Mineral Reserve Estimation In The Real World

1. CIM Los Andes – September 21, 2009
Mineral Reserve Estimation in the Real World:
A Review of Best Practices and Pitfalls
Marcelo Godoy, Ph.D.
Ore Evaluation Services
Golder Associates

3. Overview
Introduction
CIM definition standards
Technical disciplines
Modifying factors check list
Commodity price and cut-off grade
Mineral Reserve Statement
Audit trail
Risk Assessment
References
September 22, 2009 3

4. Where in the world was the gold?

5. Viewpoint
September 22, 2009 5

6. CIM Definition Standards
The CIM Definition Standards provide standards for the classification of
Mineral Resource and Mineral Reserve estimates into various
categories
g
The Mineral Resource and Mineral Reserve definitions were
incorporated,
incorporated by reference in National Instrument 43-101
reference, 43 101
Standards of Disclosure for Mineral Projects
For the CIM Definition Standards a Technical Report is defined as a
report that contains the relevant supporting documentation, estimation
procedures and description of the Exploration Information, or the Mineral
Resource and Mineral Reserve estimate
September 22, 2009 6

7. Qualified Person
A “Qualified Person” means an individual who is an engineer or
geoscientist with at least five years of experience in mineral exploration
or operation or mineral p j
p project assessment, or any combination of these;
, y ;
has experience relevant to the subject matter of the mineral project and
the Technical Report; and is a member in good standing of a
professional association.
September 22, 2009 7

8. Mineral Resource
“A Mineral Resource is a concentration or occurrence of natural, solid,
inorganic, or fossilized organic material 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 geological
sub-divided,
confidence, into Inferred, Indicated and Measured categories.
September 22, 2009 8

9. Mineral Resource
A ‘Measured Mineral Resource’ is that part of a Mineral Resource for which quantity, grade or quality,
densities, shape, and physical characteristics are so well established that they can be estimated with
confidence sufficient to allow the appropriate application of technical and economic parameters, to
support production planning and evaluation of the economic viability of the deposit. The estimate is based
on d t il d and reliable exploration, sampling and t ti i f
detailed d li bl l ti li d testing information gathered through appropriate
ti th d th h i t
techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced
closely enough to confirm both geological and grade continuity.
An ‘Indicated Mineral Resource is that part of a Mineral Resource for which quantity grade or quality
Indicated Resource’ quantity, quality,
densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to
allow the appropriate application of technical and economic parameters, to support mine planning and
evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable
exploration and testing information gathered through appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade
continuity to be reasonably assumed.
An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which quantity and grade or quality
can b estimated on th b i of geological evidence and li it d sampling and reasonably assumed, b t
be ti t d the basis f l i l id d limited li d bl d but
not verified, geological and grade continuity. The estimate is based on limited information and sampling
gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and
drill holes.
September 22, 2009 9

10. Mineral Reserve
“A Mineral Reserve is the economically mineable part of a Measured or
Indicated Mineral Resource demonstrated by at least a Preliminary
Feasibility Study. This study must include adequate information on
mining, processing, metallurgical, economic, and other relevant factors
that demonstrate, at the time of reporting, that economic extraction can
be justified. A Mineral Reserve includes diluting materials and
allowances for losses that may occur when the material is mined”.
September 22, 2009 10

11. Mineral Reserve
A “Probable Mineral Reserve” is the economical part of an Indicated,
and in some circumstances a Measured Mineral Resource
demonstrated by at least a Preliminary Feasibility Study. This Study
y y y y y
must include adequate information on mining, processing, metallurgical,
economic and other relevant factors that demonstrate, at the time of
reporting that economic extraction can be justified.
A “Proven Mineral Reserve” is the economical part of a Measured
Mineral Resource demonstrated by at least a Preliminary Feasibility
y y y
Study. This Study must include adequate information on mining,
processing, metallurgical, economic and other relevant factors that
demonstrate, at the time of reporting that economic extraction can be
justified.
September 22, 2009 11

