Cut-Off Grade Explained: The Single Assumption That Resizes a Deposit

Summary box

• Cut-off grade is the lowest grade at which a block of rock is worth processing rather than treating as waste.
• It is an economic boundary, not a geological one. It moves with metal price, costs, recovery and mining method.
• Raise the cut-off and you get fewer tonnes at higher grade. Lower it and you get more tonnes at lower grade. Both can be honest; neither is comparable to the other.
• A resource restated at a higher metal price will grow without a single new metre of drilling.
• The JORC Code explicitly permits including some material below the cut-off, where doing so is needed to make the deposit a coherent mining shape.

What it actually is

Every block in a resource model carries an estimated grade. The cut-off grade is the threshold that sorts those blocks into two bins: send it to the mill, or send it to the waste dump.

That threshold is not a property of the rock. It is derived from what it costs to mine, haul, process and sell a tonne of that rock, and from what the contained metal is worth once you account for recovery and payability. Change any input and the threshold moves.

This is why cut-off grade is the highest-leverage assumption in a resource statement. It sits upstream of tonnage, average grade, contained metal, strip ratio, mine life and every economic output that follows.

Marginal versus breakeven

Two cut-offs get used, and conflating them causes real errors.

Marginal cut-off covers only the incremental cost of processing a tonne you have already mined. The material is out of the ground either way; the question is whether milling it beats dumping it. Because mining cost is already sunk at that point, the marginal cut-off is lower.

Breakeven cut-off covers the full cost — mining, processing, general and administrative, sustaining capital, royalties. It answers whether the tonne is worth mining at all.

Open-pit operations typically apply a marginal cut-off to material inside the designed pit (it has to be moved regardless) and a breakeven cut-off when deciding the pit shell itself. Underground operations, where mining cost is far more selective, lean on breakeven logic throughout.

A rough breakeven expression:

cut-off grade  =  total cost per tonne processed
                  -------------------------------------------
                  metal price x recovery x payability x unit conversion

Every term on the denominator is an assumption. Recovery comes from metallurgical testwork. Payability comes from a smelter or offtake contract. Metal price comes from a forecast. None is a fact about the deposit.

Why the same deposit reports different tonnes

Consider a gold deposit modelled at two cut-offs:

Illustrative grade-tonnage relationship, not a specific deposit.

Nothing changed underground. Three legitimate statements, three different deposits on paper. The 0.30 g/t case has 80% more contained ounces than the 0.80 g/t case and would be described very differently in a press release.

This is the mechanism behind resource "growth" announcements that involve no drilling. If gold moves from $1,900 to $2,600 and a company restates at a lower cut-off, the resource expands. That is not dishonest — the material genuinely is economic at the higher price — but it is a price call dressed as a discovery.

The check: whenever a resource grows, read the cut-off grade and price assumption alongside the tonnage. If both moved, the growth is at least partly a price event. A company that reconciles the change into drilling, price and depletion components is telling you the truth. One that leads with total ounces is not.

What the codes say

The JORC Code 2012 frames the resource concept around this idea directly:

"a Mineral Resource is not an inventory of all mineralisation drilled or sampled, regardless of cut-off grade, likely mining dimensions location or continuity. It is a realistic inventory of mineralisation which, under assumed and justifiable technical, economic and development conditions, might, in whole or in part, become economically extractable."

Note assumed and justifiable. The Competent Person has to be able to defend the assumptions, and disclose them.

JORC also permits a nuance that surprises people:

"Where considered appropriate by the Competent Person, Mineral Resource estimates may include material below the selected cut-off grade to ensure that the Mineral Resources comprise bodies of mineralisation of adequate size and continuity to properly consider the most appropriate approach to mining."

In other words, a few low-grade blocks inside an otherwise coherent ore body can stay in, because mining a swiss-cheese shape is not physically sensible. This is legitimate. It also means "everything reported is above cut-off" is not strictly true, and a careful reader should look at the grade distribution rather than only the average.

Canada's NI 43-101 requires, at section 3.4, that written disclosure of mineral resources include "the key assumptions, parameters, and methods used to estimate the mineral resources." Cut-off grade is squarely inside that. Its absence from a resource announcement is a disclosure gap, not an oversight.

Cut-off grade is a strategy, not a number

Operating mines vary cut-off over the life of the mine on purpose.

High-grading early. Raising the cut-off in the first years pulls cash flow forward, which a discounted cash flow model rewards heavily. The cost is a shorter high-margin period and a lower-grade tail later. When a producer's realised grade runs above reserve grade, this is usually why.

Stockpiling. Material between the marginal and breakeven cut-offs gets stockpiled rather than milled or dumped, to be processed at the end of mine life or if prices rise. Large low-grade stockpiles are an option with real value — and a real carrying cost, since they oxidise, and their inventory can be written down.

Elevated cut-off in a downturn. When prices fall, raising the cut-off protects margin per tonne at the expense of reserves. Reserve statements shrink in bad years partly for this reason, not because ore vanished.

None of this is manipulation. All of it makes year-on-year comparisons harder, which is exactly why the assumption needs to be read.

How to compare two resource statements

1. Find both cut-offs. They will be in the resource table footnotes.
2. Find both metal price assumptions. Also in the footnotes. A resource stated at a price well above spot is optimistic by construction.
3. Find the recovery assumption. A high recovery lowers the cut-off, which raises tonnes.
4. Check the mining method. Open-pit and underground cut-offs are not comparable; underground is typically several times higher because the cost per tonne is.
5. Look for a grade-tonnage curve. Better technical reports publish tonnage and grade at several cut-offs. If one exists, you can restate both deposits on a common threshold and compare like for like.
6. Check whether resources are inclusive or exclusive of reserves before doing any arithmetic.

If a company will not disclose the cut-off, treat the resource as unverified. It is the one parameter that makes the number mean anything.

Red flags

• A resource restated upward with no drilling and no cut-off disclosed.
• A cut-off implying a metal price far above spot and consensus.
• An open-pit cut-off applied to material that clearly needs underground mining at depth.
• Recovery used in the cut-off calculation that exceeds what the metallurgical testwork supports.
• No grade-tonnage sensitivity anywhere in the technical report.
• A cut-off that changed between statements without explanation.

How Mining Terminal handles cut-off grade

Cut-off grade is extracted per resource estimate and stored alongside the tonnage, grade, category and effective date it belongs to, traced to the source filing. It is a filterable field, not a footnote, because comparing resources across a peer set without it produces confident nonsense.

Where a filing reports a resource without disclosing the cut-off, the field stays empty. We do not back-solve it from price and cost assumptions the document never stated — a derived cut-off sitting next to disclosed ones would be indistinguishable from a fact.

To compare resources on a normalised cut-off across a commodity or district, get in touch or ask Nara.

Related reading

• Mineral Reserves vs Mineral Resources: What the Categories Actually Mean
• PEA vs PFS vs Feasibility Study
• AISC Explained

Sources

• The JORC Code, 2012 Edition — jorc.org
• National Instrument 43-101, Part 3 — Ontario Securities Commission
• CIM Definition Standards, 10 May 2014 — BCSC-hosted copy

This article is educational and is not investment advice. Mining Terminal is a data platform, not a broker, dealer or investment adviser.