Letter to the Editor: Groia, MacNeil Wrong To Blame Labs In Fraud Cases

In their commentary “NI 43-101 gives false sense of security” (T. N. M., Aug. 31-Sept. 6/09), Joseph Groia and James MacNeil make a number of comments and conclusions about the sources of fraud in the mining industry. In particular, they single out laboratories as being the major cause of fraud in the mining industry.

The statement that “. . . most cases of fraudulent results occur in laboratories or by tampering with their results. . .” as applied to commercial geochemical laboratories is factually incorrect and misrepresents the current state and history of the industry.

In our collective experience — more than 125 years in the mining and exploration industry — we can unequivocally state that the fraud cases that have occurred in the mining/exploration industry did not occur in commercial geochem laboratories. In fact, the significant majority of fraud occurs at the mine face or drill rig due to salting, or as data is being entered into ore reserve databases or being interpreted for issuance to the public.

The three largest and most recent cases of fraud, Bre-X Minerals, Golden Rule Resources and Southwestern Resources, all occurred pre-or post-commercial laboratory. None of these cases involved incorrect or fraudulent data or activities on the part of the geochem labs that produced the data that was reported to the public.

It is the job of independent commercial labs to produce analytical data that is supported by global standards of quality and is untainted by conflict of interest. When on-site sample preparation labs are owned and operated by the exploration company, as was the case at Bre-X, there is much more opportunity for fraudulent activity. This is a serious issue and is addressed under National Instrument (NI) 43-101.

Accreditation and rigorous attention to quality are the hallmarks of all modern commercial laboratories. Commercial geochem labs have spent millions of dollars in the last 20 years improving and tightening quality procedures and improving data and laboratory process transparency.

The geochem lab industry has also quietly accepted and promoted the need for independent lab auditing as another way to ensure data integrity and the safety of their own and their client’s shareholders.

There is nothing to be gained by a commercial geochem lab committing a fraud. In fact, under NI 43-101, a fraud perpetrated by a lab would be very quickly detected, thereby ruining that laboratory company’s reputation and all future prospects.

The speed with which the recent Southwestern Resources fraud was detected and dealt with is testament to the protection that NI 43-101 has brought to investors in the mining industry.

Geochem commercial analytical labs have also embraced the principles of continuous improvement and global ISO/IEC accreditation. The process of formal ISO/IEC accreditation ensures that our labs operate at an accepted global standard, provide analytical data of a quality required by the end user, and operate in a transparent manner free from client or other influences.

The independent laboratory audit process recommended by Groia and MacNeil has in fact been in place and followed by commercial geochem labs for many years. Mining and exploration professionals have been aware of and actively participated in the steps that the lab industry has taken to improve its services, quality and transparency.

Groia and MacNeil’s recommendations for tightening the processes around sample collection and chain of custody and for ensuring the independence of qualified people are welcome and would be supported by the commercial geochemical lab industry.

The introduction of NI 43-101 has produced a profoundly more professional approach to the review and reporting of data. It has sharpened the industry in the jurisdictions that abide by its rules and it provides a far more reliable investment environment for market participants in areas where it is observed.

There is little doubt that the ongoing review will improve elements of this regulation and its application in the field. However, the investing public, the mining and exploration and the geochemical lab industries have been much better off with NI 43-101 in place than without it.

— Russ Calow vice-president global geochemistry, SGS Lakefield, Ont.

— George Cartwright president and COO, ACME Labs Vancouver, B. C.

— Eric Hoffman president, Activation Laboratories

(ACTLABS) Ancaster, Ont.

— Bruce McDonald executive vice-president, minerals

division, ALS Laboratory Group North Vancouver, B. C.