12. Resource and Reserve Classification
Increasing Confidence in Geologic Data Mineral Resources Mineral Reserves
sibility Study
cal
Measured Proven
minary Feas
Indicated Probable
Prelim
Inferred
Application of economic, financial, regulatory, legal, social,
environmental impacts to mining, processing, and commercial
p
parameters
September 22, 2009 12

13. Mining Project Life Cycle
EXPLORATION
Discovery of mineralisation
PELIMINARY ASSESSMENT
Development drilling
PRE-FEASIBILITY STUDY
Further drilling, testing, design
FEASIBILITY STUDY
Construction
Production
Closure
September 22, 2009 13

14. Preliminary Assessment (PA)
A “PA” means a study that includes an economic analysis of the
potential viability of mineral resources taken at an early stage of the
project prior to the completion of a preliminary feasibility study
Back of the envelope calculations
Desktop studies
p
Formal studies based on untested assumptions
The quality of the available data limits the validity of the results
Such studies provide a guide to further work
September 22, 2009 14

15. Preliminary Assessment
Identifies key issues:
Market
Strategic opportunities
Tonnage / Grade / Contaminants
g
Land tenure issues
Infrastructure and logistics
g
Environmental baseline
Unanswered questions
September 22, 2009 15

16. Preliminary Feasibility Study (PFS)
A PFS is a comprehensive study of the viability of a mineral project that
has advanced to a stage where the mining method, in the case of
underground mining, or the p configuration, in the case of an open p ,
g g, pit g , p pit,
has been established, where an effective method of mineral processing
has been determined, and includes a financial analysis based on
reasonable assumptions of technical, engineering, legal, operating, and
economic factors and evaluation of other relevant factors which are
sufficient for a QP, acting reasonably, to determine if all or part of the
Mineral Resource may be classified as a Mineral Reserve
The first serious test of the project viability
Define the likely mineable material and the impact of various styles and
scales of mining and processing
Provides targets and justifies further drilling, metallurgy test work, etc.
The PFS often raises further questions
September 22, 2009 16

17. Feasibility Study (FS)
A “FS” means a comprehensive study of a mineral deposit in which all
geological, engineering, legal, operating, economic, social,
environmental and other relevant factors are considered in sufficient
detail th t
d t il that it could reasonably serve as th b i f a fi l d i i b a
ld bl the basis for final decision by
financial institution to finance the development of the deposit for mineral
production.
Provide a detailed analysis of all the factors affecting a project's viability
Enable determination of a “go” or “no go” decision
Have become an aid in obtaining financial backing
September 22, 2009 17

18. Reserve Estimation
The requirement for economic viability implies determination of annual
cash flows and inclusion of all relevant economic parameters.
Financial
Orebody Model Modifying Factors
Forecasts
Total Movement and Ore Tonnes
130Mt 13Mt Cashflow & Recovered Au
120Mt 12Mt $1000M 14Moz
110Mt 11Mt 13Moz
$900M Cumulative Rec. Au - BASE CASE
12Moz
100Mt 10Mt NPV 10% - BASE CASE
$800M 11Moz
90Mt 9Mt Cumulative CashFlow - BASE CASE
10Moz
Total Movement
$700M
Or Tonnes
80Mt 8Mt flow (M$) 9Moz
$600M
Rec. Ounces
70Mt 7Mt 8Moz
$500M 7Moz
re
60Mt 6Mt
Cashf
6Moz
50Mt 5Mt $400M
5Moz
40Mt 4Mt $300M 4Moz
30Mt 3Mt 3Moz
$200M
20Mt Total Movement - Base Case Ore Tonnes - Base Case 2Mt 2Moz
$100M
10Mt 1Mt 1Moz
$M 0Moz
0Mt 0Mt
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Year Year
September 22, 2009 18

19. Technical Disciplines
Estimation of Mineral Reserves is a team effort involving a number of
technical disciplines, and should be based on input and information from
a multidisciplinary team under the direction of Q ( )
p y QP(s).
September 22, 2009 19

