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A Framework for Presenting & Benchmarking Mineral Projects
AusIMM Project Evaluation, Mar 2016
Mark Noppe SRK Consulting Brisbane, Australia mnoppe@srk.com.au
Content Presenting mineral project development status - how confident are we?
• Introduction • Context is everything
• Technical factors • Social, Environmental and Governance factors
• Codes, standards, guidelines and industry practice • Accuracy, confidence and quality • Case studies • Conclusions
Introduction Mining is an inherently risky business
The market needs transparent, consistent and balanced views of a project’s technical confidence and development status, including social, environmental and governance factors Risks and opportunities exist for
• advancing an exploration prospect to a viable project, and
• operating a mine
Noppe, 2014
This talk focuses on presenting a mineral resource project in the correct context for the benefit of all stakeholders
Context Why feasibility studies or mine projects fail: technical factors
• Mined ore grade is lower than expected • Processing plant under-performs • Development cannot keep up with planned schedule
Technical factors resulting in feasibility study failure: • Geology, resource and reserve estimation: 17% • Geotechnical analysis: 9% • Metallurgical test work, sampling, mineralogy: 15% • Geo-hydrology: 4% • Mine design and scheduling: 32% • Mining equipment selection: 4% • Process plant design: 12% • Cost estimation: 7%
Some 50% of technical causes relate to geo–technical data collection and
interpretation
How do we communicate uncertainty?
McCarthy, 2014
Context Why feasibility studies or mine projects fail: Social, Environment, Governance (SEG) factors
• Development timelines have nearly doubled in the past decade (from 5-7 years to 10-15 years)
SEG themes critical to mining project success / failure: • Communication • Community conflict • Quality of information • Social investment versus risk mitigation • Value versus cost / benefit decision making • Timeframes: social / legal / technical / financial (incl. markets) • Incentive structures (to manage adverse impacts) • Market drivers (lenders, insurers, customers
governments)
Corder, 2015. Davis & Franks, 2014. Ernst & Young, 2015. Fraser Institute, 2014.
Non-technical risks account for up to half of all risk factors faced by
extractive industries
Context Importance of Resources, Reserves and SEG
• Mineral Resources and Ore Reserves
underpin strategic and actual investment and technical valuations
• SEG and market factors moderate value
Residual resources
Exploration potential
Reserve (mine schedule)
Valuation “buckets”
Xstract, 2014
Codes Reporting definitions Don’t forget about: • Development stages • Timing • Level of technical-economic
study • Level of confidence in all
relevant factors, including SEG factors
• Transparent, consistent, balanced reporting
JORC Code, 2012
Codes Project development stages
Project development
stage
Criterion
Exploration areas Mineralisation may or may not be defined, but where a Mineral Resource has not been identified.
Advanced exploration areas
Considerable exploration has been undertaken and specific targets identified. Sufficient work has been completed on at least one prospect to provide a good geological understanding and encouragement that further work is likely to result in the determination of a Mineral Resource.
Pre-development / resource
Mineral Resources and/or Ore Reserves were identified and estimated. A positive development decision has not been made. This includes properties where a development decision has been negative and properties are either on care and maintenance or held on retention titles.
Development Committed to production but not yet commissioned or not initially operating at design levels.
Operating Mineral properties, in particular mines and processing plants, which were fully commissioned and are in production.
VALMIN Code, 2005
Codes Project development stages
Project development
stage
Criterion
Early-stage Exploration
Mineralisation may or may not have been identified, but where Mineral Resources have not been identified.
Advanced Exploration
Considerable exploration has been undertaken and specific targets identified that warrant further detailed evaluation, usually by drill testing, trenching or some other form of detailed geological sampling. A Mineral Resource estimate may or may not have been made, but sufficient work will have been undertaken on at least one prospect to provide both a good understanding of the type of mineralisation present and encouragement that further work will elevate one or more of the prospects to the Mineral Resources category.
Pre-development Mineral Resources have been identified and their extent estimated (possibly incompletely), but where a decision to proceed with development has not been made. Properties at the early assessment stage, properties for which a decision has been made not to proceed with development, properties on care and maintenance and properties held on retention titles are included in this category if Mineral Resources have been identified, even if no further work is being undertaken.
Development A decision has been made to proceed with construction or production or both, but which are not yet commissioned or operating at design levels. Economic viability of Development Projects will be proven by at least a Pre-Feasibility Study.
Production Tenure holdings – particularly mines, wellfields and processing plants – that have been commissioned and are in production.
