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Mineral Reserves Reporting Standards 

 
Author: Andrew J. Ramcharan - IAMGOLD Corporation

Summary

Does the NI 43-101 or any other code really work? In a small global mining community, we should have one set of codes or guidelines. The aim will be to eventually propose a new set of guidelines that will be much easier to aid investors/reviewers and the general non-mining public in assessing a mining project and reduce scams.

INTRODUCTION

Mining investors face the challenge of deciding which company to invest in based on their multiple international projects because of the varying nature of reporting standards worldwide. With the current boom in the mining industry, companies tend to prepare reports for investors, based on the eventual stock exchange for which they want the listing.

There are many resource/reserve codes worldwide namely:

  • JORC CODE - Joint Ore Reserve Committee (Australasia)
  • SAMREC CODE - South African Mineral Committee (South Africa)
  • REPORTING CODE - (UK / Western Europe)
  • CIM GUIDELINES (NI43-101) - Canadian Institute of Mining, Metallurgy and Petroleum (Canada)
  • SME GUIDE - Society for Mining, Metallurgy and Exploration (USA)
  • CERTIFICATION CODE - (Chile)

These major codes are considered acceptable worldwide for economic investments and market related reporting. These codes differ on exact subject and therefore mining investors don't have an international standard against which to benchmark projects. With today's technology, the world is moving towards a single market and therefore the mining industry should have one set of guidelines similar to the international environmental and social standards for project financing (Equator Principles).

Hence, by generating specific global guidelines, investors will be helped in the process of making prudent investments which should result in a reduction in the number of scams.

BACKGROUND

There are many articles that point to a reporting system for resources in the mining industry that are in need of updating to reduce the plethora of misleading information, and in many cases scams, and have one set of guidelines for the international community to follow.

In the famous case of Bre-X Minerals Limited, once thought to be sitting on a huge gold deposit at Busang, Indonesia in 1995 which sent the company stock soaring from a penny stock to approximately Cdn $286 on the Toronto Stock Exchange (TSX). This sudden increase in stock price gave the company a market capitalization of over Cdn $5 billion. The first resource estimate was done by Filipino geologist Michael de Guzman who was the project manager at the time. His estimate was 2 million ounces of gold. This estimate rose in 1995 to 30 million ounces; in 1996, 60 million ounces and finally in 1997 to 70 million ounces.

However, after initial due diligence evaluation of the assays' result, Busang's 2.9m crushed core samples contained substantially more gold than corresponding 0.1m library core samples. Statistical analysis also verified that there were fraudulent activities in the gold assays. Interesting stories arose, for example, the geologist Michael de Guzman died falling from a helicopter in Indonesia. In May 2005, it was claimed that Michael de Guzman was still alive and had sent a Brazilian money order to his wife.

By this time, it was evident that something was happening with Bre-X and investors had lost billions of dollars. This project originally had support from prominent persons in the financial and mining sectors, including the Toronto Stock Exchange.

Surprisingly a few years after the scam, the Royal Canadian Mounted Police (RCMP) was ending its investigation without charging anyone because it was claimed that the RCMP was underfunded and understaffed to deal with these complex cases. Also, it should be noted that the system at that time did not have proper regulations in place to handle these fraudulent cases. In 2007, a former Bre-X executive had offered to return to the Busang area to truly determine whether there is gold or not.

Comprehensive guidelines will be generated for investors to follow. Therefore investors will not have to be an expert in the area of resources as these guidelines will aid in determining whether the resources are acceptable.

In another case, Southwestern Resources Corporation based in Vancouver, Canada and listed on the TSX had sued its former CEO for altering assay data in the drillhole database in 2007. Southwestern is a junior mineral exploration company with properties in China and Peru. According to Southwestern, their objectives were:

  • to acquire and explore properties exhibiting potential to host world-class mineral deposits.
  • to joint venture their properties with major mining companies having the technical and financial capacity to carry them through to full production.
  • to retain a significant carried interest in these properties so the shareholders could benefit from future mining profits with a minimum amount of investment risk.

These ambitious objectives were shattered when this fraudulent case was uncovered from an independent engineering consultancy conducting a due diligence on the Boka Gold Project in China.

Drilling at Boka Gold Project (Source: Southwestern website)

Figure 1: Drilling at Boka Gold Project (Source: Southwestern website)

The Independent Engineer report stated that the mineral resource for the Boka Gold Project was less than previously reported.

It has become evident that resource estimates which dictate the gross revenue of a project are a critical part of the economic evaluation of any project. Also, the suggested mining and processing technologies may suggest unreasonable costs for mining and processing. Some mining and processing costs will be included in this research as a guide to investors.

