Question 7 of 13: Modifying the Net Smelter Return to Value Broken Rock

Question 1.7: Modifying the Net Smelter Return to Value Broken Rock (5 marks)

Question text not reproduced: the examination questions are © Engineers and Geoscientists BC. Open the official past paper (linked at the top of this page) to read the question, then follow the worked solution below.

1.7.1 The modification. The mill-gate NSR already nets metal price, payable recovery and smelting/transport/refining charges back to the point concentrate leaves the mill; it says nothing about the milling step itself. To value broken rock sitting at the muck pile (upstream of milling), the mill-gate NSR must be worked backward through the mill: first multiply by the plant's overall mill recovery fraction (not all the contained metal in the broken rock actually reports to concentrate), then subtract the milling (processing) cost per tonne of broken rock treated, and any incremental haul/handling cost from the muck pile to the mill not already embedded in the mill-gate figure: $$\text{NSR}_{\text{broken rock}} = \text{NSR}_{\text{mill gate}}\times R_{\text{mill}} - C_{\text{mill}} - C_{\text{haul/handle}}$$ This produces a $/tonne value attached to the rock at the point it is broken, i.e. before any decision has been made about where it goes.

1.7.2 Value of the modification. This broken-rock NSR is exactly the figure needed for real-time ore/waste/stockpile classification, because it captures the true incremental value of sending a specific tonne to the mill: a tonne is only worth milling now if its broken-rock NSR exceeds the marginal milling cost that would otherwise be avoided. Comparing broken-rock NSR against an operating cut-off lets the mine correctly route marginal-grade material to a stockpile (deferred processing when price or mill capacity improve) instead of the waste dump, and route sub-cut-off material to waste rather than wasting mill capacity on it. Using the un-modified mill-gate NSR for this decision would overstate the value actually available at the muck pile (because it has not yet deducted the milling cost still to be incurred) and would systematically mis-classify marginal material.