20. Mineral Reserve Classification
The category assigned to a Mineral Reserve estimate depends on:
the level of confidence in the geological information available
the quality and quantity of data available on the deposit
the level of detail of the technical and economic information
the interpretation of the data and information
The classification of the Mineral Reserve allows the QP to identify
technical risk
September 22, 2009 20

21. Modifying Factor Check List
Mining Data to determine appropriate mine parameters
Mining method
Production rate scenarios
Processing Cut-off grade
Dilution
Geotechnical Recovery with respect to the Resource model
Waste rock handling
Fill management (underground mining)
Hydrological Grade control method
OPEX and CAPEX
Environmental
E i t l Sustaining capital cost
Baseline studies
Location Infrastructure Tailings management
Waste rock management
Marketing Factors Acid rock drainage issues
Closure and reclamation plan
Permitting schedule
Legal requirements
Product specification and demand
Revenue Off-site treatment terms and costs
Transportation costs
T t ti t
Costs Sustainable development strategy
Impact assessment and mitigation
Social Issues Negotiated cost/benefit agreement
Cultural and social influences
September 22, 2009 21

22. Selection of an appropriate commodity price
Commodity prices are used in the estimation of Mineral Resources and
Mineral Reserves and in the economic analysis of a property. In times of
rapidly changing commodity p
p y g g y prices, or when p
, prices are at the extreme ends
of a commodity price cycle, the QP has a difficult job in selecting an
appropriate commodity price.
The selection of appropriate technical variables, including commodity price, is
the responsibility of the QP. The QP must describe the reasons for selecting
these variables, including price, in the technical report.
The definition of a “Mineral Resource” contains the wording “reasonable
prospects for economic extraction,” therefore, a QP must select economic
parameters, incl ding commodity price,
parameters including commodit price that will res lt in an estimate of
ill result
Mineral Resources and Mineral Reserves that have “reasonable prospects
for economic extraction”.
September 22, 2009 27

23. Commodity Price
Commodity price is usually the most sensitive and important factor in the
development of a mining project.
Resource companies are “price-takers” with little control over
international prices. Commodity price forecasting has a poor success
rate.
Methods for the selection of commodity price:
Current commodity price
Three-year moving average
Long term historical averages (10 to 20 years)
Margin over Cash Cost of Production
Consensus Prices
Contract Pricing
September 22, 2009 28

24. Cut-off Grade
Cut-off grade is a unit of measure that represents a fixed reference point
for the differentiation of two or more types of material. Owing to the
complexity of Mineral Reserve estimates, numerous cut-off grades may
p y , g y
be required to estimate a Mineral Reserve
The cut-off grade(s) should be clearly stated, unambiguous and easily
understood. C
d t d Complex ores may require complicated procedures t
l i li t d d to
determine cut-off grades and to define the Mineral Reserve.
Consideration should be given to the p
g problems associated with selective
mining where the cut-off grade is set high relative to the average grade of
the Mineral Resource.
September 22, 2009 29

25. Mineral Reserve Statement
Mineral Reserve statements should be clear and sufficiently detailed for
a knowledgeable person to understand the significance of, for example,
cut-off grade and its relationship to the Mineral Resource.
g p
In the case of open pit Mineral Reserve estimates, the strip ratio should
be clearly stated.
There should be an obvious linkage of the Mineral Reserve estimate to
the Mineral Resource estimate provided in a disclosure document. Best
p
practice includes documentation of those linkages ( g dilution and
g (e.g.
mining recovery) that were used.
September 22, 2009 30

26. Audit Trail
The Reserve estimation process needs to be documented in such a way that the
results can be exactly reproduced.
Information should be easily retrievable readily available and catalogued in a
retrievable,
manner that allows easy assessment of the history of the evaluations carried
out and records the location of all relevant information/reports/etc.
The test of economic viability should be well documented as part of the Mineral
Reserve estimation process. The requirement for economic viability implies
determination of annual cash flows and inclusion of all the parameters that have
an economic impact.
The classification methodology should be well documented and easily
understood. Best practice includes providing a narrative description of the
qualitative reasons behind the classification selection.
The procedures used to establish the cut-off strategies should be well
documented, easily available for review, and clearly stated in disclosure
statements.
September 22, 2009 34

27. A Definition of Risk
Risk has two aspects:
Uncertainty - the state of not knowing
Consequence - measure of the effect of a variable on a project
Risk = Uncertainty x Consequence
eg: taxes have high consequence but because they are well known little
uncertainty. Therefore risk is low.

