Articles tagged with: 43-101

43-101 Reports – What Sections Are Missing?

Recently as part of a due diligence I was reviewing a couple of 43-101 technical reports and something jumped out at me. There were pages and pages of statistical plots. The plots included QA/QC and check assay diagrams, variograms, box plots, swath plots, and contact plots. There was no lack of statistical information. However, as a mining engineer, there was something missing that was of interest to me. Good geological sections were missing.
Its seems that most technical reports focus heavily on describing the mathematical aspects of the resource, but spend less time describing the physical aspects of the geology and the mineability.

Who is the audience

It’s always open to debate who these 43-101 technical reports are intended for. Generally we can assume correctly that they are not being written mainly for geologists. However if they are intended for a wider audience of future investors, shareholders, engineers, and C-suite management, then (in my view) greater focus needs to be put on the physical orebody description.
Understanding the nature of the orebody brings greater understanding of the entire project.

Everyone likes geology

Whenever I listen to investor conference calls, many of the analyst’s questions relate to the resource and the mining operation. Essentially the participants want to know if this will be an “easy” mine or a “hard” mine.
One simple way to explain this is with good geological sections. They help everyone understand any potential issues; i.e. a picture is worth a thousand words. Good cross-sections will describe the following aspects.
  • The complexity (or simplicity) of the ore zones,
  • The width of the ore zones,
  • The vertical extent of geological information,
  • The drill spacing and drilling density,
  • The spatial distribution of assay information,
  • The grade distribution laterally and vertically,
  • The waste distribution throughout the mine,
  • The mining block size in relation of the ore zone dimensions
One can learn a lot just by looking at well presented cross-sections.  The nice thing is that they are generally understood by non-technical people.

Suggestions

I would like to suggest that every technical report includes more focus on the operational aspects of the orebody.
My recommendation is that the following information becomes standard in all technical reports.
  1. At least three to five cross sections through the deposit. Don’t just present a best case typical cross-section.
  2. At least one or two longitudinal sections.
  3. At least three level or bench plans, showing the drill hole pierce points.
Each cross section/bench plan should consist of two parts.
Part 1 shows the drill holes with color coded grade intercepts, ore zone wireframes, and lithology or rock types.
Part 2 should be a block model cross section showing the wireframes, drill holes, and color coded block model grades using the ore/waste cutoff grade as one of the clearly defined grade bins.
It doesn’t really matter if the cross- sections are included in Section 14 or Section 16 of the Technical Report. However if they are included in Section 16 then one should overlay the pit design and/or underground stope shapes onto the sections.
I also recommend NOT incorporating these cross-sections in the appendices since they are too important to be hidden away. They should be described in the main report itself.

Conclusion

Improving the quality of information presented to investors is one key way of maintaining trust with investors. Accordingly we should look to improve the description of the mineable ore body for everyone. In many cases it is the key to the entire project.
I am not suggesting that one needs to remove the statistical plots since they do have their purpose and audience. I am simply suggesting that we should not forget about everyone else try to figured out the viability of the project.
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43-101 and the Shrinking Feasibility Study

There is current sense that advanced mining studies are suffering from a lack of credibility with investors. Curiously it seems to me that many feasibility study documents are getting smaller at the same time. Might there be some link between the two?
My personal exposure to feasibility studies extends from managing them, participating in them, and undertaking due diligence reviews of them. Earlier in my career mining feasibility studies typically consisted of comprehensive documents, often contained in several binders of information. The study could generate a lot of paper. However currently it seems that often (not always) the 43-101 Technical Report can be the “final” feasibility study document.
In the past there would be binders with detailed calculations and backup for the different parts of the study. Typically there was a binder for the Executive Summary and separate sections (i.e. binders) for Geology, Mining, Processing, Infrastructure, Capital Cost, Operating Cost, Environmental, Project Execution, and Economic Analysis, etc.
The comprehensive report normally had both the report text and the details of the work done. This might include hand sketches, haul cycles, vendor price quotes, spec sheets, email correspondences, the WBS cost estimate detail, and so on.
The section appendices also included 3rd party reports like pit slope geotechnical studies, hydrogeological analysis, tailings dam designs, etc. The feasibility document might have included CD’s with the entire study in electronic format.
Generally all the supporting information for the study was in that comprehensive document. They were great. You knew you were somebody if you were given a personal copy of the entire report for your office.

