Qualified and professional - reporting exploration results

Materials World magazine
,
1 Nov 2009

Michael Forrest talks to Deborah McCombe, Executive Vice-President of Scott WIlson Mining, Scott Wilson Roscoe Postle Associates Inc, Toronto, Canada, about accountability for reporting exploration results.

There is increasing uncertainty as to whether this planet can sustain the lifestyles of its people. Global warming is a familiar term, yet for other sustainability issues within mining, there is little information in the mainstream press, apart from the occasional mention of ‘peak oil’.

Forecasts of the consequences of exhausting raw materials have been made for some time. In 1798, political economist Thomas Malthus said, ‘The power of the population is indefinitely greater than the power in the earth to produce subsistence for man. Population, when unchecked, increases in a geometrical ratio’. Today’s increasing population (predicted to reach nine billion by 2050), infrastructure building in developing countries and consumer aspirations are putting pressure on mineral resources – a pressure that will rise dramatically as the world economy recovers.

An idea of what future demand may be like was seen in the mining boom between 2002-08 when metal prices reached all-time highs, only to be cut at the onset of the credit crunch. However, many metal prices have recovered significantly – copper is now trading at around US$6,000 per tonne, 30% below the peak of US$9,000, but double that of the lowest price in January this year. It seems more likely that demand for metal and other commodities will increase, and former mines and untested mineral deposits will come under scrutiny.

Estimating mineral resources and reserves underlie the ability to produce metal at sustainable prices. These estimates form the basis of mining plans and information for shareholders who may invest in a mine development project. A worldwide scheme to bring together a number of international mining codes is underway, and is reflected in the work of the Committee for Mineral Reserves International Reporting Standards (CRIRSCO). International acceptance is not a reflection on those formulating or publishing codes, but on the financial institutions that advise stock exchanges. So far reporting codes have been developed in mining countries where there is significant mining finance activity. Most prominent are Australia (JORC), Canada (National Instrument [NI] 43-101), South Africa (SAMREC) and the UK code PERC (see Materials World, July 2008, p45). Each standard is tailored to the protocols of its national market.

‘The diversity of codes is primarily historic,’ says Deborah McCombe, Executive Vice-President of Scott Wilson Mining, Toronto, Canada. ‘As each national mining industry developed, codes were required to protect investors and to enable mining companies to produce results of exploration in a form acceptable to lenders. These codes reflect the areas in which exploration and mining companies operate. Both Australian and Canadian companies have a reputation for being first in any new mining country, whether this is through a change in politics or economic circumstances. As a result, junior exploration companies with projects from Greenland to Papua New Guinea express their results in a consistent and comparable manner through JORC or 43-101 criteria.’

Assessing accuracy

With any projection, such as resources estimates, there is a degree of uncertainty. Resources are qualified by geological mapping and surface sampling, but quantified primarily by examination and chemical analysis of drill cores. The spatial density and depths of the drill cores is determined by reference to the extent and depth of the measured mineralisation. In a homogenous deposit, such as a porphyry copper, it is expected that the metal values determined from adjacent drill cores will be similar.

If, for example, samples from cores at 50m intervals show no discernible difference in metal values then, subject to check boreholes at closer intervals, 50m spacing will be sufficient to define the metal content of the deposit.

However, most mineral deposits are not the same as those of porphyry coppers and therefore an interpretation of drill results, and the number needed, in relation to geology is required. This is not a mechanical procedure as a degree of interpretation based on experience and knowledge is required. At this point, the value of a mineral deposit moves from points of data to an interpretation of what that deposit might hold, and its value.

In 1997, Calgary-based Canadian company BRE-X Minerals Ltd, claimed a resource estimate, based on analysed drill cores, of 70Moz of gold. Accordingly, the value of the company’s stock rose from CAN$180 per share in 1996, to CAN$280. At the end of that month, due diligence undertaken by one of BRE-X’s prospective partners, Freeport McMoRan, revealed negligible gold and the company collapsed, much to the anger of investors. It was later revealed that the samples sent by Bre-X for analysis had been salted with gold, but the stage when that happened was never determined. The consequence of the affair was an overhaul of how exploration results should be reported.

Quality counts

'National Instrument 43-101 places the responsibility for the accuracy (in context) of exploration results on the person [reporting] them,’ explains McCombe. ‘Those persons designated as a qualified person (QP) must have at least five years’ experience in 
mineral exploration, mine development or operation, mineral project assessment, or any combination of these, with experience relevant to the subject matter of the mineral project and are in good standing with a professional association. A professional association is a self-regulatory organisation of engineers, geoscientists or both.’ In Canada, geoscientists or engineers who are members of a provincial or territorial association of engineers or geoscientists would satisfy the requirement of being a QP.

Most foreign professional associations are not given authority or recognition by the Canadian statute, but, in order not to be proscriptive, the Canadian Securities Administration has recognised a number of professional institutes including the South African and Australasian Institutes of Mining and Metallurgy, and in the UK IOM3 and The Geological Society.

McCombe adds, ‘It is the QP’s responsibility to comply with professional and industry standards, including best practices. If you as a QP are going to rely on other experts, you must satisfy yourself that it is reasonable to rely on them. The QP who is taking primary responsibility for the technical report must conduct a site visit. If several QPs are preparing and taking responsibility for the technical report, then the appropriate QP should visit the site. For example, if an operating mine has metallurgical issues, at a minimum, a metallurgical engineer should visit the site. Data verification is a key element of NI 43-101. The QP must state whether data verification was conducted or not. If you didn’t verify the data, you must explain the reasons why’.Furthermore, if the QP prepares all, or a portion, of a technical report, he or she must provide the certificate and consent required by Part 8 of NI 43-101. If you omit some of the required information, such as a brief summary of your relevant experience, the items of the technical report, or whether you are independent of the company, the report is not compliant.

When filing a technical report, the company must also file a statement from each QP responsible for each portion of the technical report that consents to the public filing of the technical report and to the extracts from, or a summary of, the report provided in the written disclosure. The statement must also confirm that the QP has read the written disclosure being filed and that it fairly and accurately represents information in the technical report.

When the QP’s technical report is used to support a disclosure document, such as an Annual Information Form or a Prospectus, the QP must review that document to ensure it is accurate and not misleading. The QP confirms this by providing their consent. They are not responsible if the company misquotes them, unless they reviewed the disclosure and gave their consent. A QP should not release their consent in advance of their review of the company’s proposed disclosure.

Further information: Minsouth and Scott Wilson