Break-even is broken.

This article argues that the way the base and precious metals mining industry uses break-even grades is not consistent with the stated objectives of the mining company, and therefore if not plainly wrong, is at least deeply flawed and subject to so many soures of error that value is almost guaranteed to be destroyed. It is a major contributor to the underlying problems with the financial returns of the mining industry. The case study in this article shows that an error of just 0.1 g/t in the break-even cutoff grade of a large-scale open pit gold mine can result in 50-60% of the ore reserve having zero value. It is more common than not that mines have ore reserves with this scale of error. While the current process commonly used to estimate an ore reserve is deeply flawed, the resulting declared ore reserve is not necessarily invalid. The JORC code only requires that the ore reserve is shown to be 'economically mineable' and does not say anything about having to exclude substantial amounts that are negative in value. It is implied in the JORC code that the ore reserves quoted are what will be mined and processed by the mining company.
This article argues that the way the base and precious metals mining industry uses break-even grades is not consistent with the stated objectives of the mining company, and therefore if not plainly wrong, is at least deeply flawed and subject to so many soures of error that value is almost guaranteed to be destroyed. It is a major contributor to the underlying problems with the financial returns of the mining industry. The case study in this article shows that an error of just 0.1 g/t in the break-even cutoff grade of a large-scale open pit gold mine can result in 50-60% of the ore reserve having zero value. It is more common than not that mines have ore reserves with this scale of error. While the current process commonly used to estimate an ore reserve is deeply flawed, the resulting declared ore reserve is not necessarily invalid. The JORC code only requires that the ore reserve is shown to be 'economically mineable' and does not say anything about having to exclude substantial amounts that are negative in value. It is implied in the JORC code that the ore reserves quoted are what will be mined and processed by the mining company.