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, whereby the ore grade and the economic minimum content (cut-off) determine which material is mined at all.
Mine production is the most significant source of supply on the precious-metals market. Each year mining companies worldwide extract thousands of tonnes of gold, silver, platinum and palladium from the earth's interior – a process that is largely governed by two 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 a tonne of raw ore (g/t). The higher the grade, the more lucrative the ore. A distinction is made between:
| Category | Gold grade (g/t) | Classification |
|---|---|---|
| Low-grade | 0.3 – 1.5 g/t | Large-scale surface mining required |
| Medium-grade | 1.5 – 5.0 g/t | The majority of global mines |
| High-grade | from 5.0 g/t | Underground mines, very profitable |
Cut-off grade
The cut-off is the minimum ore grade above which mining is still economically worthwhile. It is not a fixed quantity but depends directly on the current gold price or silver price as well as on production costs (in particular the AISC – all-in sustaining costs):
Cut-off (g/t) = production costs ($/t ore) ÷ metal price ($/g)
If the metal price rises, the cut-off falls – more ore bodies become economic, and the mineable reserve grows. If the price falls, the cut-off rises, and previously profitable deposits are shut down. This mechanism dampens extreme price movements over the long term.
Primary mining vs. by-product
Gold and silver are mined both as a primary metal (dedicated gold mines) and as a by-product in copper, zinc or lead extraction. Around 30% of the world's silver supply comes from base-metal mines – silver volume there reacts only weakly to the silver price, because the mining decision depends on the lead metal.
Influence on the precious-metal price
Over the long term, mine production determines the supply base on the market. New mine developments typically take 7–15 years from discovery to production. A supply bottleneck, triggered by falling grades in existing mines or a lack of investment, therefore feeds through to prices with considerable delay. The historical price trends show such cycles clearly.
In brief
Grade and cut-off are the control levers that determine whether an ore body is mined at all – a rising precious-metal price automatically opens up new reserves, while a falling price shuts them down. Investors should understand this supply logic in order to place price cycles in better context.