VALMIN Code, 2015
Industry practice Timeline of project development stages
Social, Environment and Governance engagement
5-15 years 1-10 years 1-5 years
Construct
Financing
Industry practice & guidelines Technical-economic study levels
• Accuracy and confidence levels are not provided in reporting Codes
• There are industry guidelines
• Actual cost accuracy is often less
Measure / Item Scoping Study Pre-feasibility Study
Final Feasibility Study
Cost accuracy ±25%-50% ±15-25% ±10-15%
Cost contingency 30-50% 15-30% <15%
Proportion of Engineering
complete
<5% <20% <50%
Resource categories
Mostly Inferred Mostly Indicated Measured and Indicated
Reserve categories
None Mostly Probable Proved and Probable
Mining method Assumed General Optimised
Mine design None or high-level conceptual
Preliminary mine plan and schedule
Detailed mine plan and schedule
Scheduling Annual approximation
3-monthly to annual
Monthly for much of payback period
Risk tolerance High Medium Low
M E White & I Harrington, 2014. Feasibility Studies – Scope and Accuracy. AusIMM Monograph 30.
Context How it all fits together • Project advancement • Data quantity and
data quality • Technical/economic
assessment - Resource & Reserve reporting
• Final engineering / Construction
• Commissioning • Production
Noppe, 2014
Context How it all fits together • Project advancement • Data quantity and
data quality • Technical/economic
assessment - Resource & Reserve reporting
• Final engineering / Construction
• Commissioning • Operating • SEG factors
Noppe, 2014
Social
Environmental
Governance
Operations
Context – weak links in the “chain” How it all fits together • Project advancement • Data quantity and
data quality • Technical/economic
assessment - Resource & Reserve reporting
• Final engineering / Construction
• Commissioning • Operating • SEG factors
Noppe, 2014
Social
Environmental
Governance
Operations
So why do we still get it wrong? Technically: ASX Release ASX Retraction More work to be done: DFS was far from a definitive Feasibility Study
Codes & guidelines Technical Reporting Codes
• Provide minimum standards,
recommendations and guidelines
• Principles of transparency and materiality in reporting
Materiality All reasonable information
expected
Transparency Clear, unambiguous presentation
Competence Work completed by Competent
Person Reporting is subject to interpretation, therefore require greater transparency and consistency
Codes & guidelines Mineral Resources - reasonable prospects for eventual economic extraction
• “assessment … of all matters likely
to influence the prospect of economic extraction including the approximate mining parameters”
• “not an inventory of all mineralisation drilled or sampled, regardless of cut-off grade, likely mining dimensions location or continuity.“
• Economic assessment applies
equally to Inferred Resources
• “Eventual economic extraction” does not provide a license to speculate
• “Approximate mining parameters” are not necessarily the same as Modifying Factors required for defining an Ore Reserve
Codes & guidelines Mineral Resources to Ore Reserves • Indicated and Measured Mineral
Resource • Consider and apply Modifying
Factors • At least a Pre-feasibility Study
level of assessment • The level of confidence in the
relevant Modifying Factors must be sufficient to support the category of Ore Reserve
• Must demonstrate a technically achievable and economically viable mine plan and schedule for the reported Ore Reserves
Modifying Factors • Cut-off parameters • Mining factors or assumptions • Metallurgical factors or assumptions • Environmental • Infrastructure • Costs • Revenue factors • Market assessment • Economic • Social • Other
– material naturally occurring risks – material legal agreements and marketing
arrangements – Critical governmental agreements and
approvals
Codes & guidelines Ore Reserves – timing of study & reporting
• “The studies at Pre-Feasibility or Feasibility level demonstrate that, at the time of reporting, extraction could reasonably be justified”
• “If re-evaluation indicates that the Ore Reserves are no longer viable, the Ore Reserves must be reclassified as Mineral Resources or removed from Mineral Resource/Ore Reserve statements”
Applicable if • longer term price trends, market
conditions, political, environmental, social or infrastructure issues, legislation or approvals, or funding issues that may prevent the intended project being developed in the time frame considered in the relevant technical study
Codes & guidelines Ore Reserves – infrastructure, approvals & contracts
• “The term ‘Ore Reserves’ need not necessarily signify that extraction facilities are in place or operative, or that all necessary approvals or sales contracts have been received
• It does signify that there are reasonable grounds to expect that such approvals or contracts will eventuate within the anticipated time frame required by the mine plans”
Transparency and materiality Highlight and discuss the materiality of: “any unresolved matter that is dependent on a third party on which extraction of the Reserve is contingent”
Accuracy, confidence & quality Accuracy and the nature of the deposit No two deposits are identical
Essential the Competent Person’s meaning of Resource or Reserve categories is provided
May be possible to report the same accuracy for Measured Resources for
• a stratiform base metal deposit over a 3-month period
• a nickel sulphide deposit over a 6-month period, or
• A nuggetty gold deposit over 2-years of production
Accuracy, confidence & quality Discussing reporting confidence • What do we really mean? • Discuss and where possible
provide a statement of the relative accuracy and confidence level of the reported Resource and Reserve categories, or
• Provide at least a qualitative discussion of the relevant uncertainties
• Over what particular scale or period of time:
• a resource block, selective mining unit, mining panel or strip, or the entire resource domain?
