Articles tagged with: 43-101

52. Mining Press Releases – Where to Get Them

There are numerous sources of mining information on the internet, encompassing topics such as technical articles, analyst opinions, and company press releases. It can be overwhelming sometimes. Now if your main interest is just seeing company news releases in a timely manner then what is the best way to do this?
One way is to go to the individual company website and sign-up one their email list. This approach generally works well but it forces you to sign up on a myriad of websites if you intend to follow a lot of companies. There are alternatives however.
One option is to sign-up for a free account with a newswire service where you can select the specific companies that you want to follow and then will get emailed news releases as soon as they are disseminated. The nice thing here is that you can select mining companies, non-mining public companies, as well as entire industries. Here are a few that I personally make use of.
Since different companies may use different news release distributors, the three websites that I track are:
Marketwire: There you can create a “Hot Off the Wire” account and then select your companies of interest. You can also select entire industries to add to your company list.
CNW Group Ltd.  Create an account there and search various companies to add to your “My Subscriptions” list.
Junior Mining News is another source to get general news updates via their daily newsletter, a screenshot is shown below. Their daily email gives a brief summary of events that happened recently and includes “Read More..” links if you want to read the entire press release. This website accesses some of the same news release distributors as mentioned above so there could be some repetition from time to time.


Junior Mining News screenshot

Using the services described above, it’s very easy to sign up for a lot of companies, too many companies in fact, and then get inundated with emails. We know that public companies need to keep the news flow active and some companies are very good at continually issuing news alerts. However by using the press release distribution websites you are consolidating your requests, thereby making it easier to control the amount of information you want to receive.
Feel free to share your method for tracking companies, whether using the same websites or something entirely different and better.

40. Integra Gold Rush Challenge – Watch for it at PDAC

Has everyone heard about the Gold Rush Challenge contest being held by Integra Gold Corp?  If not, I’d like to provide some information on it.  It’s another innovative event happening in the mining industry, following along on the footsteps of the Goldcorp Challenge held in 2001.

Gold Rush Challenge

The Integra Gold Rush Challenge is a contest whereby entrants are given access to a geological database and they are asked to prepare submissions presenting the best prospects for the next gold discovery on the Sigma/Lamaque properties.  Winners can get a share of the C$1 million prize.   Entrants will be given access to a database built from six terabytes of historical information that has been consolidated down to roughly 25 GB.
Integra Gold hopes that the contest will expand their access to quality people outside their company enabling their own in-house geological team to focus on other exploration projects.  Integra hope that they can get cutting-edge, innovative ideas not just from people in the mining industry but also from anyone proficient at analyzing big data.
From a recent press release update (Jan 6, 2016) here is what is currently happening.  It’s turning into quite the corporate event at PDAC.
In total 1,342 entrants from over 83 countries registered to compete in the challenge, resulting in 95 teams and over 100 proposals. Integra Gold is currently in the process of selecting the top 20 submissions which will be given to the Challenge’s technical judging panel.  The Challenge’s technical judging panel is made up of Neil Adshead, Andrew Brown, Benoît Dubé, James Franklin, David Rhys, and Brian Skanderberg.
By February 15th the judging panel will narrow the field down to the top five finalists.  These five teams will present to panel of industry leaders in a “shark-tank” style live finale at PDAC 2016.  Proceeds from the evening will go to a variety of Val-d’Or based charities.  The PDAC panel has been nominated and consists of Brent Cook, Chantal Gosselin, Rob McEwen, Sean Roosen, and Randy Smallwood.   It’s good to see the interest and participation from so many industry experts.
At PDAC there are always a lot of things to do, from visiting corporate booths, the tradeshow, gala award events, and hospitality suites.  Now the Integra Gold Rush Challenge brings another function to add to your PDAC agenda.
By the way, regarding the 2001 Goldcorp Challenge, it has been reported that it resulted in $CAD 575,000 being split amongst several teams and it having identified deposits were worth more than $6 billion and saved two to three years off the company’s exploration time.

39. Measured vs. Indicated Resources – Do We Treat Them the Same?

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.

