41. Resource Estimates – Are Independent Audits A Good Idea?
Date: February 2, 2016Author: Ken Kuchling
Question: how important is the integrity of a tailings dam to the successful operation of a mine? Very important; so much so that in some jurisdictions regulators may soon be stipulating that mining companies must have third party independent review boards or third party audits done on their tailings dams. The feeling is that although a team of capable engineers may be doing the dam design, there is still a need for some outside oversight to get another perspective. Differences in interpretation, experience, and errors of omission are always a possibility regardless of who does the work. Hence a second set of eyes can be beneficial.
Next question is how important is the integrity of the resource and reserve estimate to the successful operation of a mine? Very important; the mine life, project economics, and shareholder value all depend on it. So why aren’t a second set of eyes or third party resource audits commonly done?
In the years prior to 43-101, junior mining companies could produce their own resource estimates and disclose the results. With the advent of NI 43-101, a second set of eyes was introduced whereby an independent QP could review the company’s internal resource estimate and/or prepare their own estimate and ultimately take legal responsible for the estimate.
Nowadays most small companies do not produce their own in-house resource estimates and the task is generally awarded directly to an independent QP. Maybe companies don’t prepare their own in-house resource estimates due to the specialization needed in modelling and geostatistics, and the knowledge needed to use today’s block modeling software. Maybe they feel doing their own internal resource estimate is a waste of time since an independent QP will be preparing an estimate for them anyway.
Given that, in many cases the project resource estimate is prepared solely by the QP or a team of QP’s. In many cases this resource gets published without any other oversight, in other words without a second set of eyes taking a look at it. The assumption is that QP doing the work is a qualified expert, their judgement is without question, and their work is error free.
As we have seen recently, some resources estimates have been mishandled and disciplinary actions have been taken against some QP’s. I guess one can conclude that maybe not all QP’s are perfect. Just because someone meets the requirements to be a Competent Person or a Qualified Person does not automatically mean that they are competent or qualified. Geological modeling is not an exact science and will be partly based on the person’s experience and what they have seen in the past.
My question is whether it wouldn’t be good practice for companies to have a second set of eyes take a look at their maiden resource estimates produced by independent QP’s? For example, where I have been involved in mining mergers or takeovers, often one side will tend to rebuild the resource model using their own team. They don’t put 100% confidence in the original resource model handed over to them. “Just give me the database” they ask.
One downside to a third party review is the additional cost. Another downside is that when one consultant reviews another consultant’s work there is a tendency to list numerous concerns that are not really that material, which then can muddle the conclusion of the review. On the other hand, a third party review may identify serious interpretation or judgement issues that could be fatal if they impact on the viability of the resource.
If tailings dams are so important to require a second set of eyes, why not the resource estimate that is the foundation of the project?