43-101 Technical Report

The original intent of the 43-101 Technical Report was for it to be a summary document, only about 80-150 pages in length. The intent was to simplify all the technical work for the benefit of non-technical investors. Currently I have noticed that in many cases the 43-101 report is now the entire feasibility study document.
These 43-101 reports contain a fair amount of detail and they can exceed 400 pages in length. I’m not sure how many non-technical people actually read them beyond the Executive Summary or even read them at all.
Unfortunately if one is undertaking a due diligence review of a project, the 400 page Technical Report won’t contain the detail needed for a proper technical review. When more detail is requested, we are usually provided with a series of production and cost spreadsheets that need to be deciphered.  Furthermore the spreadsheets themselves don’t give the sources or basis for all the input data.
In my view the 400 page Technical Report is too confusing for the investing public and not detailed enough for technical review, thereby really satisfying no one.
Why aren’t the comprehensive feasibility study documents being completed all the time? I would suggest it is because of the effort and cost. It takes time to properly document all aspects of a study, creating legible tables, scanning files, and merging it all into a single PDF document. Preparing a 43-101 Technical Report can be a chore, as many of us have experienced in trying to meet the 45 day deadline. So who wants to take on the task of preparing an even larger document?

Recommendation

My recommendation is that, where budgets permit, mining companies return to the days of preparing the comprehensive feasibility study document. It’s the right thing to do.
One doesn’t need to print the entire report on paper since PDF files will work fine. Scanning of some sketches, vendor quotes may add an extra step, but that is hardly a momentous chore. Most 3rd party documents are already been submitted in PDF format so coordinating and merging will be the main task.
The 43-101 Technical Report could return to being a more investor friendly summary style document rater than a full study report.
This comprehensive document approach would apply to both pre-feasibility and feasibility studies that are used for advanced financing purposes.  The re-adoption of the comprehensive report format should be consistent among both large miners and juniors.

What about the PEA

The preliminary economic assessment (PEA) likely does not warrant a comprehensive report. The PEA is not definitive. I have also heard that the PEA is losing some credibility with investors, with some people referring to it as mainly a sales document. I don’t necessarily agree with that sentiment, but I understand why some see it that way.
As an aside, an interesting panel discussion might be whether the PEA has actually lost credibility, and if so, how can we restore credibility. My thoughts on PEA’s were summarized in a previous blog “Not All PEA’s Are Created Equal”.

Conclusion

If any mining industry credibility has been lost, re-establishing it should be important. One way to start doing this is to focus on creating the type of reports that best serve the needs of the industry stakeholders.
Some may say returning to comprehensive reports are a step backwards while mining needs to move forward. In my opinion, moving forward is going from less documented studies towards well documented studies.
One of the most technically detailed feasibility studies that I worked on was for the Diavik diamond project. This was a one-of-a-kind project operated by a well run risk-averse company (Rio Tinto). Every aspect of the project was documented to the upmost extent, although the company had the deep pockets to do that.  Funny thing though, as part of the internal Rio Tinto engineering team I don’t recall ever producing a final report document there (perhaps my recollections have been blurred since 20 years ago).
Once you have established the type of report you want, make sure your consultants clearly understand the expected deliverable. I recommend that someone on your team prepares an RFP document to lay out your wish list, even if sole sourcing the study. A previous blog was written on this topic at Request For Proposal (“RFP”) – Always Prepare One
As an aside, it would be interesting to know if those undertaking due diligence’s in the UK or Australia (i.e. not under 43-101 domain) have seen any changes in the quality of feasibility study documentation.
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Ore Dilution – An Underground Perspective

A few months ago I wrote a blog about different approaches that mining engineers are using to predict dilution in an open pit setting. You can read the blog at this link. Since that time I have been in touch with the author of a technical paper on dilution specifically related to underground operations. Given that my previous blog was from an open pit perspective, an underground discussion might be of interest and educational.
The underground paper is titled “Mining Dilution and Mineral Losses – An Underground Operator’s Perspective” by Paul Tim Whillans. You can download the paper at this link.

