COMMENTARY — Reserve and resource estimation, Part 1

In the wake of the Bre-X Minerals affair (as well as similar events in the past), it is more important than ever that investors ask certain questions of mining promoters and companies.

Two of the main areas that need to be addressed are ownership and permits, and resource estimation.

.SOwnership and permits

* Can it be established who owns the claims and who has the right to extract whatever minerals may be present? Fundamental to any mining venture is the establishment of a clear legal title to each claim.

* What are the laws covering exploration and exploitation of mineral claims? The laws of the country in which the deposit occurs need to be understood with respect to the licensing of mineral exploration and extraction.

* How will current and future environmental legislation affect costs? Current and proposed legislation for dealing with environmental management can place severe financial burdens on the development and closure of mining properties.

Investors should satisfy themselves that the developers are fully aware of such implications.

* Does the geologist responsible for estimating the tonnage and grade of resources have sufficient experience and skill with regard to the type of mineralization under development? A key factor in arriving at a resource estimation is the employment of a competent person who is familiar with ore controls, metal zoning, spatial continuity of mineralization, and selectivity of mining methods.

That person, who should be involved from the beginning of a project, should also have a fundamental knowledge of sample collection, preparation and assaying methods, database construction, appropriateness of estimation techniques and validation and verification methodology.

.SResource estimation

* What verification and validation techniques have been applied at each stage of the estimation process? Although many mining countries agree on the classification of resources and reserves, where most countries fall short is in presenting guidelines for the initial classification and subsequent management of the resources and reserves.

The process for resource estimation is relatively straightforward, though considerable skills and technology must be brought to bear at each stage. It is of considerable benefit for all concerned that the person responsible for the estimation process be able to support his work by clear statements of the methodology used for each step.

* Does the geological model represent available sampling data and correspond with known local geological settings? Fundamental to the estimation of resources is the physical geological model adopted for the interpretation of sampling and assaying results.

* Are the definitions of inferred, indicated and measured resources consistent with the geological model and sampling practices? Confidence in the estimate of resources of a copper porphyry, for example, relates to: distance between boreholes and associated drilling density; existence of exposures and channel samples and their proximity to drill holes; and drilling density in terms of tonnes per metres drilled. Decreasing the distance between samples increases the confidence in an estimate.

* Are the techniques for estimating tonnage and the magnitude and distribution of grades appropriate to the characteristics of a certain deposit? Techniques for estimating the distribution of grade should conform to methodology currently perceived to be applicable within the mining industry. Thus, estimate methodology should be supported with references to similar deposits and geological settings. Divergence from accepted norms should be upheld by an authoritative and external agent from the promoting company.

* Has an independent estimate of resources been able to duplicate the published tonnage and grades? The ultimate test of resource estimates is the attempt by an independent body to duplicate previously published results.

It is implicit that the third party audit and endorse the entire estimation process to the point of calculating tonnage and determining the magnitude and distribution of grades prior to undertaking the check estimation.

It is worthwhile emphasizing the role of density in calculating tonnages.

Normally, the grade of a deposit receives the most attention, with density receiving only a cursory review. However, variation in density does occur and is sometimes directly associated with mineral grades. Thus, it is possible to overestimate or underestimate mineral content in a deposit. For example, metal content in a high-grade zone assumed to have an average density of 2.7 tonnes per cubic metre but which has an actual density of 4 tonnes per cubic metre would be underestimated by almost 50%.

— The author is a mining consultant with British-based Seltrust Associates.