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CIM Los Andes – September 21, 2009

Mineral Reserve Estimation in the Real World:
A Review of Best Practices and Pitfalls
Marcelo Godoy, Ph.D.
Ore Evaluation Services
Golder Associates

Overview
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Introduction
CIM definition standards
Technical disciplines
Modifying factors check list
Commodity price and cut-off grade
Mineral Reserve Statement
Audit trail
Risk Assessment
References

September 22, 2009

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Where in the world was the gold? .

Viewpoint September 22. 2009 5 .

estimation procedures and description of the Exploration Information. reference. 2009 6 .CIM Definition Standards „ The CIM Definition Standards provide standards for the classification of Mineral Resource and Mineral Reserve estimates into various categories g „ The Mineral Resource and Mineral Reserve definitions were incorporated by reference incorporated. in National Instrument 43-101 43 101 Standards of Disclosure for Mineral Projects „ For the CIM Definition Standards a Technical Report is defined as a report that contains the relevant supporting documentation. or the Mineral Resource and Mineral Reserve estimate September 22.

Qualified Person „ A “Qualified Person” means an individual who is an engineer or geoscientist with at least five years of experience in mineral exploration or operation p or mineral p project j assessment. September 22.. and is a member in good standing of a professional association. has experience relevant to the subject matter of the mineral project and the Technical Report. or any y combination of these. 2009 7 ..

quantity. The location. or fossilized organic material in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. into Inferred. September 22. Indicated and Measured categories. solid. grade. estimated or interpreted from specific geological evidence and knowledge”. „ Mineral Resources are sub sub-divided. inorganic. divided in order of increasing geological confidence.Mineral Resource „ “A Mineral Resource is a concentration or occurrence of natural. and continuity of a Mineral Resource are known. 2009 8 . geological characteristics.

to support production planning and evaluation of the economic viability of the deposit. „ An ‘Indicated Indicated Mineral Resource Resource’ is that part of a Mineral Resource for which quantity quantity. „ An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which quantity and grade or quality can be b estimated ti t d on th the b basis i off geological l i l evidence id and d lilimited it d sampling li and d reasonably bl assumed. pits. and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters. The estimate is based on detailed d t il d and d reliable li bl exploration. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops. d b butt not verified. l ti sampling li and d ttesting ti iinformation f ti gathered th d through th h appropriate i t techniques from locations such as outcrops. trenches. geological and grade continuity. workings and drill holes. workings and drill holes that are spaced closely enough to confirm both geological and grade continuity. trenches. grade or quality. can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters. densities. shape and physical characteristics. trenches. densities. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops. pits. September 22. to support mine planning and evaluation of the economic viability of the deposit. 2009 9 .Mineral Resource „ A ‘Measured Mineral Resource’ is that part of a Mineral Resource for which quantity. shape. workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed. pits. grade or quality quality.

September 22.Mineral Reserve „ “A Mineral Reserve is the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility Study. metallurgical. that economic extraction can be justified. This study must include adequate information on mining. and other relevant factors that demonstrate. processing. A Mineral Reserve includes diluting materials and allowances for losses that may occur when the material is mined”. economic. 2009 10 . at the time of reporting.

Mineral Reserve „ A “Probable Mineral Reserve” is the economical part of an Indicated. processing. „ A “Proven Mineral Reserve” is the economical part of a Measured Mineral Resource demonstrated by y at least a Preliminary y Feasibility y Study. processing. at the time of reporting that economic extraction can be justified. 2009 11 . September 22. y This Study y must include adequate information on mining. This Study must include adequate information on mining. and in some circumstances a Measured Mineral Resource demonstrated by y at least a Preliminary y Feasibility y Study. metallurgical. economic and other relevant factors that demonstrate. economic and other relevant factors that demonstrate. metallurgical. at the time of reporting that economic extraction can be justified.

environmental impacts to mining. regulatory. and commercial parameters p September 22. 2009 12 . social. financial. processing.Mineral Resources Mineral Reserves Prelim minary Feas sibility Study Increasing Confidence in Geologic cal Data Resource and Reserve Classification Measured Indicated Inferred Proven Probable Application of economic. legal.