The Code terminology • Measured, Indicated, Inferred • Proved and Probable • “accuracy”, “uncertainty”,
“reliability”, “confidence”, “confidence level”, “quality of data”, “quality of information”, “quality of reported results”
http://geovoices.geonetric.com/author/kevin-reiter/
Accuracy, confidence & quality Need for increased disclosure on confidence
• What is meant by confidence and accuracy levels in the context of your project
• Over a particular scale or period of time
• Confidence in a resource block, selective mining unit, mining panel or strip, or the entire resource domain
28
Context - quantity & quality
Increasing Confidence in Quantity and Quality of
Grade Information (JORC Code, ASX)
Item
Reconciliation
Ore Reserves
Production Target on Measured + Indicated (ASX)
Measured and Indicated Resources
Production Target on Inferred (ASX)
Inferred Resources
Foreign / Historical Estimate (ASX)
Exploration Target
Exploration Results
Early Exploration
Context - project development stages
Project Development Stage Exploration
Areas
Advanced Exploration
Prospect Evaluation Development Operating / Production
Resource Definition
Preliminary Development
Options
Final Development
Option
Context - study accuracy
Level of Technical-Economic Accuracy
Exploration (pre-discovery)
Mineralisation Delineation
(post-discovery)
Approximate Mining
Parameters
Scoping Study
Pre-Feasibility
Study
Feasibility Study
Final Engineering
Operating/ Production
Context - project reporting
Context - project reporting
ASPIRATIONAL
CONCEPTUAL
DATA DRIVEN
Example
Context – project reporting example
Example – retraction & clarification
Context – project reporting example
Not a “definitive” Feas Study
Yet to define a Reserve; Economics not available;
Development decision conditional
Still to update
Resources
Project development & reporting context
Conclusion
• Investors have access to an array of public information. • Inconsistent use of reporting definitions, supporting information /
project assumptions and outcomes may be confusing and even misleading.
• Confirming the correct project development context is essential for assessing the risk, opportunity, relative confidence and value associated with a resource project.
• A simple Resource Project Framework can provide a balanced assessment of a project’s reported technical, SEG and financial status.
• Such a Framework readily allows cross-checking and benchmarking of project development and reporting confidence in a structured context.
Mark Noppe: mnoppe@srk.com.au
Thank you
References Corder, G.D., 2015. Insights from case studies into sustainable design approaches in the minerals industry.” Elsevier, Minerals Engineering 76 (2015), 47-57. Davis, Rachel and Daniel M. Franks, 2014. “Costs of Company-Community Conflict in the Extractive Sector.” Corporate Social Responsibility Initiative Report No. 66. Cambridge, MA: Harvard Kennedy School. Ernst & Young, 2015. Business risks facing Mining and Metals 2015-2016. Forrest, A., 2014. Responsible mining investment in Africa. Resource Capital Funds. Fraser Institute, 2014. “Survey of Mining Companies, 2013.” McCarthy, P.L, 2014. Managing risk in Feasibility Studies. In AusIMM Ninth International Mining Geology Conference Proceedings, Adelaide August 2014, and In AusIMM Monograph 30, Mineral Resource and Ore Reserve Estimation, 2nd Edition. Noppe, M A, 2014. “Reporting and converting resources to reserves – how confident are we?” In AusIMM Ninth International Mining Geology Conference Proceedings, Adelaide August 2014, and In AusIMM Monograph 30, Mineral Resource and Ore Reserve Estimation, 2nd Edition. Noppe, M A, 2015. “A framework for presenting and benchmarking resource projects.” In preparation for the 2016 AusIMM Project Evaluation Conference. Xstract, 2014. AusIMM Monograph 30 Roadshow Presentations by Noppe, M A.
Mark Noppe: mnoppe@srk.com.au
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