Therefore, by establishing guidelines that may have prevented the abovementioned cases, the apprehension of investors may have been reduced. The above two examples are typical cases of how the current guidelines had fallen short.

As the demand for commodities increase worldwide, more detailed evaluation should be done before making any investment decisions. It is becoming more and more accepted that future resources are of lower grade and deeper in the earth's crust. Finding new deposits with high grades is rare and companies have to rely more on developing lower grade deposits worldwide.

In conclusion, the problem will continue if stringent guidelines are not implemented. The two cases that were given are only a few examples of what has happened in the mining industry.


OBJECTIVES

The fundamental objective is to generate new global resource guidelines that will replace all current guidelines (JORC, NI43-101 etc.) and which will aid investors in making prudent decisions.

These new guidelines will accomplish the following:

  • Reduce if not eliminate misleading reporting, and consequently scams
  • Create global standards for resources
  • Provide an excellent benchmarking tool for projects worldwide
  • Reduce third party reviews on resource validation

METHODOLOGY

The steps that will be followed are:
  • Illustrate a few case studies and demonstrate how NI43-101/JORC etc. have some shortcomings in the resources area because of the existing respective codes.
  • Collect the current major mining codes and document a comparison of resource definitions. Differences in these codes will also be included in the research. Some of the codes that will be considered are:
    • JORC CODE - Joint Ore Reserve Committee (Australasia)
    • SAMREC CODE - South African Mineral Committee (South Africa)
    • REPORTING CODE - (UK / Western Europe)
    • CIM GUIDELINES (NI43-101) - Canadian Institute of Mining, Metallurgy and Petroleum (Canada)
    • SME GUIDE - Society for Mining, Metallurgy and Exploration (USA)
    • CERTIFICATION CODE - (Chile)
    • SEC - Security and Exchange Commission (USA)
    • RUSSIAN CODES
  • Review all previous and current work that might have been proposed to develop one set of resource standards for the world to follow.
  • Generate new guidelines that will incorporate parts of the above codes for the global mining industry to follow. New measures will also be included in the new guidelines to increase the confidence in reporting resources on a global level.
  • Take feedback and comments on the new guidelines by distributing them to the industry. Finalize the new guidelines.
  • Gather four (4) mining project studies that are publicly listed and conduct an evaluation of the resources. Verify the steps to determine whether the new guidelines were being followed.

COMPARATIVE ANALYSIS OF CODES

We now focus on the similarities and differences of the major reporting codes for mineral resources worldwide. By understanding the different approaches on how resources are defined, this part will assist in producing guidelines which investors can use to further their due diligence in determining in which project to invest.

It was very evident that most of the reporting codes for resources were derived or extracted from the JORC code. In some instances, resources were exactly as quoted in the JORC Code. The reason for this trend was due to the fact that the JORC Code has been established earlier and has been relatively reliable as compared to the other codes. Due to the fact that most codes are based on the JORC Code, the comparative analysis will focus on the two instrumental codes (NI43-101, JORC Code) that vary in principle and whereby most mining companies are aligned to.

The exceptions were cases where the SEC basically had very limited requirements for public reporting for mining projects. However, it should be noted that based on the principles of the SEC for mineral reporting - SEC Guide 7 is acceptable. The SME is continually trying to incorporate its standards with the SEC but the two organizations' objectives are fundamentally different. Although the SME code is somewhat similar to JORC and the other codes, the SEC requires only specific reserve statements, because its primary concern as an oversight agency is the protection of the investor from abuse and misinterpretation. The SEC requires the use of a historical three-year average commodity price to generate reserves as compared with SME suggests a forward looking forecast.

The Certification Code (Chile) does take some portion of both the NI43-101 and JORC Codes, and incorporates them into a document to create their reporting standards for resources. For example, the person responsibility for the preparation of the report is called "Qualified Competent Person" which is derived from "Qualified Person" (NI43-101) and "Competent Person" (JORC Code). Chilean professional mining and geologic organizations have supplied some of the considerations incorporated into the Certification Code.

In principle, most codes are similar in terms of the person who is responsible for preparing the public report, except for the Russian and Chinese Codes. Additionally, most of the definitions of resources are similar in principle. However, there are fundamental differences in how the different classes of resources are used in economic studies. These differences create the unlevel playing field for investors. One of the aims of this thesis research is to combine these differences and specify the class of mineral resource to be used in economic studies to help investor decision-making.


Code Similarities

The author of a public resource report (NI43-101- 'Qualified Person', JORC - 'Competent Person') must conform to certain experience levels and qualifications, which are very similar for all major reporting resource standards. A significant emphasis and trust is placed in the author and this person must belong to a professional organization and is required to make reasonable judgments.