38. Claim Fees Paid for a Royalty Interest – Good Deal or Not?

I have read several articles about how the junior mining industry must innovate to stay relevant.    Innovation and changing with the times may be what is needed in this economic climate.
One company that is trying something new is Abitibi Royalties.  They are promoting a new way for them to acquire royalty interests in early stage properties by offering to fund the claim fees on behalf of the property owner in return for a royalty.
Their corporate website states that they will pay, for a specified period of time, the claim fees/taxes related to existing mineral properties or related to the staking of new mineral properties.   In return, Abitibi Royalties would be granted a net smelter royalty (“NSR”) on the property.  It may be a gamble for them but it’s not really that risky given that the low investment needed to pay claim fees, even if one considers having to make these payments over multiple years.
Abitibi are specifically targeting properties located near an operating mine located in the Americas. They are keeping jurisdiction risk to a minimum.   Abitibi state that their due diligence and decision-making process is fast, generally within 48 hours.  No waiting around here but likely this is possible due to the low investment required and often the lack of geological information to do actually do a due diligence on.
To give some recent examples, in a December 14, 2015 press release, Abitibi state that the intend to acquire a 2% NSR on two claims in Quebec and will pay approximately $11,700 and reimburse the claim owner approximately $13,750 in future exploration expenses. This cash will be used by the owner towards paying claim renewal fees and exploration work commitments due in 2016.   Upon completion of the transaction, these will be the ninth and tenth royalties acquired through the Abitibi Royalty Search.  For comparison, some of their other royalty acquisitions cost were in the range of $5,000 to $10,000 each (per year I assume).   I think that those NSR interests are being acquired quite cheaply.
The benefit to the property owner may be twofold; they may have no other funding options available and they are building a relationship with a group that will have an interest in helping the project move forward.  The downside is that they have now encumbered that property with a NSR royalty going forward.
The benefit to Abitibi Royalties is that they have acquired an early stage NSR royalty quite cheaply although there will be significant uncertainty about ever seeing any royalty payments from the project.   Abitibi may also have to continue to make ongoing payments to ensure the claims remain in good standing with the owner.
It’s good to see some degree of innovation at work here, although the method of promotion for the concept may be more innovative than the concept itself. Unfortunately these Abitibi cash injections investments are not enough to pay for much actual exploration on the property and this is where the further innovation is required, whether through crowd funding, private equity, or some other means.   I’m curious to see if other companies will follow the Abitibi royalty model but extend it to foreign and more risky properties.

34. On-Line Technical Report Library

Recently on LinkedIn I noticed a discussion from a member of an Australian/New Zealand consulting group about developing an on-line community for undertaking free peer reviews of new resource estimates and technical reports.   The objective was to help the mining industry improve on their standards, consistency, and quality of resource estimates and the supporting technical reports.
RSC are steadily compiling a Dropbox library of technical reports that can be accessed via a searchable map on their web site at this link.  The map functionality is quite unique and interesting.  Check it out – there are many global projects already listed on the map.
The proposed peer review concept is not described on the web site but was part of a LinkedIn discussion, which now seems to be deleted from LinkedIn. The goal is (or was) to develop a team of pre-approved volunteer mineral consultants that would review the various technical reports for accuracy and compliancy.  The list of comments would then be complied and would generate a ranking to be provided back to the original author and/or the mining company.   The hope is that such on-going peer reviews would help improve the quality of technical work.
Via LinkedIn, they were seeking out volunteer reviewers and had numerous people interested already.  My understanding is that they were planning to start a trial run of the system within the next few weeks, however seeing the article gone from LinkedIn, the idea may have been put aside.  Nevertheless the searchable map is still there and it is an interesting way to see what project developments are occurring in the mining industry.

26. Cashflow Sensitivity Analyses – Be Careful

One of the requirements of NI 43-101 for Item 22 Economic Analysis is “sensitivity or other analysis using variants in commodity price, grade, capital and operating costs, or other significant parameters, as appropriate, and discuss the impact of the results.”
 The result of this 43-101 requirement is typically the graph seen below, which is easily generated from a cashflow model.  Simply change a few numbers and then you get the new economics.  The usual main conclusions derived from this chart are that metal price has the greatest impact on project economics followed by the operating cost.   Those are probably accurate conclusions, but is the chart itself telling the true story?
 DCF Sensitivity GraphI myself have created the same chart in several economic studies so I understand the limitation with it.   The main assumption is that sensitivity economics are generated on the exact same reserve and production schedule as for the base case.  That assumption may be applicable when applying a variable capital cost but may not be applicable when applying varying metal prices and operating costs.   Does anyone think that in the example show, the NPV is still $120M with a 20% decrease in metal price or 20% increase in operating cost? Potentially a project could really be uneconomic with such a significant decrease in metal price but that is not shown by the sensitivity analysis.
Increasing the operating cost changes the cutoff grade, which changes the waste-to-ore ratio within the same pit.  So assuming the same the life-of-mine production tonnage is not entirely correct in this scenario.
Reducing the metal price would also result in a change to the cutoff grade.  If one were to go all the way back, these changes in economic parameters would impact on the original pit optimization used to define the pit upon which everything is based.  A smaller pit size results in a different pit tonnage, which may require a smaller processing plant, which would then have new (higher) operating and lower capital costs than assumed.  A smaller reserve would produce a different production schedule and shorter mine life.  It can all get quite complex.
So due to all the changes these sensitivities generate, it does require a lot of work to properly examine them. However generally the project proponent does not want to incur the costs necessary to run multiple pit designs and multiple life of mine plans simply to examine sensitivities.  Hence the shortcut is to simply change inputs to the cashflow model and generate outputs that are questionable but meet the 43-101 requirements.

