill hole that intersects 10 meters grading 5.0 g/t gold and 80.7 g/t silver. At current metals prices (the quoted price of gold is 80.7 times that of silver), this could be reported as 10 meters of 6.0 g/t AuEq.
This is similar to what the oil and gas folks do expressing various condensates as equivalent to barrels of oil. Hence the common term: BOEPD (barrels of oil equivalent per day).
That said, reasonable ideas can be used in unreasonable, or even illegitimate, ways.
For instance, if the value of a certain deposit is mostly, say, zinc, but there’s a bit of gold in it, it’s misleading to express the results in AuEq. They should be in ZnEq. Even so, if investors are more excited about gold than zinc at the time, we may see management using such questionable equivalencies.
There’s more to this, however, than watching out for sneaky misuse of equivalency.
Even the most honest management team in the business can’t tell you how much of the metals in a new discovery will be economically recoverable until some serious test work is done.
My example above considers only the price difference between silver and gold. Suppose that the mineralization is such that 90% of the gold can be recovered, but only 45% of the silver. With such recoveries, a miner would only get paid for half the silver, so the “real” AuEq would only be 5.5 g/t AuEq.
Now imagine a version of this scenario in which the recoveries are 90% for gold and 70% for silver—but it costs twice as much to extract the silver.
And then consider what happens if you’re dealing with a polymetallic deposit with gold, silver, copper, lead, zinc… and maybe some indium thrown in just for fun. How much of these different metals can be recovered? At what cost? What if you have to sacrifice one to recover more of another, more valuable metal?
As you can see, equivalency can get very complicated.
I confess it makes my eyes cross when I see long strings of drill results with different metals and grades like this:
- 9.7 meters of 4.5 g/t gold, 10.3 g/t silver, 1.2% copper, 3.4% lead, 2.2% zinc, and 97 ppm indium.
As hard as this is on the eyes, it’s actually the most responsible thing for management to report when there are no test results yet on which to base recovery estimates. If this was in a new discovery, calling it 9.7 meters of 10 g/t AuEq (or whatever the current math works out to be) would be grossly misleading.
This is why when I discuss grade in my evaluations of resource companies in My Take, I try to include the details for each metal, rather than the Eq grades touted in exciting headlines.
There are sharks in the water, and it can get very complicated, but don’t let that scare you off.
Here are some “cheat sheet” takeaways to help you parse company press releases:
- When mineralization has only one metal (or so little of anything else that it’s not reported), you won’t see any Eq grades.
- When we do see Eq figures, it pays to look for footnotes to see on what basis they are calculated (price only, price and recoveries, etc.).
- In early-stage exploration (before metallurgical testing), it’s okay to use price only to estimate equivalency. Investors should remember, however, that this is a crude estimate very likely to be materially off.
- In advanced exploration and project development—when testing has shown likely metal recoveries—these should be included in any Eq figures. If not, it’s a red flag.
- In production, actual recoveries and costs are fully known. Unless management is flat-out crooked, Eq figures should be accurate.
- Gold and silver often occur together and share a lot in common as commodities and monetary metals. This makes me more comfortable accepting AgEq numbers in which the Eq is gold and AuEq numbers in which the Eq is silver than with other mixes of metals.
- A lot of copper deposits have gold in them (and often silver and other metals), but the processing for gold and copper is different. Copper in a gold deposit can actually mess up the recovery process, and the reverse is true as well. This makes me reluctant to put too much weight on CuEq numbers in which the EQ is gold and AuEq numbers in which the Eq is copper—not before there’s solid metallurgical test work in hand.
- The more metals in the mix, the more complicated and expensive the processing will be. It’s pretty much a given that some of the metals will be more expensive or difficult to extract. This makes me reluctant to accept apparently high-grade AuEq or AgEq numbers that are mostly lead, zinc, and other metals in advance of extensive met testing.
- It’s common among companies exploring for platinum group metals (PGMs, or, sometimes, PGEs) to lump platinum and palladium together. Often, they add gold to their PGMs and present that as one Eq number, separate from nickel, copper, or other base metals in the mineralization. These metals do not recover equally. I’m skeptical of Eq numbers like this until there’s definitive feasibility-level test work.
This all boils down to one key idea:
It pays to be skeptical of all Eq numbers—and the earlier the stage of exploration, the more skeptical we should be.
Here’s a simple tip to help you parse press releases full of geo-jargon and piles of Eq numbers: focus on the grade of whatever the most valuable mineral is supposed to be.
For instance, if management says they’ve discovered a gold deposit and I see:
- 9.7 meters of 4.5 g/t gold, 10.3 g/t silver, 1.2% copper, 3.4% lead, 2.2% zinc, and 97 ppm indium.
I’ll look at just the gold:
- 9.7 meters of 4.5 g/t gold.
That’s not bad, but it’s no slam dunk either.
If it started with:
- 9.7 meters of 24.5 g/t gold…
Then I’d be very keen to learn more, whatever the grades of the other metals and the cost of recovering them might be. The rest turns into free upside, however much or little value they turn out to add.
That’s not to say nothing else is worthwhile, but with thousands of exploration and mining companies out there, this triage tool can help you focus on the ones with the most robust discoveries.
As always…
Caveat emptor,
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