The following points are similar for the author ('Qualified Person/Competent Person') of public reporting for most of the codes:

  • Require five (5) years 'relevant' experience
  • Exposure to similar style and type mineralization under consideration
  • Must be an engineer or geoscientist
  • Experience in mineral exploration, mine development or exploration or mineral project evaluation, or any combination of these
  • Member of a professional organization that complies with high ethical standards
    • Basis on academic qualification and experience
    • Professional standards of competence
    • Has disciplinary powers
    • Recognition of the professional organization by the host country
    • Reference from professional members of the said organization
    • Good professional standing within the industry
  • The Author must be 'independent'
    • No direct interest in the company that could have an effect or influence on public reporting
  • The author of public report must state the following on completion:
    • Employee of Company or relationship to employer
    • Full name, relevant experience, date, occupation
    • Professional Membership in which relevant recognized organization
    • Academic qualifications and years of relevant experience
    • Any prior involvement in the project

For actual resource definition and classification, most of the codes are very similar in principle. This thesis consideration will be based on the JORC and NI43-101 formats as most other codes are based on that of the JORC except for the Russian and Chinese Codes.

According to "The JORC Code" 2004 Edition (Effective December 2004): A Mineral Resource is a concentration or occurrence of material of intrinsic economic interest in or on the Earth's crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing confidence, into:

  • Inferred,
  • Indicated, and
  • Measured categories.

According to CIM definitions standards: A Mineral Resource is a concentration or occurrence of diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, and industrial minerals 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. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing confidence, into:

  • Inferred,
  • Indicated, and
  • Measured categories.

The similarities of the definitions of resources are profoundly based on the definitions by CIM and AusIMM. Additionally, the resource classification into the different categories is very similar and is based mainly on drilling and understanding of the geology.

Figure 1.1: JORC's general relationship between exploration results, mineral resources and ore reserves

Figure 1.1: JORC's general relationship between exploration results, mineral resources and ore reserves


Figure 1.2: NI43-101 relationship between mineral resources and mineral reserves

Figure 1.2: NI43-101 relationship between mineral resources and mineral reserves

Based on the above Figures - it is very clear that resource classification is identical for most resource reporting codes worldwide except for the Russian and Chinese Codes. Mineral Resources should always be broken into measured, indicated and inferred categories and should never be combined.


Code Differences

The SEC is the only resource monitoring organization that does not allow "resource" reporting. The reason why the SEC doesn't allow "resources" reporting is mainly because they consider the publication of resource statements are subject to abuse and have the potential to mislead investors.

According to the SME article "Concept Release on Possible Revisions to the Disclosure Requirements Relating to Oil and Gas Reserves" regarding the SEC: As in the case with oil and gas, technological advances since 1982 have significantly improved how companies may identify mineral reserves, model the deposit, estimate its economic value. Mining and processing methods have changed significantly. Three dimensional computer modeling is fundamental in the estimation of mineral resources, mine design and production scheduling. Industry Guide 7 (SEC) is obsolete to the extent that is describes in great details documentation required for 1982 technology (mostly based on two-dimensional maps and drawings) and ignores current technology. One should however note that in this respect the SEC staff interpretation has kept up with technology.

Based on the above statement by the SME to the SEC, it is more apparent why these two organizations within the same country don't seem to have their reporting standards aligned. It is my view that two dimensional maps and drawings are still very important and three dimensional computer modeling for estimation of mineral resources is commonly used. However, the Russian methodology still does a great job using polygonal sectioning for resource estimation, and it is vital to remember that these high tech three dimensional modeling software packages require input skills with which users may be uncertain. Additionally, the output from these three dimensional software programs should be properly analyzed for their usage and understanding of what the software is doing on the back end of the computations.

The fundamental point to note is that the resource principles are the same worldwide and three dimensional software packages can aid the process for resource estimation, however, the old fashioned way of resource estimation is also very accurate when done correctly.

Although all resource reporting codes require an author for public reporting, and the author's responsibilities are identical, the name titles are different. For example, JORC - Competent Person, NI43-101 - Qualified Person and Certification Code - Qualified Competent Person.

According to the Standard Oxford English Dictionary:
a) 'Qualified' means:

1) having passed the exams or completed the training that is necessary in order to do a particular job; having the experience to do a particular job
2) having the practical knowledge or skills to do

b) 'Competent' means:
1) having enough skill or knowledge to do well or to the necessary standard

There are some minor intricate differences in the meaning between the two titles and based on the Oxford Dictionary's definition it is apparent neither title is entirely appropriate for the author.

