Mine Production (Grade / Cut-off)
Also: Primary production, Mining output, Mine supply
Mine production describes the total quantity of precious metal recovered from ore through mining, where the ore grade and the economic minimum content (cut-off) determine which material is extracted at all.
Mine production is the most important source of supply in the precious-metals market. Every year, mining companies worldwide extract thousands of tonnes of gold, silver, platinum and palladium from the earth's interior - a process governed to a large extent 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 one tonne of raw ore (g/t). The higher the grade, the more productive the ore. A distinction is made between:
| 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 the world's 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 extraction still makes economic sense. It is not a fixed figure but depends directly on the current gold price or silver price and on production costs (in particular the AISC - all-in sustaining costs):
Cut-off (g/t) = Production cost ($/t ore) ÷ Metal price ($/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. In the long run this mechanism dampens extreme price movements.
Primary production vs. by-product
Gold and silver are recovered both as a primary metal (dedicated gold mines) and as a by-product of copper, zinc or lead mining. Around 30% of the world's silver supply comes from base-metal mines - there, the silver volume responds only weakly to the silver price, because the production decision depends on the lead metal.
Influence on the precious-metal price
In the long run, mine production determines the supply base of the market. New mine developments typically take 7-15 years from discovery to production. A supply shortage, triggered by falling grades in existing mines or a lack of investment, therefore feeds through to prices with considerable delay. The historical price developments clearly show such cycles.
In brief
Grade and cut-off are the levers that determine whether an ore body is mined at all - a rising precious-metal price automatically opens up new reserves, a falling price shuts them down. Investors should understand this supply logic in order to interpret price cycles more accurately.