Silicon Dale

Resources, reserves, and reality

A one day conference "MRE21" was held at Cardiff University on 31st March this year, to mark Dr Alwyn Annels' retirement - though he continues to work, as a consultant with SRK. The theme of this conference was the current status of mineral resource evaluation, and the consistent theme developed in all of the papers presented, was the question of resource/reserves reporting. I shall not even attempt to summarise the whole conference - long abstracts of most of the papers have now been published on the web (www.imm.org.uk/mre21/). Rather, I shall discuss a few of the issues that arise from the meeting.

Reporting standards, national and international

The background to this is well documented in papers by Gordon Riddler and Norman Miskelly (see www.imm.org.uk/genevapr.htm). The CMMI - representing many of the world's professional mining institutions, have agreed on a classification code based principally on the Australasian JORC code, and this CMMI code is to be used as the basis for national standards. The CMMI code has been finalised through a series of stages including the 1997 Denver Accord, and finishing with the November 1999 Geneva Accord.

Within Europe, standardisation is to be extended by the participation of the UNECE (United Nations Economic Commission for Europe which had been developing its own standards from 1992 onwards. For further information on these new standards, please contact any of the CMMI representatives: Norman Miskelly (Australia) seriatim@tpg.com.au; Jean-Michel Rendu (USA) jren5896@corp.newmont.com; Ferdie Camasani (South Africa) ferdic@avmin.co.za; Gordon Riddler (UK) gpra@riddler.clara.net; John Postle (Canada) fax: + 1 416 947 0395.

However, there remain a variety of questions yet to be resolved, a selection of which are mentioned below.

The 'competent person'

The definition of the 'competent person' - the person who is allowed to sign off a resource/reserves report - has been a matter for national, or even regional legislation. The situation remains that a perfectly well qualified geologist or engineer from one country, state, or province, may still have great difficulties in becoming accredited to work in another jurisdiction. there is, however, a broader question to be answered. Is it appropriate for a single person (i.e. the geologist) to be expected to sign off a reserves report when the reserve definition depends not only on the geology but also on a wide range of engineering, financial, social, and environmental factors, for which specialists in these other fields will also have contributed their expertise. In general a reserve report is the result of a team effort, and it should be recognised that the final signature is on behalf of the team. Particularly following Bre-X, there are potentially very serious implications in civil and criminal law for the signatory, this is a matter which needs to be aired.

Subjectivity of resource/reserve classification

Although the classification itself is now agreed, the allocation of reserves and resources to particular categories remains problematic an subjective. For example, in a measured resource, the drillholes or other sample locations are "spaced closely enough to confirm geological and/or grade continuity". How close that spacing must be will depend on the individual geologist's experience, his/her degree of optimism or pessimism, and - it must be said - how much pressure is being applied by the client for a particular answer, high or low. There is not even an attempt in the code to quantify the classification. In the former Soviet system - still in routine use in Russia and the other CIS republics - the required drill spacings are prescribed in law for each type of deposit and each resource category. Even the methods to be used in computing resource estimates are defined in law (incidentally this is why geostatistics has been so slow to take off in the Russian-speaking world).

Elsewhere there is not even the beginning of this sort of prescriptive system - nor is it likely that such a system would be accepted by the world's mining community. The fact remains, however, that without some way of ensuring consistency there is no way to be confident that one company's measured resource is comparable with another's. A shared classification language is no guarantee of reporting standardisation, and could in fact be counter-productive by suggesting a consistency which doesn't exist.

Uncertainty and risk

If looking at actual resource and reserves figures - setting aside the classification issue for now - most reports conclude with a single set of tonnage and grade numbers. There is very commonly an appendix indicating different financial scenarios and their effects on reserves figures. Grade tonnage curves are also often presented. However, there are very many sources of uncertainty which are not reflected in such reports. Sampling and analytical error are supposedly reflected in the nugget effect in geostatistical studies. However, there is progressively a tendency to use more complex and nonlinear geostatistical methods, where the effect of these sources of error is compounded are completely masked by much larger errors: the choice of estimation method itself is often subjective and can lead to large variations in estimated grade. The geological interpretation which is applied can very often lead to gross errors in tonnage. In a recent case which I have seen, a gold deposit in Kazakhstan was modelled as continuous when in fact it consisted of a series of lenticular patches separated by very low-grade ground. Instead of a respectable (if low-grade) reserve, the company possessed some mineralised but completely uneconomic acreage.

Here I have been writing purely about estimation uncertainty - but there are many other sources of uncertainty well beyond the domain of the geologist - for example, financial projections, planning and environmental restrictions. Considering the geologist's difficulties just of estimating and classifying a resource, there is a strong argument which could be made that the geologist should not be expected then to sign off a set of reserves figures. The distinction between resource and reserve should be emphasised by requiring a different professional (say, the mine planning engineer) always to be responsible for signing off the reserves figures.

Company reports and press releases

Great progress has been made in curbing the verbal and numerical excesses of company reports that have characterised much of the last century (and more!) of the mining industry. The use of standardised resource/reserves reporting has contributed a great deal to this progress. No longer do we see statements about a few metres of gold intersections justifying extrapolation to millions of tons of 'potential reserves'. However, there are still many cases where drillhole intersection lengths and grades are quoted out of context, without sufficient geological explanation, and in such a way as to mislead the lay investor (or fund manager) about the true uncertainties attached to them. A very strong case could be made out that NO numerical data should be made public except as an extract from a properly qualified consultant's report - and a sufficient extract for all of the uncertainty to be made clear.

Some conclusions

It is a truism that every deposit is different. Once a deposit is in production there is an accumulating body of knowledge which can be used to improve resource and reserves estimates. This doesn't help much in the exploration stages when knowledge is much more sparse, and yet at this stage companies are under greatest pressure to make statements of mineable reserves. One of the key points of discussion at MRE21 was the definition of 'competent persons', the role of consultants, and how independent consultants could actually be, bearing in mind that they are (usually) paid by the mining company.

There is general agreement that the reserves estimates in particular are the result of team-work - and cannot be done by a geologist in isolation because reserves definitions include a host of non-geological factors (economic, engineering, social, environmental, etc) - one person may have to sign off a report but that signature is on behalf of a collective team effort. Implied in this is that reserves are decided on an 'expert' basis and cannot easily (if at all) be defined objectively.

Classification of resources - which can be thought of as the geological input to the reserves evaluation - is something that can be done solely by the geologist, but unfortunately the distinction between measured and indicated is not quantified in the CMMI or any other western classification system. There is not even the beginning of an agreement on how this should be interpreted. Perhaps what we need is to borrow something from the Soviet system and define a set of 'standard' reference deposits which could be used as guidelines.

Stephen Henley
Matlock, England
steve@silicondale.co.uk
www.SiliconDale.com

Copyright © 2000 Stephen Henley
Resources, Reserves and Reality: Earth Science Computer Applications, v.15, no.10, p.1-2