2009 13 EXPLORATION Discovery of mineralisation PELIMINARY ASSESSMENT Development drilling PRE-FEASIBILITY STUDY Further drilling. testing. design FEASIBILITY STUDY Construction Production Closure .Mining Project Life Cycle ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ September 22.

2009 14 .Preliminary Assessment (PA) „ A “PA” means a study that includes an economic analysis of the potential viability of mineral resources taken at an early stage of the project prior to the completion of a preliminary feasibility study ¾ ¾ ¾ ¾ ¾ Back of the envelope calculations Desktop p studies Formal studies based on untested assumptions The quality of the available data limits the validity of the results Such studies provide a guide to further work September 22.

2009 15 .Preliminary Assessment Identifies key issues: „ Market „ Strategic opportunities „ Tonnage g / Grade / Contaminants „ Land tenure issues „ Infrastructure and logistics g „ Environmental baseline „ Unanswered questions September 22.

g . g. in the case of an open p p pit. engineering. where an effective method of mineral processing has been determined. and economic factors and evaluation of other relevant factors which are sufficient for a QP.. operating. or the p pit configuration.Preliminary Feasibility Study (PFS) „ A PFS is a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method. ¾ The PFS often raises further questions ¾ September 22. metallurgy test work. has been established. and includes a financial analysis based on reasonable assumptions of technical. in the case of underground g mining. to determine if all or part of the Mineral Resource may be classified as a Mineral Reserve The first serious test of the project viability ¾ Define the likely mineable material and the impact of various styles and scales of mining and processing ¾ Provides targets and justifies further drilling. etc. 2009 16 . legal. acting reasonably.

legal. social. economic. Provide a detailed analysis of all the factors affecting a project's viability ¾ Enable determination of a “go” or “no go” decision ¾ Have become an aid in obtaining financial backing ¾ September 22.Feasibility Study (FS) „ A “FS” means a comprehensive study of a mineral deposit in which all geological. 2009 17 . operating. environmental and other relevant factors are considered in sufficient d t il that detail th t it could ld reasonably bl serve as th the b basis i ffor a fi finall d decision i i b by a financial institution to finance the development of the deposit for mineral production. engineering.

2009 0Moz 2001 18 2010 2011 2012 2013 2014 2015 2016 2017 Rec.BASE CASE $700M Cashfflow (M$) 70Mt 14Moz Cumulative Rec. Au . Ounces „ .BASE CASE 10Moz 9Moz $600M 8Moz $500M 7Moz 6Moz $400M 5Moz $300M 4Moz $200M 3Moz 2Moz 2Mt Ore Tonnes . Orebody Model Financial Forecasts Modifying Factors Cashflow & Recovered Au 13Mt 120Mt 12Mt $1000M 110Mt 11Mt $900M 100Mt 10Mt 90Mt 9Mt 80Mt 8Mt 7Mt 60Mt 6Mt 50Mt 5Mt 40Mt 4Mt 30Mt 3Mt 20Mt Total Movement .Base Case 13Moz NPV 10% .BASE CASE $800M Orre Tonnes Total Movement Total Movement and Ore Tonnes 130Mt $100M 1Moz 1Mt 0Mt $M 0Mt 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2002 2003 2004 2005 2006 2007 2008 2009 Year Year September 22.Reserve Estimation The requirement for economic viability implies determination of annual cash flows and inclusion of all relevant economic parameters.Base Case 10Mt 12Moz 11Moz Cumulative CashFlow .

and should be based on input and information from a multidisciplinary p y team under the direction of Q QP(s). ( ) September 22.Technical Disciplines „ Estimation of Mineral Reserves is a team effort involving a number of technical disciplines. 2009 19 .