12. Financings – It Helps to Have a Credible Path Forward

Let me say the obvious; the state of the junior mining market is not great these days.  The number of financings is down and it seems there are a lot of companies out there trying to get their piece of the financing pie.   People say there actually is a fair bit of private equity funding available but only for the right projects.
I have heard from geologist colleagues that financing grass-roots exploration is extremely difficult to acquire unless company management has had past successes and is well connected to the money scene. I’m told that 43-101 resource estimates alone don’t generate much excitement and for projects to be “on the radar” they need to be advanced to at least the PEA stage.  Investors want some vision of what the project will look like.
In the recent past I have become familiar with some junior mining company that were always struggling for cash while others seemed to have no problem in getting at least some funding to continue their efforts.  The biggest differences between these two situations were; (a) the top level management in place, (b) the type of project they had, and (c) if their path forward plan made logical sense.
Management is what it is, although companies generally do attempt to bring in experienced people with track records on either the executive level or the Board of Directors level.   Experienced management can hopefully establish if their projects will have a high probability of success or if the project is going to be a hard sell.  This will determine whether they should continue to spend money on the project.
In my experience, when in the financing mode, it is important that company management have the ability to present an orderly, practical, and realistic path forward for the project to demonstrate what they will do with the money.   I have participated in due diligence meetings and listened to a management team tell us they will have a resource estimate this year and be in production in two years.  Those around the table look at one another knowing that they will be lucky to have a feasibility study completed by that time and lucky to have their environmental permits in place.   It does not help the perception of a management team (or the project itself) if the path forward is unrealistic and unattainable, unless the management team have done it before.   Similarly low-balling cost estimates and presenting fantastic NPV’s will fool no one with experience and ultimately may do more harm than good towards credibility.
My bottom line is that in order for a project (and the management team) to get serious attention from potential investors is to make sure there is a realistic view of the project itself and have a realistic path forward.   Even a good property can be tarnished by making the technical aspects look over-promotional rather than real.  Make sure the right technical people are involved in the entire process and that company management are willing to listen to them.  Clearly explain how the money will be spent.

8. PEA’s – Is it Worth Agonizing Over Details

As stated in a previous article (“PEA’s – Not All PEA’s Are Created Equal“) different PEA’s will contain different levels of detail due to the amount of hard technical data used in each.    The same statement holds within a single PEA itself whereby different chapters of the same study can be based on different quality of data.
I have seen PEA’s for which many of the chapters were fairly high level based on limited data but then some parts of the technical report may go into great depth and detail. This may not be necessary.  For example, if the resource is largely inferred then the mine production plan will have a fair bit of uncertainty built into it.  So there is not a lot of value in the engineers preparing a detailed tailings design concept for that mine plan.  Similarly there is little value in developing a very detailed operating cost model or cashflow model for a study which has uncertainty in many areas.  This is a waste of time and money, it adds to the study timeline, and may give the impression that the study is more accurate than it really is.
Differing levels of detail in the same study is a common problem when diverse teams are each working on their own aspect of the study.   Some groups may think they are working with highly accurate data (e.g. production tonnage) when in reality the data is still somewhat speculative.
My bottom line is that it is important for the Study Manager and Owner to ensure the entire technical team is on the same page and understands the type of information they are working with.   The final study should be consistent throughout.  Experienced reviewers will recognize the data gaps in the study and hence view the entire study in that light regardless of how detailed the other sections of the report appearing to be.

