These measure the “quality” of the project.
Tier 1 deposits are “Company making” mines. They are large, long life and low cost.
Using long run commodity prices it generates >$300-600m pa of revenue (i.e. >200 kt pa Cu or >800 kt pa Zn+Pb or >5kt pa of U3O8 or >250 koz pa Au) for >20 years and is in the bottom quartile of the cost curve. It has very robust economics and will be developed irrespective of where we currently are in the business cycle and whether the deposit has been fully drilled out. The resource is of a size/quality that it creates multiple opportunities for expansion.
It is expected that project’s economics will easily exceed the Company’s Cost of Capital + Country Risk Premium by at least 5 percentage-points … i.e. achieve a >12% IRR after-tax in low-risk jurisdiction such as Australia or Canada. This will impact on capital-intensity of the project.
Olympic Dam, Broken Hill and Cadia East are examples of a Tier-1 deposit.
As at Jan 2013, Tier 1 deposits have a risk-adjusted NPV at the Decision-to-Build Stage of >US$1000m. As a first-pass guess, for modelling purposes, the weighted average value of a Tier 1 deposit is notionally set at ~$2000m.
Tier 2 deposits are “Significant” deposits – but are not quite as large or long life or as profitable as Tier 1 deposits. I.e., it only meets some of the Tier 1 criteria.
Typically Tier 2 deposits are economically attractive/profitable in all but the bottom of the business-cycle, but has limited “optionality” because of modest size and mine life.
It is noted that over time, through additional delineation and/or changes in costs or business risk some Tier 2 deposits may ultimately become Tier 1 deposits.
Prominent Hill and Northparkes are examples of a Tier-2 deposit.
As at Jan 2013, Tier 2 deposits have a risk-adjusted NPV at the Decision-to-Build Stage of US$200 – $1000m, with a weighted average value of around $500m.
Tier 3 deposits are small / marginal deposits (most deposits found fall into this category) While they can be profitable – at best they don’t meet more than one of the Tier 1 criteria.
Typically. these projects only get developed during the top of the business cycle and/or developed only if they are satellite operations to an existing business (i.e. they would never be developed as a stand-alone mine).
Hillside and Honeymoon (Uranium) are examples of a Tier-3 deposit.
As at Jan 2013, Tier 3 deposits have a risk-adjusted NPV at the Decision-to-Build Stage of US$0 – $200m, with a weighted average value of around $80m.
Tier 4 deposits are uneconomic deposits. Using long run price forecasts, the deposit has a negative NPV at the decision-to-build stage and is unlikely to be developed (even at the top of the business cycle). In practice, even though they are uneconomic, Tier 4 projects do have some “option” value (associated with the small-but-real chance that further exploration could find better grades and/or the commodity price goes up).
The Lochiel lignite coal project would be an example of a Tier-4 deposit.
For economic evaluation purposes, Tier 4 deposits are assigned a notional value of ~$10m in constant Jan 2013 Dollars. Even though such projects are NPV negative, they still hold some option value based on the (small but real) potential that commodity prices may rise, technical innovations and better infrastructure could make them economic in the future.
NOTE: TIER NUMBERS ARE GENERALLY ONLY APPLIED TO DEPOSITS >= “MAJOR” in size
Unclassified deposits. For purposes of the study, MinEx Consulting has assigned a notional value of US$10 million (in constant 2013 Dollars) to those Moderate-sized deposits that were too small/marginal to be assigned a Tier classification. This figure was based on the typical enterprise value (derived from the market cap less cash on hand) for Junior Companies with projects of this size.
In some cases, a “Moderate-sized” deposit may have a high enough grade to warrant being classified as a Tier-3 deposit.
Examples of a moderate-sized deposit being classified as a Tier-3 would be Kanmantoo and Gullivers (mineral sand) deposits.
For economic evaluation purposes, Tier 4 and “Unclassified” deposits are assigned a notional value of ~$10m in constant Jan 2013 Dollars. This figure was based on the typical enterprise value (derived from the market cap less cash on hand) for Junior Companies with projects of this size.