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Friday, June 10, 2016

Metal Equivalents BS


Companies will calculate the high equivalent grade and resources as possible by:
  • using 100% recovery for everything
  • include as many metals as possible
  • Use favorable metal ratios (e.g. 60:1)
  • Use favorable metal prices (high byproduct prices and low principal metal prices)
 The "geology for investors" website have a Metal Equivalent calculation tool (link)

We read about how companies like to expand their results by mixing high and low grade material together, but why don't we have a look at the world of metal equivalents. This is something I hate in the exploration world, calculating an equivalent grade from every element under the sun to create a resource on steroids.

How do companies do this, well they have several flavors to confuse, over-complicate and BS you into believing their BIG numbers:

Here is TAG's list of Metal Equivalent BS (tm).
  1. They will assume 100% recoveries - no mine anywhere has ever got 100% recovery for any element, EVER! 
  2. They will try and use every element possible to include in the equivalent calculations (Hello Baja Mining and using Mn for your CuEq grades)
  3. They will provide recovery percentages for some but not all of the metals used to calculate the equivalent grades.For the metals without a recovery value, the company will always use 100%.
    • Occasionally companies say they use recoveries when calculating the equivalent resources, but they actually rounds up to 100% doesn't it? Companies will quote metal recoveries, but not actually use them when they calculate their Equivalent grades and values.
  4. They use unrealistic metal ratios - the infamous 60 or 65:1
  5. They use high prices for the byproduct metals and low prices for the metals that they are calculating equivalent values for.
If you have any more, I'll add them.

Why don't we run through an example, I've decided to pick on Southern Silver and their 43-101 resource calculation for Cerro Las Minitas project.

Silver only makes up 23% of the total AgEq resources for this project. Southern Lead-Zinc would be a better name?
But they include 2 conflicting statements, the first:
The 150g/t AgEq cut-off value was calculated using average long-term prices of $15/oz silver, $1,100/oz gold, $2.75/lb Copper, $0.90/lb lead and $0.90/lb zinc and metal recoveries of 82% silver, 86% lead and 80% zinc. All prices are stated in $USD.

OK, so they only use the recovery rates to calculate a 150 g/t AgEq cutoff, but that conflicts with point (4) in the notes below table 2 (link) and in their latest presentation (page 13) where they specifically state:
Mineral Resources were estimated using a long-term prices of prices of $15/oz silver, $1,100/oz gold, $2.75/lb Cu, $0.90/lb lead and $0.90/lb zinc and metal recoveries of 82% silver, 86% lead and 80% zinc. All prices are stated in $USD.

Lets check this statement out a bit more:

  1. Metal recoveries - NO recoveries have been provided for gold (Au) and copper (Cu).
  2. Metal Prices
    • Ag = $15/oz - seems reasonable compared to $17.3/oz quoted today
    • Au = $1100/oz - again, very reasonable compared to $1270/oz it is today
    • Cu = $2.75/lb - this is a lot higher than today's price of $2.04/lb
    • Pb = $0.9/lb - again a lot higher than $0.77/lb quoted today
    • Zn = $0.9/lb - this is close to today's price of $0.94/lb
This gives the following metal ratios:
  • Ag:Au = 73:1
  • Cu:Ag = 5.45:1
  • Pb:Ag = 16.7:1
  • Zn:Ag = 16.7:1
But why don't we use the actual metal prices from the 21st of March as a comparison? They were:
Au = $1244/oz; Ag = $15.8/oz; Cu = $2.30/lb; Pb = $0.82/lb; Zn = $0.84/lb, and we get the following ratios:
  • Ag:Au = 78.7:1
  • Cu:Ag =6.87:1
  • Pb:Ag = 19.25:1
  • Zn:Ag = 18.7:1
This gives a 9% lower AgEq grade (330.79g/t vs 363g/t) and therefore 9% less AgEq ounce.
See the cheat?
The higher the price you use for the byproduct metals (Cu, Pb and Zn), and the lower the price you use for the principal metal (silver), you calculate a higher equivalent grade and therefore more ounces. Very sneaky!

Now lets check these resources in a bit more detail, for this I'll present 3 different options:

Option 1: Recoveries: Ag = 82%, Pb = 86%, Zn = 82%, and 0% for Au and Cu
oh no, we've only decreased AgEq resources by 25% (numbers in RED)
Option 2: Recoveries: Ag = 82%, Pb = 86%, Zn = 82%, and 100% for Au and Cu
a bit better, we've only rescued the resources by 16%
Option 3: Using 100% recovery for Ag, Pb, Zn, Au and Cu.
at last, our number match
So Southern Silver actually used 100% recoveries for all metals to calculate the AgEq grades and resources, but they explicitly told us in the press release and in their presentation that:
Mineral Resources were estimated using a long-term prices of prices of $15/oz silver, $1,100/oz gold, $2.75/lb Cu, $0.90/lb lead and $0.90/lb zinc and metal recoveries of 82% silver, 86% lead and 80% zinc. All prices are stated in $USD.

This is NOT true, Why can't they just state that they used 100% recovery rates for all metals and be done with it?

Why do they have to (in my opinion) mislead everyone into believing that their project is better than it really is.

(Edit: I am naive - but they could just have put "assumed a 100% recovery for all metals" at the end of the table and be done with it, as this is 'normal' for junior companies. Southern seems to go for that special 'out of their way' BS to hide the fact that their project doesn't really have enough Silver (or lead or zinc) to be interesting.

Quick question - apart from La Negra (not Aurcana resources - they lost it back in Jan) - How many active operations are mining those sorts of grades and making money?)

So Southern has ticked all the points on TAG's list of Metal Equivalent BS, that's a 100% failure (or is it a success for their IR team?) rate.

We aren't stupid, we know that the real reason that no recovery percentages were reported for gold and copper is for the simple reason that there is very small amount of either at project they they won't be recovered or if they are, they are in such small amounts that their value is less than the costs/charges levied by the smelter to recover them. Smelters aren't charities after all.

I hate this sort of BS, there is no reason to do it, companies just need to be open and honest.

Just a note to everyone, I'm compiling data on several projects, It is taking a bit longer that I expected but as I'm trawling through press releases to find as much data as I can.

Here is the spreadsheet I created - link so you can check the number and play with the metal price ratios

Thank you, and I'm hoping that England don't lose tomorrow!