28. Project Risk Assessment
While the classification of the Mineral Reserve allows the QP to identify
technical risk in broad terms, best practice includes the establishment of
a methodology to identify and rank risks associated with each input of
gy y p
the Mineral Reserve estimate. This will provide an understanding of the
technical risk associated with the Mineral Reserve estimate.
What can we do to reduce risk?
We may decrease uncertainty using knowledge, drilling, test work
y y g g , g,
and studies.
We may be able to impact consequence with more planning, more
design, more money.
September 22, 2009 36

29. Risk Profile
Residual Risk

30. Technical Risks
Resource - tonnage, grade, location, mineralogy
Completion - cost overruns under achievement delays
overruns, under-achievement,
Operational - operating costs, production rates, equip/manpower
Management - suitable for operation
Environmental - cost, publicity, extra constraints
Catastrophe/Force Majeure
p j

31. Geological Risk
Geological risk is known to be a major contributor to not meeting project
expectations.
Geological risk is the effect of geological uncertainty to project
performance. It arises because geological information is obtained from a
limited number of samples.

32. Assessing Geological Risk
Response Parameter
Probable models of
the deposit
Response 1
Transfer Function
Response 2
Mining
g Response m
Process
Parameters of
interest
Response Distribution
David,1988; Journel,1992; Armstrong and Dowd,1994; Rossi and Van Brunt,1997; Dimitrakopoulos, 1998,2000
September 22, 2009 41

33. Assessing Geological Risk
9,000,000
CS realisations
First 2 years of production
7,000,000
7 000 000
5,000,000
Cash Flow A$
Final year likely to be negative
cash flow
w
3,000,000
1,000,000
-1,000,000
-3,000,000
-5,000,000
0 2 4 6 8 10 12 14
Production Period (1/4 Year)
September 22, 2009 42

34. References
CIM Definition Standards - On Mineral Resources and Mineral Reserves
adopted by CIM Council on December 11, 2005
CIM Estimation of Mineral Resources and Mineral Reserves Best Practice
Guidelines
adopted by CIM Council on November 23, 2003
NI 43-101 - Standards of Disclosure for Mineral Projects - (December 30, 2005)
Questions resulting from CSA-CIM Committee Meetings (April 14, 2008)
Available on the CIM website:
http://www.cim.org/committees/guidelinesStandards_main.cfm
p g g
For information about Golder Associates go to www.golder.com
September 22, 2009 43

35. www.golder.com
Marcelo Godoy, Ph.D.
Principal Mining Engineer
Ore Evaluation Services
Golder Associates S.A.
Av.11 de Septiembre 2353 - Piso 2, Providencia
Santiago, Chile
T: +56 2 594 2080 | F: +56 2 594 2001 | C: +56 9 8233 1209
mgodoy@golder.cl
September 22, 2009 44

