Resources: Statements & Natural Resources

This episode is focussed on resources, which are the cornerstone for mineral exploration and development companies, and we will explain how mineral resources fit into technical reports.

The success of an exploration company, a development company or a mining company is dependent on its mineral resources, how they are classified and how they are categorised and measured. There's a huge overlap between the resource base, whether it is inferred, measured and indicated or probable reserve, and technical reports such as Scoping Studies, Preliminary Economic Analyses (PEAs), Pre-feasibility Studies (PFS) or Definitive Feasibility Studies (DFS).

As I was putting the notes together for this session, I realised that the study side of things, the technical reports, pretty much need a whole session by themselves. Today, we will be talking about technical reports, but more in passing than in-depth, and we will do another episode on technical reports.

Resource Statements

The resource statements that companies put out are the cornerstones for all of those technical reports. Before we get into the detail of the resource, it's interesting to note that the resource definitions and categories were defined and established by the Joint Ore Resource Committee of Australia (JORC), an industry body which created these categories of taking it from an inferred resource through to an indicated resource, measured, and then moving into the proven and probable reserves. These guidelines more or less inform all of the other codes globally.

There's a UK code, but particularly, and listeners will be familiar with the NI 43-101 Canadian code. Almost all of the technical work and the codification is based on the Australian version. The Canadian NI 43-101 goes further than the JORC in that it becomes a legally binding document that is put out by the stock exchange. The JORC, or resources statements are only regulated by an industry body, thus, they are a set of technical guidelines for use by companies to try and ensure that they don't make mistakes, they don't invest and lose money by not having done the groundwork properly.

Australian exploration companies reporting in the public arena aren't actually obligated to publish the whole technical report as it's governed by the industry body. Whereas the stock exchange stipulates: if you want to publish the summary only, you can just publish the summary, and this gives the companies the opportunity to keep commercially sensitive information about their asset, commercial terms on mineral processing, etc, confidential. A negative aspect of this is that sometimes deleterious information is kept from the public and can be hidden by only producing a summary of the conclusions of these reports rather than publishing the whole report. In contrast, in Canada, due to the NI 43-101 stock exchange regulation, it is mandatory to publish the full technical report. As a result, many analysts I know prefer to work with Canadian companies because they have access to full technical disclosure as well as the quarterly reporting on the financials. The Canadian Stock Exchange requires quarterly financial reporting, whereas the London AIM requires 6-monthly reporting. Additionally, the Canadian Stock Exchange requires full technical reports to be loaded up.

Natural Resources

The cornerstone of these reports is your natural resources. As mentioned, the technical reports are much broader, and I will do a dedicated session on the technical reports. Just to give you a clue on that, I was looking through some of the typical headings required in a 43-101 technical report, and there are 27 aspects of this. There are 27 titles in the technical report, from the summary, introduction, reliance on other experts, etc, many of these things would be in a resource statement, but in the technical report, of the 27, there are just under 10 titles, therefore, about 1/3 of it is related to the geology. The geological setting and mineralisation is the first heading, then deposit type, exploration, drilling, sample preparation analysis and security, quality assurance and quality control, data verification, mineral processing and metallurgical testing, and then you come into mineral resource estimates. That's 8 chapter headings, 9 if you go into reserve estimates, hence the resource makes up between a third and a half of any technical report that is published. Logically, the further one goes down the study lines, the more detail that one is required to focus on, but it always starts with a resource. Your starting point is understanding the geology. Geology is absolutely pivotal on what happens next in the resource development.

Every exploration project and every new project in an established mining company, or even in an established mining camp, sometimes you can have an operation which is solely focused on 1 area of the geology, or it’s just focused on the high-grade, and a pair of fresh eyes is needed to look at the geology of the region as a whole. Typically, the executive teams are trying to work out what they have and what are they dealing with? One of the first things that you want to do is to put an envelope around your mineralisation. You want to know how far it extends, how deep it goes, how far along strike it goes, and you want to know if there are other exploration targets along the trend.

A phrase you will often hear is ‘A String of Pearls’, which relates to a repetition of interesting mineralisation. The way that a company goes about trying to define the mineralised envelope, tries to define its resources, is highly dependent on management judgment. This is really the heart of an exploration company's strategy: do you try to define a smaller area better, or do you try to show the whole trend or the potential of the region?

With an exploration company, the first thing that you do is to generate your exploration targets and your best anomalies where you think will meet your strategic goals. It comes back down to the earlier topics that I've spoken about in The Con, which is about - what are you trying to do as an exploration company? Are you trying to find 500,000oz of high-grade material, or are you trying to define a massive ore body that may be low grade such as a porphyry copper deposit? The manner in which you approach your exploration targets and your resource is completely dependent on how you establish your company from your strategic objectives. If you have an existing mining operation on a narrow continuous mesothermal vein, for example, in California or Peru, where you have a couple of metres of 10-20g/t Gold, you might not be targeting resource that far out ahead. You might just be happy with 1-2-years resource ahead of you because you've got this trust that the resource will continue year after year, and there's no point investing capital in trying to define 10-years of resource life because you can just go on a year-by-year basis.

A more common situation is when you come into a new project area and you're trying to work out if this mineralised body has what it takes to be an economic proposition. Your aim is to develop this resource and take it as quickly as possible to the point where you can start wrapping around technical reports, i.e., you can start putting some economic assumptions around this. All of these resources need to be signed off by an appropriately qualified and experienced person, often QPs, qualified persons who are prepared to face their peers and defend the assumptions when it comes to signing off the resource base have also got the humility - this is in the code - the humility to seek expertise where they do not have appropriate expertise.

I've worked in the Soviet system, which is really interesting because it's so very prescriptive. One almost puts nature into a series of little boxes, and if it ticks a certain box, then it's described as a certain kind of deposit at a certain level of confidence. It ranges from their equivalent of inferred, to indicated just by ticking boxes, whereas in the western system, it is very much dependent upon a qualified person, a QP, signing off on the resource to say: yes, I think this meets appropriate standards.

One of the first things you're trying to do is to understand what you've got, in terms of the geology, and then put some economic parameters around it to work out what processing route to take. There's a feedback between what one’s expectations are of an eventual mining method and indeed, a process route that will feed back into how one goes about the exploration, but fundamentally, you do rely on the resource itself.

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