Here is the abstract

For the underground operator, dilution is often synonymous with over-break, which mining operations struggle to control. However, there are many additional factors impacting dilution which may surpass the importance of overbreak, and these also need to be considered when assessing a project. Among these, ore contour variability is an important component of both dilution and mineral losses which is often overlooked.  Mineral losses are often considered to be less important because it is considered that they will only have a small impact on net present value. This is not necessarily the case and in fact mineral losses may be much higher than indicated in mining studies due to aggregate factors and may have an important impact on shorter term economics.

My key takeaways

I am not going into detail on Paul’s paper, however some of my key takeaways are as follows. Download the paper to read the rationale behind these ideas.
  • Over-break is a component of dilution but may not be the major cause of it. Other aspects are in play.
  • While dilution may be calculated on a volumetric basis, the application of correct ore and waste densities is important. This applies less to gold deposits than base metal deposits, where ore and waste density differences can be greater.
  • Benchmarking dilution at your mine site with published data may not be useful. Nobody likes to report excessively high dilution for various reasons, hence the published dilution numbers may not be entirely truthful.
  • Ore loss factors are important but can be difficult to estimate. In open pit mining, ore losses are not typically given much consideration. However in underground mining they can have a great impact on the project life and economics.
  • Mining method sketches can play a key role in understanding underground dilution and ore losses, even in today’s software driven mining world.
  • Its possible that many mine operators are using cut-off grades that are too low in some situations.
  • High grading, an unacceptable practice in the past, is now viewed differently due to its positive impact on NPV. (Its seems Mark Bristow at Barrick may be putting a stop to this approach).
  • Inferred resources used in a PEA can often decrease significantly when upgraded to the measured and indicated classifications. If there is a likelihood of this happening, it should be factored into the PEA production tonnage.
  • CIM Best Practice Guidelines do not require underground ore exposure for feasibility studies. However exposing the ore faces can have a significant impact on one’s understanding of the variability of the ore contacts and the properties of minor faults.

Conclusion

The bottom line is that not everyone will necessarily agree with all the conclusions of Paul’s paper on underground dilution. However it does raise many issues for technical consideration on your project.
All of us in the industry want to avoid some of the well publicized disappointments seen on recent underground projects. Several have experienced difficulty in delivering the ore tonnes and grades that were predicted in the feasibility studies. No doubt it can be an anxious time for management when commissioning a new underground mine.
Note: previously I had shared another one of Paul’s technical papers in a blog called “Underground Feasibility Forecasts vs Actuals”. It also provides some interesting insights about underground mining projects.
If you need more information, Paul Whillans website is at http://www.whillansminestudies.com/.
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Mining Due Diligence Checklist

It doesn’t matter how long you have worked in the mining industry, at some point you will probably have taken part in a due diligence review. You might have been asked to help create a data room. Perhaps your company is looking at a potential acquisition. Maybe you’re a consultant with a particular expertise needed by a due diligence team. It’s likely that due diligence has impacted on many of us at some point in our careers.
The scope of a due diligence can be exceptionally wide. There are legal, marketing, and environmental aspects as well as all the technical details associated with a mining project. The amount of information provided can be overwhelming sometimes.

I’m a big fan of checklists

Checklists are great and they can be very helpful in a due diligence review. A scope checklist is a great way to make sure things don’t fall through the cracks. A checklist helps keep a team on the same page and clarifies individual roles and tasks. Checklists bring focus and minimize sidetracking down unnecessary paths.
Recognizing this, I have created a personal due diligence checklist for such times. A screen shot of it is shown below. The list is mainly tailored for an undeveloped project but it still has over 230 items that might need to be considered.

Each due diligence is unique

Not all of the items in the checklist are required for each review. Maybe you’re only doing a high level study to gauge management’s interest in a project. Maybe you’re undertaking a detailed review for an actual acquisition or financing event. It’s up to you to create your own checklist and highlight which items need to be covered off. The more items added the less risk in the end; however that requires a longer review period and greater cost.
You a create your own checklist but if you would like a copy of mine just email me at KJKLTD@rogers.com. Specify if you would prefer the Excel or PDF versions.
Please let me know if you see any items missing or if you have any comments.
Now that we have an idea of what information we need to examine in a due diligence, the next question is where to find it.
Previously I had written a blog titled “Due Diligence Data Rooms – Help!” which discussed how we can be overwhelmed by a poorly set up data room. My request is that when setting up a data room, please consider the people who will be accessing it.