Mineral Reserve Classification „ The category assigned to a Mineral Reserve estimate depends on: „ the level of confidence in the geological information available „ the quality and quantity of data available on the deposit „ the level of detail of the technical and economic information „ the interpretation of the data and information „ The classification of the Mineral Reserve allows the QP to identify technical risk September 22. 2009 20 .

2009 Data to determine appropriate mine parameters Mining method Production rate scenarios Cut-off grade Dilution Recovery with respect to the Resource model Waste rock handling Fill management (underground mining) Grade control method OPEX and CAPEX Sustaining capital cost Baseline studies Tailings management Waste rock management Acid rock drainage issues Closure and reclamation plan Permitting schedule Product specification and demand Off-site treatment terms and costs T Transportation t ti costs t Sustainable development strategy Impact assessment and mitigation Negotiated cost/benefit agreement Cultural and social influences 21 .Modifying Factor Check List „ „ „ „ „ „ „ „ „ „ „ Mining Processing Geotechnical Hydrological E i Environmental t l Location Infrastructure Marketing Factors Legal requirements Revenue Costs Social Issues September 22.

„ The selection of appropriate technical variables.” therefore. that will ill res result lt in an estimate of Mineral Resources and Mineral Reserves that have “reasonable prospects for economic extraction”. the QP has a difficult job in selecting an appropriate commodity price. or when p prices are at the extreme ends of a commodity price cycle.. including price. 2009 27 .Selection of an appropriate commodity price Commodity prices are used in the estimation of Mineral Resources and Mineral Reserves and in the economic analysis of a property. In times of rapidly p y changing g g commodity yp prices. in the technical report. including commodity price. is the responsibility of the QP. The QP must describe the reasons for selecting these variables. September 22. incl ding commodit commodity price price. a QP must select economic parameters including parameters. „ The definition of a “Mineral Resource” contains the wording “reasonable prospects for economic extraction.

Commodity price forecasting has a poor success rate. „ Methods for the selection of commodity price: ¾ Current commodity price ¾ Three-year moving average ¾ Long term historical averages (10 to 20 years) ¾ Margin over Cash Cost of Production ¾ Consensus Prices ¾ Contract Pricing September 22. 2009 28 .Commodity Price „ Commodity price is usually the most sensitive and important factor in the development of a mining project. „ Resource companies are “price-takers” with little control over international prices.

numerous cut-off g grades may y be required to estimate a Mineral Reserve „ The cut-off grade(s) should be clearly stated.. d t d C Complex l ores may require i complicated li t d procedures d tto determine cut-off grades and to define the Mineral Reserve. „ Consideration should be g given to the p problems associated with selective mining where the cut-off grade is set high relative to the average grade of the Mineral Resource.Cut-off Grade „ Cut-off grade is a unit of measure that represents a fixed reference point for the differentiation of two or more types of material. September 22. 2009 29 . Owing to the complexity p y of Mineral Reserve estimates. unambiguous and easily understood.

g dilution and mining recovery) that were used. cut-off g grade and its relationship p to the Mineral Resource.Mineral Reserve Statement „ Mineral Reserve statements should be clear and sufficiently detailed for a knowledgeable person to understand the significance of.g. „ There should be an obvious linkage of the Mineral Reserve estimate to the Mineral Resource estimate provided in a disclosure document. 2009 30 . „ In the case of open pit Mineral Reserve estimates. September 22. Best practice includes documentation of those linkages p g ((e. for example. the strip ratio should be clearly stated.

„ The classification methodology should be well documented and easily understood. 2009 34 . easily available for review. „ Information should be easily retrievable retrievable. readily available and catalogued in a manner that allows easy assessment of the history of the evaluations carried out and records the location of all relevant information/reports/etc. September 22. and clearly stated in disclosure statements. The requirement for economic viability implies determination of annual cash flows and inclusion of all the parameters that have an economic impact.Audit Trail „ The Reserve estimation process needs to be documented in such a way that the results can be exactly reproduced. „ The procedures used to establish the cut-off strategies should be well documented. Best practice includes providing a narrative description of the qualitative reasons behind the classification selection. „ The test of economic viability should be well documented as part of the Mineral Reserve estimation process.