6. Metal Equivalent Grade versus NSR for multi-metals – Preference?

Some of the mining studies that I have worked on were for deposits containing multiple recoverable metals, for example Ag-Pb-Zn mineralization or Cu-Pb-Zn-Au-Ag mineralization.    Management discussions were held regarding whether to use a “metal-equivalent grade” to simplify the deposit grade or to use a Net Smelter Return (“NSR”) value.  The NSR would represent a $/tonne recovered value rather than a head grade value.
I have found that the geologists tended to prefer using a metal-equivalent grade approach.  This is likely due to the simpler logic and calculation required for an equivalent formula and it’s somewhat easier to select the cutoff grade based on similar projects.   Generally I have no reservations on the metal-equivalent approach for a resource estimate.   However from an engineering standpoint, I feel an equivalent-grade doesn’t provide a meaningful representation of the ore quality.   It is more difficult to relate to the head grades to an operating scenario that may rely on different mining and processing methods generating different final products (e.g. dore versus concentrates).   The NSR makes it easier for me to relate to the actual ore quality.
The NSR calculation will require more input data, such as metallurgical recoveries, concentrate characteristics and costs, and smelter payable parameters.  However the end result is an NSR block value that can be related directly to the operating costs.   For example if a certain ore type has an on-site processing cost of $20/tonne and G&A cost of $5/tonne, then in order to breakeven the ore NSR block value must exceed $25/tonne.   If one decides to include mining costs and sustaining capital costs, then the NSR cutoff value would be higher.  However in all cases one can directly relate the ore block value to the operating cost and use that to determine if it is ore or waste.  This is more difficult to do with equivalent grades.   Using the NSR, the operating margin per block is evident immediately.
If using pit phases to start mining in high grade areas, one can immediately get a sense for the incremental benefit by looking at the profit margin per pit phase.
A drawback to the NSR block value approach is that its calculation will be based on specific metal prices.  If one chooses to change the metal prices then one must recalculate all the NSR block values.  In some studies, I have seen higher metal prices used for resource reporting and then different metal prices for mine planning or reserves.  In such cases, one must generate two different NSR values for each block but one can use the same NSR cutoff value for reporting tonnages.   This two NSR approach is reasonable.
Pit optimizations can be undertaken using the block NSR values rather than calculated block revenue values, so the use of NSR’s should not create any problems for pit optimization.
For projects that involve concentrates the detailed cashflow models usually incorporate detailed net smelter return calculations, which include penalties, deductions, different transport costs, etc.  The formulae used for the calculation of NSR block values should be a simpler calculation than the cashflow NSR calculation.   For example, one could try to build in penalties for arsenic content thereby lowering the NSR block value; however in actuality such ore blocks may be blended and the overall arsenic content in the concentrate may be low enough not to trigger the penalty.  Since the NSR block value is mainly being used for the ore/waste cutoff, I don’t feel it is critical to get too detailed in its calculation.
My bottom line is that from an engineering standpoint and to improve project clarity, I would recommend the use of NSR values rather than equivalent grades.   Geologists may feel differently.

5. PEA’s – Not All PEA’s Are Created Equal

A Preliminary Economic Assessment (“PEA”) is defined in NI 43-101 as “…a study, other than a pre-feasibility or feasibility study, that includes an economic analysis of the potential viability of mineral resources”.  This is a fairly broad definition that provides for plenty of flexibility.  While there are generally accepted industry norms for a pre-feasibility or feasibility study, the PEA can have a wide ranging scope.
Some PEA’s can be based on a large database of test work and site information while others may rely on very preliminary data and require design projections based on that data. Some PEA’s may have production schedules consisting largely on Inferred resources while other schedules may be based on higher proportion of Indicated resource.   Some PEA’s are able to incorporate information from advanced socio-environmental work while other PEA’s may not have access to such information.  Therefore one should not view all PEA’s are being created equal.
The PEA can be developed at a fairly early stage in the project life.  That initial PEA may then be superseded with a series of updated PEA’s as more data is acquired.  Typically one would expect to see changes in project size or scope in these updates and hopefully improved economics.  Shareholders generally will appreciate being kept updated on positive growth trends.
The sequential PEA approach is a good way to continue advancement of the project without making the big step to a pre-feasibility or feasibility study.  Perhaps the project is still growing in size and a feasibility study at this stage would not be presenting the true potential, hence going with an updated PEA.  On the downside of the sequential PEA approach is that investors may get tired of hearing about PEA after PEA and want to see a bigger step in advancement leading towards a production decision.  How long can you keep studying this project they ask?
With regards to the content of a PEA, there is essentially no right or wrong with regards to what constitutes a PEA.   Hence the Securities Commissions consider the cautionary language an important component of the PEA Technical Report and may red-flag you if it’s not in all the right places.   However this cautionary language is generally focused on the resource.  For example “The reader is cautioned that Inferred Resources are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves, and there is no certainty that value from such Resources will be realized either in whole or in part.”   In this cautionary statement there is no mention of all the other speculative assumptions that may have been used in the study.  For example, the Inferred resource may not be that significant however the amount of metallurgical testwork might be a bigger uncertainty.  The previous cautionary language doesn’t address this issue and therefore it is important that one reviews the chapters in the Technical Report pertaining to risks and recommendations to get a more complete picture of the situation.
My bottom line is that when reviewing a PEA report, be aware of all the uncertainties and assumptions that have been incorporated into that study.   The report may be well founded or built on a shaky foundation.  No two PEA’s are created alike and this must be clearly understood by the investor.   Perhaps develop a PEA “checklist” for yourself that can be used to rate the amount and quality of data used for the various aspects of study to help understand where gaps may exist.