Metal Price Forecasting - Mining Engineering

• King Abdulaziz University Mining Engineering Department presents study notes about metal price forecasting from Mining & Metallurgical Economics (MinE 402) Term 2 – 2025

Topics Covered:

• Introduction to metal price forecasting
• Cash flow models
• Commodity price forecasting
• Mineral resource and ore reserve analysis
• Cut-off grade and mining recovery
• Capital and operation costs
• Depreciation and taxation considerations
• Time value of money and discount rate
• Inflation and exchange rate impacts
• Mine project valuation techniques

References

• SME Handbook Chapter 2.2
• Mining Valuation Handbook Chapter 4

Learning outcomes

• Understand the importance of forecasting metal prices of various factors
• Relate units used for metal prices
• Understand supply and demand
• Differentiate between short vs long term forecasting tools

Assumptions in Price Forecasting

• Forecasting future commodity prices is a sensitive and important part of valuation
• To determine an average annual price over the project life is the primary objective
• Available information should be used to determine a "most probable" price
• Assumed price must have rationale
• Forecasts could be wrong over time

Metal Price Examples

• Charts and graphs of recent gold and silver prices (2-year and 10-year trends in SAR/g and USD/oz.)
• Historical perspectives, demonstrating price fluctuations over time
• Gold price peaked at $1,331.86 USD/ozt on 14 Feb '18
• Copper prices and trends (LME official prices graph in $/Tonne, 5-year price in $/LB, and historical price chart in USD/lb)

Mineral Price Differences

• Relative levels of supply and demand impacts inventory level
• S&D impacts short-term price movement
• Relative scarcity relates to grade, processing complexity, barrier to entry and discovery

Demand vs Supply (short term)

• If demand increases then price increases
• If demand decreases then price decreases

Example comparison of Gold vs Iron ore

• Gold price is $58 million / tonne, whereas Iron ore price is $230 / tonne
• Demand is 4000 tonnes of gold and 2.3 billion tonnes of iron ore

Example: Gold vs. Iron ore

• Gold average grade is 0.0001% (surface) and 0.0008% (Underground)
• Iron ore averages 50-65%
• Gold's deposit location is hard to find and hard to recover
• Iron ore's deposit is easy to find with miminum processing, but may require a high capital cost

Mineral Price Ranking (example)

• Gold: $58,000,000/tonne
• Silver: $1,000,000/tonne
• Uranium: $114,000/tonne
• Tin: $20,000/tonne
• Nickel: $19,000/tonne
• Copper: $8,000/tonne
• Aluminum: $2,200/tonne
• Zinc/Lead: $1,900/tonne
• Iron ore: $230/tonne

Units of Measurement

• Requires careful specification
• Prices set according to unit weight of product
• Commodities require other considerations

Other Considerations

• Gen Diamond's pricing influenced by (carrot, clarity, color and cut)
• Tolc pricing influenced by whiteness and grain size
• Coal pricing influenced by calorific content and quality of Ash

Important Factors of Unit Measurement

• Iron ore priced on weight of contained Iron
• Dry metric ton (dmt)
• Transport cost

Transport Cost (important)

• FOB (free on board): Price of a product delivered on board ship
• CIF (cost, insurance, freight): Price to the destination port
• EXW (ex-worker): All costs beyond the seller gate are covered by the buyer

SI System

• Units are metric.
• Length: meters (m)
• Mass: kilograms (kg)
• Time: seconds (s)

Imperil (USA) System

• The USA unit system is widely used for quoting metal prices.
• Length uses foot (ft)
• Mass uses pounds (lb)
• Time uses seconds (s)

Conversions

• 1 meter (m) = 100 centimeters (cm) = 1000 millimeters
• 1 inch (in) = 1/12 foot (ft) = 2.54 cm
• 1 pound (lb) = 16 ounce (oz) = 0.453592 kg = 453.592 grams (gm)
• 1 oz = 28.349 grams (g)
• 1 Imperial ton (long ton) = 2240 lb = 1016 kg
• 1 US ton (short ton) = 2000 lb = 907.2 kg
• 1 metric ton (tonne) = 2204.6 lb = 1000 kg

Important Notes

• The UK used two different systems for measuring mass
• Aviordupois measured for all scientific purposes
• Troy measured for precious metals
• The weight of precious metals use troy ounces where 1 troy ounce = 31.1 grams
• The term troy comes from Troyes in France (important city in the middle ages)
• A troy ounce is about 10% larger than the avoirdupois ounce. Troy ounces are used to express the mass of precious metals like gold, platinum, palladium, rhodium, or silver
• 1 Troy ounce = 1.0971 Avoir ounces = 31.1034 grams
• 1 Troy pounds = 12 troy ounces

Example

• A mine that produces 10,000 troy oz per year for 10 years products 3.11 tonnes of gold at the end of the project.

Forecasting Tool Types:

• Focus on Consensus
• Short term strategies (Technical analysis, Fundamental analysis (Supply and Demand))
• Long term strategies

Price in the Short Term

• Short term forecasts are important and depend on mineral project status.
• Short term forecasts are not as important for start-ups with several years before production
• Short term forecasts are important in acquisition and merging companies
• Technical and Fundamental analysis are two key approaches

Technical Analysis

• Focus on price variable and behavior
• Follow identified patterns
• Few months in the future
• Analyze history to predict future prices
• Depends on close look to the chart and computer models
• Utilized by Traders/Speculators

Fundamental Analysis (Supply and Demand)

• Analyze factors which affect price
• Mining companies often think in 3-5 year plans
• Supply is a function of the commodity scarcity
• Demand is a function of economic growth

Law of Supply:

• If Price of a good increases than quantity increases.
• When quantity increases due to supply, price of the good decreases.

Law of Demand

• If Price of a good increases, consumer demand decreases, quantity decreases
• When quantity decreases due to demand, price of the good decreases

Supply Perspective

• It's easier to forecast supply through public plan and the time required to build facility
• Production disruption examples like; boosting production, develop more projects ect.

Demand Perspective

• Prices depend on economic growth environment
• Demand for minerals used as titanium dioxide are more stable
• Inventory levels are estimated from world growth
• Stock-to-demand ratio represents the numbers of weeks the current inventory can last if production ceased

Price in the Long Term

• Mining projects can span from 20-30 years
• Projects based price ranges
• Prices are based on balanced market assumptions
• Long-term prices are flat with no inflation or a gentle trend
• Non-ferrous and Precious metals require different approaches
• Historic price is used and also depends on byproduct metals

Study notes from Mining & Metallurgical Economics (MinE 402) Term 2 – 2025, King Abdulaziz University. This includes cash flow models, commodity price forecasting, mine valuation techniques, and mineral resource ore reserve analysis. It also covers depreciation, inflation, and taxation considerations.