Due Diligence isn’t for everyone

Due diligence exercises can be interesting and great learning experiences, even for senior people that have seen it all. However they can also be mentally taxing due to the volumes of information that one must find, review, and understand all in a short period of time.
Some people are better at due diligence than others. It helps if one has the ability to quickly develop an understanding of a project. It also helps to know what key things to look for, since many risks are common among projects.
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Ore Dilution Prediction – Its Always an Issue

mining reserve estimation
Over my years of preparing and reviewing mining studies, ore dilution often seems to be a contentious issue.  It is deemed either too low or too high, too optimistic or too pessimistic.  Everyone realizes that project studies can see significant economic impacts depending on what dilution factor is applied.  Hence we need to take the time to think about what dilution is being used and why.

Everyone has a preferred dilution method.

I have seen several different approaches for modelling and applying dilution.   Typically engineers and geologists seem to have their own personal favorites and tend to stick with them.   Here are some common dilution approaches.
1. Pick a Number:
This approach is quite simple.  Just pick a number that sounds appropriate for the orebody and the mining method.  There might not be any solid technical basis for the dilution value, but as long as it seems reasonable, it might go unchallenged.
2. SMU Compositing:
This approach takes each percent block (e.g.  a block is 20% waste and 80% ore) and mathematically composites it into a single Selective Mining Unit (“SMU”) block with an overall weighted average grade.  The SMU compositing process will incorporate some waste dilution into the block.  Possibly that could convert some ore blocks to waste once a cutoff grade is applied.   Some engineers may apply additional dilution beyond SMU compositing while others will consider the blocks fully diluted at the end of this step.
3. Diluting Envelope:
This approach assumes that a waste envelope surrounds the ore zone.  One estimates the volume of this waste envelope on different benches, assuming that it is mined with the ore.  The width of the waste envelope may be correlated to the blast hole spacing being used to define the ore and waste mining contacts.  The diluting grade within the waste envelope can be estimated or one may simply assume a more conservative zero-diluting grade.   In this approach, the average dilution factor can be applied to the final production schedule to arrive at the diluted tonnages and grades.  Alternatively, the individual diluted bench tonnes can be used for scheduling purposes.
4. Diluted Block Model:
This dilution approach uses complex logic to look at individual blocks in the block model, determine how many waste contact sides each block has, and then mathematically applies dilution based on the number of contacts.  Usually this approach relies on a direct swap of ore with waste.  If a block gains 100 m3 of waste, it must then lose 100 m3 of ore to maintain the volume balance.   The production schedule derived from the “diluted” block model usually requires no subsequent dilution factor.
5. Using UG Stope Modelling
I have also heard about, but not yet used, a method of applying open pit dilution by adapting an underground stope
modelling tool.  By considering an SMU as a stope, automatic stope shape creators such as Datamine’s
Mineable Shape Optimiser (MSO) can be used to create wireframes for each mining unit over the entire
deposit. Using these wireframes, the model can be sub-blocked and assigned as either ‘ore’ (inside the
wireframe) or ‘waste’ (outside the wireframe) prior to optimization.   It is not entirely clear to me if this approach creates a diluted block model or generates a dilution factor to be applied afterwards.

 

When is the Cutoff Grade Applied?

Depending on which dilution approach is used, the cutoff grade will be applied either before or after dilution.   When dilution is being added to the final production schedule, then the cutoff grade will have been applied to the undiluted material (#1 and #2).
When dilution is incorporated into the block model itself (#3 and #4), then the cutoff grade is likely applied to the diluted blocks.   The timing of when to apply the cutoff grade will have an impact on the ore tonnes and had grade being reported.

Does one apply dilution in pit optimization?

