Expert Analysis

The Economic Significance of Cut-off Grades in NI 43-101 Gold Resource Reports

Executive Summary

This white paper examines the pivotal role of cut-off grades in the determination of gold resources and reserves as per National Instrument 43-101 (NI 43-101) standards. Cut-off grades define the minimum grade at which a section of a mineral deposit can be considered economically viable to mine, serving as the cornerstone for resource and reserve estimation. This analysis elucidates the critical impact of accurately determining these grades not only on the valuation of mining projects but also on the integrity and sustainability of mining operations.

About the Author 

Larry Segerstrom is a bilingual senior mining professional with more than 37 years of exploration, operations, and business experience. He is currently consultant and Director for junior mining exploration companies in North and South America. His past positions include COO of Paramount Gold and Silver Corp. where he led the team in discovering new inferred resources of 750,000 ounces of gold and 60 million ounces of silver at the San Miguel project in Mexico, now a part of Coeur’s Palmarejo Mine. As Manager of Geology of the Grasberg mining district in Indonesia for Freeport McMoRan, he played a significant role in the development of new ore reserves of 3.4 billion pounds of copper and 3.6 million ounces of silver at Freeport-McMoRan’s at Grasberg. Mr. Segerstrom is a Qualified Person under the Canadian Institute of Mining (CIM) to write NI 43-101 technical reports, considered the gold standard for certifying gold resources.


Cut-off grades are crucial in mining for delineating the ore from waste. They determine the lowest grade at which mined ore is considered economically viable, ensuring that the mining process is profitable. These grades are dynamic, influenced by factors including the market price of gold, mining costs, and technological advancements. Their accurate determination is essential for the ethical and economical management of mining resources.

Importance of Cut-off Grades

A cut-off grade is the minimum concentration of metal, in this case, gold, that must be present in the ore for mining to be economically viable. For instance, if a cut-off grade is set at 0.50 grams per ton, any material with a gold concentration above this threshold is processed as ore, while anything below is considered waste. This strategic delineation ensures that the mining operation is not wasting resources on processing material with too little gold to cover the cost of extraction and processing.

Deciding What Cut-off Grade to Use

The process of setting cut-off grades is complex and critical. The Canadian Institute of Mining, Metallurgy and Petroleum (CIM) provides overarching guidelines and standards, yet the actual determination of cut-off grades is left to the discretion of Qualified Persons (QPs). These professionals must weigh a variety of economic, environmental, and technical factors, adjusting their assessments as necessary to reflect changes in these variables.

The determination of cut-off grades, while inherently subjective, adheres to rigorous guidelines to ensure credibility and transparency in resource reporting. As mandated by the NI 43-101 Standards of Disclosure for Mineral Projects and supported by the CIM Best Practice Guidelines for Estimation of Mineral Resources and Reserves, the integrity of these estimations is paramount.

The guidelines explicitly state, “The Qualified Person(s) should be clearly satisfied that they could face their peers and demonstrate competence and relevant experience in the commodity, type of deposit, and situation under consideration.” This directive underscores the necessity for integrity and accountability in mineral resource estimation, empowering Qualified Persons to make decisions that reflect both their expert judgment and ethical considerations.

Bad Actor Behavior

In my professional opinion, there is not enough rigor in scrutinizing the validity or “reasonableness” of the assumptions used by many companies to establish cutoff grades, which often leads to misleading and/or disastrous economic outcomes.

One common strategy involves hyping up the deposit to appear as optimistic as possible by lowering the cutoff grade, which results in the overestimation of the size and grade of the gold resources or reserves, thereby generating an overly optimistic valuation of the deposit.

Another misleading strategy is to “update” NI 43-101 resource estimates whenever the price of gold rises, using the price increase to justify lowering the economic cutoff grade. While this can be justifiable under certain circumstances, it is sometimes exploited to inflate the overall number of gold resources.

Ensuring Credibility and Integrity

The International NatGold Council has established the NatGold Integrity Trust to oversee the application of these standards in digital mining projects. This body ensures that all cut-off grades used in digital mining are thoroughly vetted and that the resulting resource estimates are reliable. 

Composition and Oversight 

The NatGold Integrity Trust is comprised of three independent trustees who bring a wealth of experience and expertise to the oversight process:

  • Two Qualified Persons with a minimum of 20 years of experience each in the field of mineral resource estimation.
  • One lawyer with significant international mining expertise and at least 20 years of experience.

These trustees are tasked with unanimously approving any mining title before it is considered for tokenization into NatGold™. Their approval ensures that every step in the process meets the highest standards of integrity and professional ethics.

Conflict of Interest Policies

To maintain impartiality and objectivity, the trustees of the NatGold Integrity Trust are strictly prohibited from having any direct or indirect interests in the companies participating in the industry, including the NatGold miners and the entity managing the tokenization process, New York-based OroEx Corp. This policy prevents any potential conflicts of interest that could compromise the trustworthiness of the tokenization process and ensures that all decisions are made in the best interest of stakeholders and the integrity of the NatGold ecosystem. 

For clarification purposes, I am not a trustee of the NatGold Integrity Trust, as that would be a direct conflict with my position as an independent member of the Board of Directors of Great Eagle Gold Corp., a NatGold mining company.


The determination of cut-off grades is a foundational aspect of mineral resource estimation that significantly influences the economic outcomes of mining projects. Accurate and ethical determination of these grades is crucial for the sustainability of mining operations and the reliability of the mining industry. The NatGold tokenization model, supported by rigorous oversight from the NatGold Integrity Trust, exemplifies a commitment to upholding these high standards in the field of digital mining, thereby ensuring that resource estimations are conducted with the utmost integrity and professionalism. 

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