Mineral Resource Estimation

Resource Estimation

• Mineral resource estimation is a key part of determining the potential value and viability of a mining project
• The aim is to distinguish between a mineral resource and a mineral reserve

Learning Goals

• The different categories of resources (inferred, indicated, and measured) are based on confidence
• It is important to understand of the significance of cut-off grades
• Geological models are to be appreciated for making a comprehensive geological database
• Learn how to calculate the tonnage for a model

Definitions

• Resource is mainly based on geology. Grade and tonnage are estimated from drill holes and assays of core.
• Reserve is the economically viable portion of a resource, supported by an economic assessment
• A resource is converted to a reserve by applying modifying factors, like mine plans and economic conditions
• Key factors for resource estimation are grade and tonnage
• Tonnage refers to the amount of mineral present
• Grade refers to the concentration of the valuable mineral within the ore

Key Steps for Resource Estimation

• The preparation of a geologically sound interpretation that honors controls on mineralization and sample data
• A schematic diagram illustrates the relationship between ore reserves, mineral resources, and the actual zone of mineralization in a deposit

Resource Classification

• A Resource is based on a deposit’s geology, with grade and tonnage estimated from drill holes and assays of drill core
• Categories of resources are based on level of confidence: Inferred, Indicated, and Measured
  • Inferred: tonnage, grade, and mineral content estimated, with low confidence
  • Indicated: tonnage, grade, shape, physical characteristics, and mineral content estimated with reasonable confidence
  • Measured: tonnage, grade, shape, physical characteristics, and mineral content estimated with a high degree of confidence

Reserve Classification

• Reserve is the economically viable part of a resource, supported by a pre-feasibility level economic assessment
• The reserve confidence categories are: Probable & Proven
  • Probable: can be mined economically and justifies further development
  • Proven: can be mined economically, representing the highest confidence level for reserve estimates

Inferred Resource

• Inferred Resources are mineral resources estimated from limited sampling
• There is reasonable but not necessarily verified assurance of continuous mineralization and grade between samples

Indicated Resource

• Indicated Mineral Resource estimated from reliable and detailed sampling of drill holes
• Holes can be too widely spaced to definitively confirm continuity of grade, but enough to provide a reasonable assurance
• Sufficient confidence to use in engineering and economic studies, like Pre-Feas

Measured Resource

• The highest level of confidence when estimating Mineral Resources
• Estimation based on reliable and detailed sampling from drill holes spaced close together
• Used for engineering and economic studies, such as PFS

Resource to Reserve Conversion

• Resources are converted to reserves after applying modifying factors: mine plan, mineral processing, flowchart, and economic factors

Mineral Reserve Requirements

• It is the economically mineable part of a Measured or Indicated Mineral Resource that is demonstrated by a Pre-Feasibility Study or Feasibility Study
• Study must include mining, processing, metallurgy, and economic information to show economic viability at the time of reporting

Modifying Factors

• Influencing criteria used to decide if a resource can be turned into a reserve such as economics, operational losses, and social factors

Mineral Reserve: Probable and Proven

• Resource converts to Reserve once engineering and economics are established.
  • Indicated Resources become Probable Mineral Reserves
  • Measured Resources become Proven Reserves
• Categories may also be revised if economic or modifying factors change

Why Definitions are Used

• Definitions are incorporated into NI 43-101, In Canada
• Followed by publicly traded mineral exploration and mining firms that release data to the Canadian public
• CIM reporting standards for Mineral Resources and Mineral Reserves

Permitted Terms

• Inferred, Indicated or Measured Mineral Resource
• Probably or Proven Mineral Reserve
• Note estimates based on interpretation and estimation, not precise
• A NI 43-101 report should state rationale for confidence/continuity increases

Blackwater Resource Estimate

• Blackwater Gold Mine, operated by Artemis Gold, is located in central British Columbia
• Deposit represents an intermediate sulphidation epithermal-style silver & gold deposit
• A mineral resource estimation studies the optimal mine expansion time
• Construction of the Phase 1 processing plant can process 6 Mt/yr
• Expansions are funded through operating cash flows, based on input assumptions of the study

Factors Used in Mineral Resource and Reserve Estimates

• Metal Prices, Metal Equivalents, Mine and Mill Recovery, Cut-off Grade, Net Smelter Return (NSR), Capping High Assay Values (nugget effect)

Metal Prices

• Critical to establish cut-off grades
• Consensus pricing from experts is often used, along with historical and contract averages
• Prices are time-dependent, updated as a project evolves

