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Mine Technical Reporting Depends on Author, Whatever National Rules or Regulations. Society of Mining Engineers New York, April 29, 2013 John C. Tumazos, CFA. Canadian NI 43-101. “Qualified Person” has all discretion No minimum standards of drill density No minimum standards of reliability

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Mine technical reporting depends on author whatever national rules or regulations

Mine Technical Reporting Depends on Author, Whatever National Rules or Regulations

Society of Mining Engineers

New York, April 29, 2013

John C. Tumazos, CFA


Canadian ni 43 101
Canadian NI 43-101 National Rules or Regulations

  • “Qualified Person” has all discretion

  • No minimum standards of drill density

  • No minimum standards of reliability

  • Public criticisms of studies filed under SEDAR not widespread

  • All national codes describe “proven and probably reserves” in terms of qualitative degrees of reliability to give author latitude


Criticisms of application not code
Criticisms of Application, not code National Rules or Regulations

  • Criticisms of insufficient engineering hours, “canned” computer printouts in lieu of true engineering, insufficient drill samples, no “plan of implementation,” no detailed design or no true DFS

  • Thus, most complaints center on how the system is applied and not the very broad discretion given to “Qualified Person”


Too few resources
Too Few Resources National Rules or Regulations

  • Bottom Line Conclusion: Weakest Project Proposals Need to Die Off Quickly to Free Technical Resources for Stronger Ones

  • Many large companies should have one project and not many to weed out the weakest faster

  • There aren’t enough engineers to give a man-year more engineering to each major aspect of a project at each phase of scoping/PEA, prefeasibility study or feasibility study

  • Financial markets react by depriving most or many projects of capital entirely


5 things we look to first
5 Things We Look to First National Rules or Regulations

  • Mining cost per tonne & total op ex

  • Total cap ex

  • Indirect social costs

  • Geostatistics

  • Does project have a reasonable chance of a social license to operate ?

  • In a minority of situations we may pay extra attention to water, metallurgy, end markets or other factors


Mining cost per tonne
Mining Cost per tonne National Rules or Regulations

  • Will the rocks jump out of the mountain and walk through the mill ???

  • Ranges of $1.50 to $3.50 per tonne common in practice, but mine studies predict $1.25 to $2.33 per tonne

  • FCX Morenci @ 750,000 tons per day had $2.10 per tonne in November 2011 in favorable desert climate


Total cap ex
Total Cap Ex National Rules or Regulations

  • Small projects under 10,000 mptd less susceptible to huge overruns

  • Self-managed projects include Osisko, Detour Gold, Mercator Minerals, Agnico-Eagle’s 5 newer mines, ATI Rowley, Utah Ti, Nucor mills, Steel Dynamics mills

  • 100,000+ mtpd high pressure grinding floatation mills = epicenter of overruns

  • Acid Test = Will a manager do the work himself ? Engineering firms price to greatest excess if owner unable / refuses to do any work in house or oversee site.

  • Analogy to a Steelworkers strike : Union watches if managers get hands dirty to “run the coke battery” and back down if managers will do the hard work. Mine suppliers sense a weak management just like the unions


Indirect social costs
Indirect Social Costs National Rules or Regulations

  • May exceed 50% of direct costs, but almost never mentioned in mine studies before hand

  • For example, in a recent period FCX’s operating costs for 4 South American mines doubled when it paid for a new water & sewage system for Arequipa, Peru’s #2 city

  • “First Nations” protocols encourage indigenous employment, but < 50% literacy or alcohol reduce productivity in Canada’s far north

  • 1% to 3% of revenues to local social funds common

  • Minera Antamina provides artificial insemination to imported Aussie sheep and a Juarez child symphony

  • Medical care, education, clean water and other services


Geostatistics
Geostatistics National Rules or Regulations

  • Underlying Issue: Many or maybe half of geologists do not embrace mathematics or geostatistics

  • Geos’ Complaint: Top cuts of assays make gold discoveries smaller. Geologists resist techniques that deflate their achievements. Over-emphasis on qualitative interpretation with insufficient data density common.

  • We observe 1,000-fold range in “tonnes resources per assay” and 125-fold range in “oz gold per assay”

  • About half of 43-101 studies of gold mines do not disclose standard deviation of assays, coefficient of variation of assays or top cutting procedures if any

  • Geochemists, geophysicists or geostatisticians more likely to embrace the analysis thereof, discuss and disclose the math behind their resource calculations



Ounces of gold per assay feb 2012 data sample
Ounces of Gold per assay* Feb 2012 data sample National Rules or Regulations


Reasonable chance of social license
Reasonable Chance of Social License National Rules or Regulations

  • Does the owner propose an 1,800 foot deep pit beneath lakes surrounded by vacation cottages ?

  • Do the water supplies for the proposed mine compete with farmers in a dry place?

  • Has the local region grown tired of mining because of rapid social change ?

  • Do indigenous communities reject the authority of the national government ?


Market forces regulate projects
Market Forces Regulate Projects National Rules or Regulations

  • Low metals prices and $175 Bil pretax writeoffs in 2008-12 with $42.3 B Al, $30.5 B Au, $25.5 B Cu, $22.5 B Integrated Steel, $12.8 B Ni, $11.2 B coal, $8.7 B iron ore, etc. No sector reputable. More ahead as prices fall.

  • Many resources funds closed, many $ withdrawn, personnel fired or generalists do not staff metals.

  • Equity investors and lenders demand more rigorous documentation. Studies can’t be a joke !

  • Capital providers want permits in hand, tight infill drilling initial years to payback, bulk recovery tests, mining costs > $2/t, current data, detailed design, low risks, etc.

  • Fixed price construction contracts will evolve


Conclusions
Conclusions National Rules or Regulations

  • Reserves, NPV or rates of return reported in regulatory filings are estimates

  • Wide variations in the accuracy, methods or conservatism of such estimates exist

  • Users of such information may apply extra high discount rates where project difficulty or uncertainty largest as indicated by sparse data, variable data, remote location, difficult logistics, etc.


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