Resources reporting for most codes are subdivided:

  • Inferred (reasonably assumed, but not verified)
  • Indicated (reasonable level of confidence)
  • Measured (high level of confidence)

The exceptions for this classification are the Chinese and Russian codes that basically have additional subdivided groups, somewhat similar to the United Nation Framework Classification (UNFC). The Chinese for example have a 'Reconnaissance' class which is equivalent to the 'inferred' class in the JORC or NI43-101. The Russian code also has some additional class and can also be combined to an equivalent infer class in the JORC Code or NI43-101 Code.

Additionally, the Chinese definitions for the different classes of resources do not mention anything about the potential of being economically viable. According to the National Standard of The People's Republic of China: A measured resource involves the fact that the geological features, shape, occurrence, scale, ore quality or grade, mining technology and the continuation of the ore body are detailed identified in the detailed exploration area on the basis of the accuracy of detailed exploration. It is of high creditability due to the sufficient data by which the quantity if the mineral resources is estimated.

This leads to the very interesting point which has completely been overlooked for decades, the fact that based on the figures that show how each class is subdivided, there is no mention of economic or technical parameters considered in the resource figures. The definition of resources clearly state that there must be potential for economic extraction, but the figures do not show any instances of economic factors allowing for such classification.

The Russian Code does not include anything about economics for resource reporting. The cut off grade used in their resource statement is generally generated from similar deposits and personal experience. However, the cut off grade is generated by considering commodity price, recoveries, geotechnical parameters etc. When applying a cut off grade to a resource estimate, it is advisable to be very conservative and use a reasonable lower cut off grade.

It is generally recommended, that mineral resources should be reported exclusive of mineral reserves. In some cases mineral resources are inclusive of mineral reserves (JORC) and, in other instances, mineral resources are reported additional to mineral reserves (SAMREC and SME). However, whatever way is finally determined, that should be documented in the public report. For example a clarifying statement may be as follows:

  • Measured and indicated resources are inclusive of reserves or
  • Measured and indicated resources are additional to reserves

The fundamental difference in resource reporting is the determination of which class of resources may be used for economic studies. This is where the major codes vary, and may be misleading to investors. For example, the JORC Code recognizes that the confidence level for inferred resources is not normally sufficient to pursue economic viability studies and clearly states that inferred resources should only be used with caution if used in economic studies. There are some grey areas and definite ambiguity in the wording of how inferred resources can be used in economic studies to be in accordance with the JORC Code.

The SME states that inferred resources can be used in economic studies, and warns that caution should be integral to the study if this class of resource is being used. SAMREC states that caution must be exercised in any public disclosure if an inferred resource is used in economic studies. However; SAMREC further stated that inferred resources are not normally considered in economic studies.

CIM (NI43-101) clearly states that inferred mineral resources may not be used for economic studies that will be released to the public because of the low confidence and insufficient data. However, inferred mineral resources may be used for internal planning, but must be made clear in any reporting document by stating that inferred mineral resources were used.

An essential difference between the Australian and Canadian systems is that documentation on which public reports are based does not have to be provided on a routine basis to the ASX. This is primarily because neither ASIC, ASX nor JORC believe that more information is necessarily better information.

Because of these reporting differences, it is possible to use inferred resources in JORC format and not in NI43-101, the reporting of resources can be misleading to investors, especially in economic studies. For the most part, most codes are identical or similar in principle, but the point of including inferred resources in economic studies by JORC etc., is fundamental different from NI43-101.

According to the JORC Code: Confidence in the estimate of inferred mineral resources is usually not sufficient to allow the results of the application of technical and economic parameters to be used for detailed planning. For this reason, there is no direct link from an inferred resource to any category of ore reserves. Caution should be exercised if this category is considered in technical and economic studies.

In this author's view, the reference above contradicts itself and can be difficult to investor to understand. The line mentions words like 'is usually not sufficient' which is not very definitive, and may lead to ambiguity for the investor. The sentence then states this category of resources can be used with caution which raise more questions about the clarity of such statements.


EDUMINE COURSE ON NI 43-101

EduMine has a course Mineral Project Reporting Under NI 43-101 by John Postle. This course has been developed and peer-reviewed for the Professional Development Program of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM). It tells you all you need to know, at least about how to proceed in Canada.


RELATED TOPICS

Valuation is in some ways the international solution to the NI 43-101 problem although valuation is used for many other purposes in the mining industry.

Due Diligence is another part of the process of deciding what a property is worth, making sure there is value there, and nobody is salting the samples.


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