One of the first things we look at when examining a resource estimate is how much of the resource is classified as Measured / Indicated (“M&I”) versus the tonnage classified as Inferred.  It’s important to understand the uncertainty in the estimate and to a large degree the Inferred proportion gives us that.   At the same time I think we tend to focus less on the split between the Measured and Indicated tonnages.
We are all aware of the study limitations imposed by Inferred resources.  They are speculative in nature and hence cannot be used in the economic models for feasibility and pre-feasibility studies. However Inferred resource can be used for production planing in Preliminary Economic Assessments (“PEA”).
Inferred resources are also so speculative that one cannot add them to the Measure and Indicated tonnages in a resource statement, although that is what just about everyone does when looking at a project.   I don’t think I fully understand the concerns with a resource statement if it included a row that adds M&I tonnage with Inferred tonnes as long as everything is open and transparent.   When a PEA production schedule is presented, the three resource classifications are combined into a single tonnage number but in the resource statement itself the M&I&I cannot be totaled.  A bit contradictory I feel.
With regards to the M&I tonnage, it appears to me that companies are most interested in what part of their  resource meets the M&I threshold but are not as interested in how the tonnage is split between Measured and Indicated.   It seems that M&I are largely being treated the same.  Since both Measured and Indicated resources can be used in the feasibility economic analysis, does it matter if the split is 100% Measured (Proven) or 100% Indicated (Probable)?   The NI 43-101 and CIM guidelines provide definitions for Measured and Indicated resource but do not specify any different treatment like they do for the Inferred resources.

 

CIM Resources to Mineral Reserves

Relationship between Mineral Reserves and Mineral Resources (CIM Definition Standards).

 

In my past experience with feasibility studies, some people used the rule-of-thumb that the tonnage mined during the payback period must largely consist of Measure resource (i.e. Proven reserve) and then the rest of the production schedule could rely on Indicated tonnage (Probable reserve).  The idea was that a way to reduce project risk was to ensure that the production tonnage providing the capital recovery should be based on the resource with the highest certainty.   Nowadays I generally do not see this same requirement for Measured resources, although I am not aware of what everyone is doing in every study.   I realize there is a cost, and possibly a significant cost, to shift Indicated resource to Measured so there may be some hesitation. Hence it may be simpler for everyone to simply regard the Measured and Indicated tonnages in roughly the same way.
NI 43-101 specifies how the Inferred resource can and cannot be utilized.  Is it a matter of time before the regulators start specifying how Measured and Indicated resources can be used?  I see some potential merit to this idea but adding more regulation and cost to an already burdened industry is not helpful.
Perhaps in the interest of increased transparency, feasibility studies just need to add two rows to the bottom of the production schedule showing how the annual processing tonnages are split between Proven and Probable reserves.  One can get a better sense of the resource risk in the early years of the project.  Given the mining software available today, it likely isn’t difficult to provide such additional detail.
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6 thoughts on “39. Measured vs. Indicated Resources – Do We Treat Them the Same?

  1. hardrockminer

    In my opinion the single most important economic variable in a study is how the block model was constructed. More projects are undone by a bad model than by any other factor. (Check out Rubicon for a recent example.) Therefore, it is critical for an investor to understand how the model was constructed…among other things. Another factor most people tend to overlook is that models are not deterministic. They are statistical risk based estimates and are merely blurry reflections of the originator’s knowledge and experience with resource estimation. So it’s good to know who did the model and what his background is.

    In the end, the model is simply a model of reality that can be very good or very bad. The designations of MI&I are only one component to the model that an investor has to consider before putting his money down.

  2. Ken Kuchling Post author

    By coincidence, I putting together some thoughts for a future blog on the reliability of the QP’s doing the estimates. Unfortunately most investors cannot build their own block model so they have to rely on those QP’s doing the work. Further, investors can not verify the competency of the QP so there is a lot of trust in the system.

  3. hardrockminer

    I think you misunderstood. You don’t need to build a block model to understand how it was done, although it’s a nice and necessary check for doing due diligence.

    Normally the largest section (mineral resource) of a technical report is devoted to how the model was constructed. It’s generally very technical and very boring, but well worth the time to read and understand. The competency of a QP is a required part of the report. Some of the issues I look for are:

    block size vs shovel size.
    composite length vs block dimensions
    normal or log normal distribution?
    search radius and elipse orientation
    use of domains
    number of required samples to interpolate into a block and whether more than one dd hole is required
    cumulative probability curve and use of MIK.

    These are all things that a resource geologist can play with to enhance his interpretation of tonnes and grade.

    After reviewing a few reports a reader gets a good sense of which ones are well done and which ones are not well done. Over time you see the same names coming up on different reports, particularly among the juniors. When I see certain names I read a little more carefully.

    A frustrating aspect of technical reports is when an operation does one for their producing mine. These generally have less information than independent reports, particularly in the schedule, cost and economic valuation sections.

  4. Ken Kuchling Post author

    I was looking at it from the viewpoint of retail penny stock investor that doesn’t have a mining background. The 43-101 report is pretty meaningless to them and also are the names of the QP’s. Maybe these type of people shouldn’t be investing in the pennies if they aren’t technically savvy and they cannot trust the system. Newsletter writers can fill the information gap, but then some of them are not entirely independent either.

  5. hardrockminer

    Penny stock investors are probably better off relying on hot tips on bullboards!

    Back to your original point on M vs I, it really does make a difference to someone like me because I think about what it means in a number of ways. Of course the risk factor will be higher if there is very little M and lots of I. Then there is the grade factor. Have you ever noticed how for most reports the grade is higher for M, lower for I and lower again for the other I? This is not always the case, but it makes me wonder if grade can be improved by more drilling to move I into the M category. Also, in those cases where the grade of I is higher than M it makes me wonder how well the resource calculation was done.

  6. Peter Myers

    I have heard this said before – “drill more holes to boost the grade”. Unfortunately tt doesnt work like that. It’s usually because the higher grade min, being the most attractive stuff, was where the greatest attention was paid, so more holes are drilled there to prove it up. The extra holes leads to the M classification. Cause is the greater density of data, effect is the M classification.

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