Another occasion when dilution may be used is during pit optimization.  There are normally input fields for both a dilution factor and an ore loss factor.   Some engineers will apply dilution at this step while others will leave the factors at zero.  There are valid reasons for either approach.
My preference is use a zero dilution factor for optimization since the nature of the ore zones will be different at different revenue factors and hence dilution would be unique to each.   It would be good to verify the impact that the dilution factor has on your own pit optimization, otherwise it is simply being viewed as a contingency factor.

Conclusion

My personal experience is that, from a third party review perspective, reviewers tend to focus on the final dilution number used and whether it makes sense to them.   The actual approach used to arrive at that number tends to get less focus.
Regardless of which approach is being used, ensure that you can ultimately determine and quantify the percent dilution being applied.  This can be a bit more difficult with the mathematical block approaches.
Readers may yet have different dilution methods in their toolbox and I it would be interesting to share them.
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Mining Press Releases – Where to Get Them

mining news
There are a lot of sources of mining information on the internet.  These encompass topics such as technical articles, analyst opinions, and company press releases. If your interest is largely company news releases, what is the best way to get these?
One way is to go to the individual company website and sign-up one their mailing 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

One option is to sign-up for a free account with a newswire service where you can select specific companies to follow.  You 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 some that I personally use.
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 at Cision and search various companies to add to your “My Subscriptions” list.Junior Mining News screenshot
Junior Mining News is another source to get general news updates via their daily newsletter (see screenshot). Their daily email gives a brief summary of today’s news events and includes “Read More..” links if you want 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.

Its easy

Using the services described above, it’s easy to sign up for multiple companies, too many companies in fact. Its easy to get inundated with emails.
Public companies need to keep an active news flow  and some companies are very good at it.
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 some of the same services or something entirely different.
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Disrupt Mining Challenge – Watch for it at PDAC

Update:  This blog was originally written in January 2016, and has been updated for Jan 2018.

Gold Rush Challenge

In 2016 at PDAC, Integra Gold held the first the Gold Rush Challenge.  It was an innovative event for the mining industry.  It was following along on the footsteps of the Goldcorp Challenge held way back in 2001.
The Integra Gold Rush Challenge was a contest whereby entrants were given access to a geological database and asked to prepare submissions presenting the best prospects for the next gold discovery on the Lamaque property.  Winners would get a share of the C$1 million prize.
Integra Gold hoped that the contest would expand their access to quality people outside their company enabling their own in-house geological team to focus on other exploration projects.   In total 1,342 entrants from over 83 countries registered to compete in the challenge.  A team from SGS Canada won the prize.

Then Disrupt Mining came along

In 2017, its seem the next step in the innovation process was the creation of Disrupt Mining sponsoerd by Goldcorp.  Companies and teams developing new technologies would compete to win a $1 million prize.
In 2017, the co-winning teams were from Cementation Canada (new hoisting technology) and Kore Geosystems (data analystics for decision making).
In 2018, the winning team was from Acoustic Zoom, an new way to undertake seismic surveys.

The 2019 winners will be announced at PDAC.  The entry deadline has passed so you’re out of luck for this year.

Conclusion

At PDAC there are always a lot of things to do, from networking, visiting booths, presentations, trade shows, gala dinners, and hospitality suites.
Now Disrupt Mining brings another event for your PDAC agenda.
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Measured vs. Indicated Resources – Do We Treat Them the Same?

measured and indicated
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.
CIM Resources to Mineral Reserves

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

mineral property acquisition
In 2016 I read several articles about how the junior mining industry must innovate to stay relevant.    Innovation and changing with the times are what is needed in this economic climate.
One company that was trying something new is Abitibi Royalties.  They were promoting a new way for them to acquire royalty interests in early stage properties.  They were offering to fund the claim fees on behalf of the property owner in return for a royalty.
Their corporate website states that they would 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, but it’s not a high stakes gamble given the relatively low investment needed.

Not just anywhere

Abitibi were specifically targeting exploration properties near an operating mine in the Americas. They were keeping jurisdiction risk to a minimum.   Abitibi stated that their due diligence and decision-making process was 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.
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On-Line Technical Report Library

mining studies
Update: This blog was originally written in August 2015, but has been updated in June 2019.
A while ago (in 2015) 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.