36. ORE E VA LUATION SERVICES
South America
Around the world
Under the earth
Above & beyond
Golder Associates provides integrated services from project inception to mine closure for mining clients around the world.
In South America, Golder Associates provides experience across the full range of geological, mining, geotechnical, civil
engineering, hydrogeological and environmental services.
DATA MANAGEMENT TECHNICAL AUDITING & COMPLIANCE MINE WATER MANAGEMENT
• Database management • Resources and reserves audits • Open Pit and underground mine
• Digital data capture systems • Competent Person reports dewatering
• Integration of legacy data • National Instrument 43-101 (Canada) • Slope depressurization assessment
• Quality control and assurance • JORC Code (Australia) • Surface and groundwater modelling
• Data analysis and validation • SAMREC (South Africa) • Water balance studies
• Software development • PERC (Europe) • Hydrogeology and hydrology studies
• SEC Requirements (USA) • Field investigation and monitoring
GEOLOGICAL MODELLING
programs
• Geological modelling GEOTECHNICAL ENGINEERING AND ROCK
• Site characterisation
• Sampling studies MECHANICS
• Flood studies
• Grade control studies • Geotechnical and geomechanical
investigation • Surface and groundwater management
• 3D geotechnical modelling
• Rock characterisation • Hydraulic design
GEOSTATISTICAL ANALYSIS • Water supply studies
• Pit slope stability analysis
• Resource estimation • Geochemistry studies
• Numerical modelling
• Resource classification studies • Acid rock drainage - ARD
• Stability analysis and design of
• Drill spacing studies
underground mines ENVIRONMENTAL SERVICES
• Reconciliation studies
• Pit slope and ground support design • Baseline studies
• Conditional simulation
• Geotechnical monitoring • Environmental impact studies
• Risk assessment
• Geometallurgical modelling MINE WASTE MANAGEMENT • Permitting master plans
• Geotechnical investigation and site • Closure planning
MINING ENGINEERING selection • Site evaluation and risk assessment
• Strategic mine planning • Geotechnical and hydrogeological • Monitoring and modelling
• Mineral reserve estimation characterisation • Sustainability studies
• Scoping, pre-feasibility and feasibility • Stability analysis of tailings dams
studies • Tailings management plans and dam design
• Economic evaluation and risk analysis • Design of slurry, thickened paste and
• Capex and Opex estimation filtered tailings deposits
• Mine optimisation • Construction management
• Design of underground and open pit mines • Quality control and assurance
• Mine equipments design • Closure planning
• Cut-off grade and stockpile optimization
• Mining method selection
• Optimisation of unitary operations
• Operational diagnostics
• Wast dump design
• Design of materials handling systems
• Underground ventilation design

37. COMPONENTS OF A MINERAL RESERVE REPORT
Every deposit is different and thus deserves an experienced and open-minded approach
to estimating mineral resources and reserves. Golder uses a multi-disciplinary approach
in preparing Competent Person or Qualified Person reports and technical audits. Each
report includes a detailed review of vital aspects of mining including:
Data Validation Rock Mechanics
Valid data is the basis for all sound Open pit and underground mine
resource estimation, for which Golder designs must be prepared using robust
can provide assistance in evaluating the parameters that reflect the expected
accuracy, precision and representativity rock mass conditions and behaviour. The
of the quantitative data inputs as well as mine design must consider methods to
the appropriateness of legacy data. ameliorate adverse conditions, improve
stability and increase productivity.
Geological Modelling
Geological interpretations need to Metallurgy
be transformed into a robust three The requirement for a mineral reserve
dimensional geological model that is that all the geological, mining and
characterises all the needs of mining metallurgical technical aspects have been
and processing, including grade, density, defined by appropriate studies. Golder
material types, geotechnical features, uses in-house expertise and contracts
and geometallurgical aspects. specialist technical experts to ensure that
the metallurgical testing, scale-up issues,
Grade Estimation mill recoveries and geometallurgical
Grade estimation is carried out using models are adequately defined.
advanced geostatistical techniques with
consideration of the deposit style and Environmental Aspects
mining method. Key environmental issues need to be
addressed in any mining operation or OTHER MODIFYING FACTORS
Mineral Reserves project including identifying key sources To define a mineral reserve it is expected
The estimation of a mineral reserve of environmental information, identifying that all economic, social and legal
(also known as an ore reserve) requires key stakeholders that will be integral to obstacles have been identified and
a robust resource model, economic the social component and identifying any appropriately addressed. Golder produces
parameters, mine planning and design, obvious potential ‘fatal flaws’ and issues reports that clearly identify the work
metallurgical recovery and consideration of concern associated with development carried out and where appropriate makes
of all relevant modifying factors. of the project. recommendations to improve future
studies.
Global Issues Local Solutions
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San Juan Belo Horizonte Santiago Lima
[+54] (264) 426 1377 [+55] (31) 2121 9800 [+56] (2) 594 2080 [+51] (1) 610 1700
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