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.
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.