measure of the effect of a variable on a project Risk = Uncertainty x Consequence eg: taxes have high consequence but because they are well known little uncertainty. Therefore risk is low.the state of not knowing „ Consequence . .A Definition of Risk Risk has two aspects: „ Uncertainty .

g . 2009 36 . September 22.Project Risk Assessment „ While the classification of the Mineral Reserve allows the QP to identify technical risk in broad terms. This will provide an understanding of the technical risk associated with the Mineral Reserve estimate. more design. test work and studies. „ What can we do to reduce risk? ¾ We may y decrease uncertaintyy using g knowledge. drilling. ¾ We may be able to impact consequence with more planning. more money. best practice includes the establishment of a methodology gy to identify y and rank risks associated with each input p of the Mineral Reserve estimate. g.

Risk Profile Residual Risk .

cost. extra constraints „ Catastrophe/Force p Majeure j . location. production rates. mineralogy „ Completion .operating costs.cost overruns overruns. under under-achievement.Technical Risks „ Resource .tonnage. achievement delays „ Operational . grade. equip/manpower „ Management .suitable for operation „ Environmental . publicity.

Geological Risk „ Geological risk is known to be a major contributor to not meeting project expectations. It arises because geological information is obtained from a limited number of samples. . „ Geological risk is the effect of geological uncertainty to project performance.

Armstrong and Dowd.1992. Dimitrakopoulos.2000 September 22. Journel. Rossi and Van Brunt.1994.Assessing Geological Risk Response Parameter Probable models of the deposit Response 1 Transfer Function Mining g Process Response 2 Response m Parameters of interest Response Distribution David.1988. 2009 41 .1997. 1998.

000 Final year likely to be negative cash flow 3.000.000 CS realisations First 2 years of production 5.000.000.000. 2009 42 10 12 14 .000 0 2 4 6 8 Production Period (1/4 Year) September 22.000 -5.Assessing Geological Risk 9.000 -1.000 -3.000.000 1.000.000 Cash Flow w A$ 7 000 000 7.000.000.

Standards of Disclosure for Mineral Projects .cfm For information about Golder Associates go to www. 2005 „ CIM Estimation of Mineral Resources and Mineral Reserves Best Practice Guidelines adopted by CIM Council on November 23.org/committees/guidelinesStandards p g g _main. 2003 „ NI 43-101 .References „ CIM Definition Standards .golder. 2009 43 .com September 22.(December 30.On Mineral Resources and Mineral Reserves adopted by CIM Council on December 11.cim. 2005) „ Questions resulting from CSA-CIM Committee Meetings (April 14. 2008) Available on the CIM website: http://www.

Principal Mining Engineer Ore Evaluation Services Golder Associates S. Ph. 2009 44 .11 de Septiembre 2353 .Piso 2. Providencia Santiago. Av. Chile T: +56 2 594 2080 | F: +56 2 594 2001 | C: +56 9 8233 1209 mgodoy@golder.A.www.cl September 22.com Marcelo Godoy.golder.D.

