Mine Production (Grade / Cut-off)
Also: Primary Mining, Mining Production, Mine Supply
Mine production describes the total quantity of precious metal extracted from ore through mining, where the ore grade and the economically viable minimum grade (cut-off) determine which material is actually mined.
Mine production is the most significant source of supply in the precious metals market. Each year, mining companies worldwide extract thousands of tonnes of gold, silver, platinum, and palladium from the earth – a process governed by two key technical-economic parameters: ore grade and cut-off grade.
Ore Grade
The ore grade indicates how many grams of a precious metal are contained in one tonne of raw ore (g/t). The higher the grade, the more productive the ore. Categories include:
| Category | Gold Grade (g/t) | Classification |
|---|---|---|
| Low-Grade | 0.3 – 1.5 g/t | Large-scale open-pit mining required |
| Medium-Grade | 1.5 – 5.0 g/t | Majority of global mines |
| High-Grade | from 5.0 g/t | Underground mines, highly profitable |
Cut-off Grade
The cut-off grade is the minimum ore grade at which mining is still economically viable. It is not a fixed figure but depends directly on the current gold price or silver price as well as production costs (in particular the AISC – All-in Sustaining Costs):
Cut-off (g/t) = Production Costs ($/t ore) ÷ Metal Price ($/g)
When the metal price rises, the cut-off falls – more ore bodies become economically viable and mineable reserves grow. When the price falls, the cut-off rises, and previously profitable deposits are mothballed. This mechanism dampens extreme price movements over the long term.
Primary Mining vs. By-product
Gold and silver are mined both as primary metals (dedicated gold mines) and as by-products during copper, zinc, or lead production. Around 30 % of global silver supply comes from base-metal mines – that silver volume responds only weakly to the silver price, because the mining decision depends on the primary metal.
Influence on the Precious Metal Price
Over the long term, mine production sets the base supply level in the market. New mine developments typically take 7–15 years from discovery to production. A supply shortfall, triggered by falling grades at existing mines or insufficient investment, therefore feeds through to prices with a considerable lag. The historical price trends clearly illustrate such cycles.
In Brief
Grade and cut-off are the key variables that determine whether an ore body is mined at all – a rising precious metal price automatically unlocks new reserves, while a falling price shuts them down. Investors should understand this supply logic in order to better contextualise price cycles.