Original RSC website

OPAXE (then called RSC) created a 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.
Originally they also proposed a peer review concept. The goal was to develop a team of pre-approved volunteer mineral consultants that would review the various technical reports for accuracy and compliance. The hope is that such on-going peer reviews would help improve the quality of technical work.
It appears that the peer review aspect has been discontinued.  However currently, when viewing an individual project there is an input box that asks “I would like to anonymously report a compliance or data error issue with this report.
The website also allows you to search for reports based on date, commodity, stock exchange, type of study, as well as other criteria.

Conclusion

If you are interested in the technical aspects of different mining projects in different jurisdictions, check out the OPAXE website.  You can also still retrieve documents from the SEDAR site if you know the company you are looking for.  Alternatively the company website itself usually includes links to all their technical reports.

Update

Digbee website screenshot

In June 2019, a new website has come to my attention.  It is called Digbee, at thedigbee.com.   Its a new data and research platform where they match experts with mining feasibility studies to create objective reviews.  The site is very similar to the OPAXE one.
In May 2019 Digbee launched with a free database of over 3,000 economic studies, displayed on an interactive map.  In addition, they intend to offer a paid on-demand and independent analysis of published feasibility studies.  Mining companies can contact Digbee to get their project added.
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Cashflow Sensitivity Analyses – Be Careful

cashflow sensitivity
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 standard 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 have created the same chart in several economic studies so I understand the limitations with it.   The main assumption is that sensitivity economics are based on the exact same mineral reserve and production schedule.
That assumption may be applicable when applying a variable capital cost but is not applicable when applying varying metal prices and operating costs.   Does anyone really think that in the example show, the NPV is $120M with a 20% decrease in metal price or 20% increase in operating cost?
Potentially a project could be uneconomic with such a significant decrease in metal price but that is not shown by the sensitivity analysis.  Reducing the metal price would result in a change to the cutoff grade.  This changes the waste-to-ore ratio within the same pit.  So assuming the same the  mineral reserve is not correct in this scenario.
These changes in economic parameters would impact the original pit optimization used to define the pit upon which everything is based.  A smaller pit size results in a smaller ore tonnage, which may justify a smaller fleet and smaller processing plant, which would have higher operating costs and lower capital costs.
A smaller mineral reserve would produce a different production schedule and shorter mine life.  It can  get quite complex to do it properly.
Hence the shortcut is to simply change inputs to the cashflow model and generate outputs that are questionable but meet the 43-101 requirements.
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Financings – It Helps to Have a Credible Path Forward

mine economics
Update: This blog was initially written in May 2015, however not much as changed to the end of 2018.
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 struggling to get their piece of the financing pie.   People mention to me that 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 still extremely difficult.  That is unless company management has had past successes or is well connected to the money scene.
I’m told that 43-101 resource estimates alone no longer generate much excitement.  For projects to be “on the radar” they need to be advanced to at least the PEA stage.  It seems that investors want some vision of what the project might eventually look like.
I have be made aware of more junior mining companies that are struggling for cash while others seemed to have no problem in getting at least some funding to continue their operations.  To me, the biggest differences between these two situations are;
  • If there is top notch management in place,
  • The type of project they had,
  • If their path forward and development plan made sense.

You don’t want to always change management

Management is what it is.  Companies attempt to bring on experienced people to the executive level or to the Board level.   Experienced management can hopefully establish if their project will have a high probability of success or if the project is going to be a hard sell.  This will provide guidance on whether to continue spending money on the project or look for a new project.
From my experience in undertaking due diligence, when a company is looking for financing it is important that  management have the capability to present an orderly, practical, and realistic path forward.  It is important to demonstrate where they will spend the money.
I have participated in due diligence meetings listening to management teams explain that they will have a resource estimate this year and be in production in two years.  Those around the table glance at one another, knowing that they will be lucky to have a feasibility study completed by that time and even more lucky to have their environmental permits in place.   This makes investors nervous.

Keep plans realistic and achievable

It does not help the perception of a management team (or the project itself) if the path forward is unrealistic and unattainable.  The exception being if the management team have done it before.   Similarly low-balling cost estimates and presenting great NPV’s will usually fool no one that has experience. It ultimately may do more harm to credibility than good.
The 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 listening to them.
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/.
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