civil engineering. DATA MANAGEMENT • Database management • Digital data capture systems • Integration of legacy data • Quality control and assurance • Data analysis and validation • Software development GEOLOGICAL MODELLING • Geological modelling • Sampling studies • Grade control studies • 3D geotechnical modelling GEOSTATISTICAL ANALYSIS • Resource estimation • Resource classification studies • Drill spacing studies • Reconciliation studies • Conditional simulation • Risk assessment • Geometallurgical modelling MINING ENGINEERING • Strategic mine planning • Mineral reserve estimation • Scoping. hydrogeological and environmental services.ARD ENVIRONMENTAL SERVICES • Baseline studies • Environmental impact studies • Permitting master plans • Closure planning • Site evaluation and risk assessment • Monitoring and modelling • Sustainability studies . Golder Associates provides experience across the full range of geological. pre-feasibility and feasibility studies • Economic evaluation and risk analysis • Capex and Opex estimation • Mine optimisation • Design of underground and open pit mines • Mine equipments design • Cut-off grade and stockpile optimization • Mining method selection • Optimisation of unitary operations • Operational diagnostics • Wast dump design • Design of materials handling systems • Underground ventilation design TECHNICAL AUDITING & COMPLIANCE • Resources and reserves audits • Competent Person reports • National Instrument 43-101 (Canada) • JORC Code (Australia) • SAMREC (South Africa) • PERC (Europe) • SEC Requirements (USA) GEOTECHNICAL ENGINEERING AND ROCK MECHANICS • Geotechnical and geomechanical investigation • Rock characterisation • Pit slope stability analysis • Numerical modelling • Stability analysis and design of underground mines • Pit slope and ground support design • Geotechnical monitoring MINE WASTE MANAGEMENT • Geotechnical investigation and site selection • Geotechnical and hydrogeological characterisation • Stability analysis of tailings dams • Tailings management plans and dam design • Design of slurry. thickened paste and filtered tailings deposits • Construction management • Quality control and assurance • Closure planning MINE WATER MANAGEMENT • Open Pit and underground mine dewatering • Slope depressurization assessment • Surface and groundwater modelling • Water balance studies • Hydrogeology and hydrology studies • Field investigation and monitoring programs • Site characterisation • Flood studies • Surface and groundwater management • Hydraulic design • Water supply studies • Geochemistry studies • Acid rock drainage . In South America. mining. geotechnical.ORE E VA LUATION SERVICES South America Around the world Under the earth Above & beyond Golder Associates provides integrated services from project inception to mine closure for mining clients around the world.

density. identifying key stakeholders that will be integral to the social component and identifying any obvious potential ‘fatal flaws’ and issues of concern associated with development of the project. Golder uses in-house expertise and contracts specialist technical experts to ensure that the metallurgical testing. precision and representativity of the quantitative data inputs as well as the appropriateness of legacy data. material types.com. Global Issues Local Solutions OTHER MODIFYING FACTORS To define a mineral reserve it is expected that all economic. mining and metallurgical technical aspects have been defined by appropriate studies.COM . social and legal obstacles have been identified and appropriately addressed. The mine design must consider methods to ameliorate adverse conditions.com. Rock Mechanics Open pit and underground mine designs must be prepared using robust parameters that reflect the expected rock mass conditions and behaviour. mill recoveries and geometallurgical models are adequately defined. Metallurgy The requirement for a mineral reserve is that all the geological. Environmental Aspects Key environmental issues need to be addressed in any mining operation or project including identifying key sources of environmental information. scale-up issues. including grade.pe oes@golder. Golder uses a multi-disciplinary approach in preparing Competent Person or Qualified Person reports and technical audits. Mineral Reserves The estimation of a mineral reserve (also known as an ore reserve) requires a robust resource model. for which Golder can provide assistance in evaluating the accuracy. metallurgical recovery and consideration of all relevant modifying factors.COMPONENTS OF A MINERAL RESERVE REPORT Every deposit is different and thus deserves an experienced and open-minded approach to estimating mineral resources and reserves. and geometallurgical aspects. Each report includes a detailed review of vital aspects of mining including: Data Validation Valid data is the basis for all sound resource estimation. Geological Modelling Geological interpretations need to be transformed into a robust three dimensional geological model that characterises all the needs of mining and processing. Argentina BRAZIL CHILE PERU San Juan Belo Horizonte Santiago Lima [+54] (264) 426 1377 [+55] (31) 2121 9800 oes@golder.br [+56] (2) 594 2080 [+51] (1) 610 1700 oes@golder. geotechnical features. improve stability and increase productivity. Golder produces reports that clearly identify the work carried out and where appropriate makes recommendations to improve future studies. mine planning and design.cl WWW. Grade Estimation Grade estimation is carried out using advanced geostatistical techniques with consideration of the deposit style and mining method.cl oes@golder.GOLDER. economic parameters.COM OES@GOLDER.