One of the first things we normally look at when examining a resource estimate is how much of the resource is classified as Measured or Indicated (“M+I”) compared to the Inferred tonnage. It is important to understand the uncertainty in the estimate and how much the Inferred proportion contributes. Having said that, I think we tend to focus less on the split between the Measured and Indicated tonnages.
Inferred resources have a role
We are all aware of the regulatory limitations imposed by Inferred resources in mining studies. They are speculative in nature and hence cannot be used in the economic models for pre-feasibility and feasibility studies. However Inferred resource can be used for production planing in a Preliminary Economic Assessment (“PEA”).
Inferred resources are so speculative that one cannot legally add them to the Measure and Indicated tonnages in a resource statement (although that is what everyone does). I don’t really understand the concern with a mineral resource statement if it includes a row that adds M+I tonnage with Inferred tonnes, as long as everything is transparent.
When a PEA mining schedule is developed, the three resource classifications can be combined into a single tonnage value. However in the resource statement the M+I+I cannot be totaled. A bit contradictory.
Are Measured resources important?
It appears to me that companies are more interested in what resource tonnage meets the M+I threshold but are not as concerned about the tonnage split between Measured and Indicated. It seems that M+I are largely being viewed the same. Since both Measured and Indicated resources can be used in a feasibility economic analysis, does it matter if the tonnage is 100% Measured (Proven) or 100% Indicated (Probable)?
The NI 43-101 and CIM guidelines provide definitions for Measured and Indicated resources but do not specify any different treatment like they do for the Inferred resources.
Relationship between Mineral Reserves and Mineral Resources (CIM Definition Standards).
Payback Period and Measured Resource
In my past experience with feasibility studies, some people applied a rule-of-thumb that the majority of the tonnage mined during the payback period must consist of Measure resource (i.e. Proven reserve).
The goal was to reduce project risk by ensuring the production tonnage providing the capital recovery is based on the resource with the highest certainty.
Generally I do not see this requirement used often, 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 convert Indicated resource to Measured so there may be some hesitation in this approach. Hence it seems to be simpler for everyone to view the Measured and Indicated tonnages the same way.
Conclusion
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 must be used? There is some potential merit to this idea, however adding more regulation (and cost) to an already burdened industry would not be helpful.
Perhaps in the interest of transparency, feasibility studies should add two new rows to the bottom of the production schedule. These rows would show how the annual processing tonnages are split between Proven and Probable reserves. This enables one to can get a sense of the resource risk in the early years of the project. Given the mining software available today, it isn’t hard to provide this additional detail.
Note: If you would like to get notified when new blogs are posted, then sign up on the KJK mailing list on the website. Otherwise I post notices on LinkedIn, so follow me at: https://www.linkedin.com/in/kenkuchling/.
On the site they have a searchable database for tax information for specific countries.
Tailings dam stability is so important that in some jurisdictions regulators may be requiring that mining companies have third party independent review boards or third party audits done on their tailings dams. The feeling is that, although a reputable consultant may be doing the dam design, there is still a need for some outside oversight.
Nowadays most small companies do not develop their own in-house resource estimates. The task is generally awarded to an independent QP.
One downside to a third party review is the added cost to the owner.
The term Theory of Constraints may be common to some. However that concept is different than what is being discussed in the book. The TOC essentially relies on managing a constraint or eliminating it, and then addressing the next constraint in sequence.
Irrespective of 43-101, if you are working at a mining operation the last thing you want to do is present management with an incorrect reserve, pit design, or production plan.
As a QP, I suggest the onus is on the software developers to demonstrate that they can produce reliable and comparable results under all conditions. They need to be able to convince the future users that their software is accurate.
So there likely is a significant network of experienced people out there. It’s just a matter of being able to tap into that network when someone needs specific expertise.
One of the first steps in an open pit design is the pit optimization analysis. Pit optimization is used to define the most profitable pit shell for a given set of economic parameters. The economic parameters include the metal prices, processing recoveries, and site operating costs. Normally when optimization is done, a range of metal prices or Revenue Factors (“RF”) is used to develop a series of nested shells to understand how the pit will expand or contract with increasing or decreasing metal prices.
Once the optimization step is complete, mining engineers will then design the pit inside that shell, introducing benches and ramps. The pit design should mimic the selected optimized shell as closely as possible.
One can easily evaluate the potential impact of changing metal prices, changing recoveries, ore tonnages, operating costs, etc. to see what the economic or operational drivers are for this project. This can help you understand what you might need in order to make the project viable.
The WBS can provide the following information to the team:
Typically a WBS is developed for pre-feasibility and feasibility mining studies but is often ignored at the PEA stage. Some feel it is too detailed for that level of study. I don’t feel this is the case.
The bottom line is that regardless of the level of study, a WBS should always be created.