Mine Recovery

• Represents the percentage of mineralized rock that lies above the set cut-off grade which is recovered during mining
• Mine recovery rates tend to be reduced by irregular-shaped zones because they could fall outside of the mining plan or get mixed with waste rock

Mill Recovery

• Percentage of metal recovered from ore in the processing plant
• Can vary from less than 50% to greater than 95%
• Factor in economics of a mine
• Minerals with a large density difference compared to the gangue are easier to separate using gravity separation methods, leading to higher recovery rate
• Fine particles are difficult and coarser particles are easy to recover

Cu EQ Example

• A mineral resource containing 1 million oz Au at $1500/oz, and 10 million oz Ag at $30/oz
• Convert Ag value to gold by taking metal volume x metal price / price of gold
• So in this example, 200,000 Au EQ oz of Ag
• Alternative calculation is AuEQ = (grade) x (price) / (price of gold)
• In addition, pay attention to metal prices and mill recovery

Cut-Off Grade

• Cut-off grade is the grade below which mining is no longer economic (and ore is waste rock)
• It is an iterative process that may change over time

Cut-Off Grade Inputs

• Balances revenue against cost of mining

• Determined by metal prices, recovery, and costs, shipping, smelting, refining, and exchange rates

• Cut-off grade balances the revenue against the cost of mining

• It’s calculated by factoring in metal prices, recovery, costs of mining, processing and exchange rates

• 0.5% Cu equivalent Example,

  • Operating Costs: Based on production rate assumption
  • Revenues: factors in metals prices, metallurgical recoveries, payable percentage, transportation, smelting and refining costs

• Different cut off grades are a result of different operational approaches (Influences of mines)

• If there are less cut off grades, there are less waste rock that is more expensive for the operation

Calculating Cut-Off Grade - Single-Commodity Gold

• Determines the operational costs, metal recovery and and price, and sales to calculate the value (oz/t)

Net Smelter Return (NSR) Factors

• Percentage of revenue from end products of the mine, less smelting (and refining) costs
• Calculated by factoring grade, tonnage, metal price, costs, and recovery rate

Royalties

• Royalties are amounts payable to owner(s) noted in JV agreements and is a % of net profits
• Many option agreements have an NSR clause that benefits claim owner
• NSR typically 1-2% but can be up to 5%
• Most NSRs never enacted.
• All agreements should contain this clause

Gold Deposits and Grade

• Grades (assay values) come back too high
• Caused by the blebby nature of gold mineralization resulting in values (assays) returning high
  • low nugget effect = consistent grades are returned from repeated assays on the same piece of core or a few holes drilled a few meters apart
  • high nugget effect = samples return variable grades
• Reduce the "Nugget Effect" of grade by "capping" assay values, determined for outlier
  • capping gold grades results in smaller resource

Examples of Blackwater EQ and Recovery

• AuEq values were estimated using metal prices of $1,400/oz for Au and $15/oz for Ag

Blackwater EQ and Recovery example:

• Recovery for Au is 0.45g/t*0.93 = 0.42g/t
  • Recovery for Ag = (12.8g/t*$15/oz) / ($1400/oz) = 0.137*0.65 = 0.089 g/t
    • AuEQ = 0.51 g/t,
• (tonnage*price / Au price) * recovery,
  • AuEQ for Ag = (6,953koz15/1400 = 74.5 0.65 = 40.97 koz,
    • AUEQ = 246koz + 40.97 = 287koz

Case Study Factors that May Affect Mineral Reserves

• Metal prices and foreign exchange rates
• Interpretations of mineralization geometry
• Geotechnical and hydrogeological uncertainty
• Changes to pit designs
• Employment challenges in meeting production rate
• Increases in operating costs
• Climate and associated water uncertainty

NSR for Blackwater Gold Mine

• NSR = NSP Gold ($/g) * Gold Grade (g/t) * Gold Process Recovery (%) + NSP Silver ($/g)

  • • Silver Grade (g/t) * Silver Process Recovery (%).

• NSP = "net smelter price” and refers to the price a company gets for its ore after all processing and refining have been accounted for. It’s also the price reported as $/g basically (Current minus Operational)

NSP (Net Smelter Price) calculation for Goldmine Table 16-1 in Study

• A NSP of US$1,400/oz results in a price of C$1,829/oz or C$58.8/g
• Calculation: $58.8/g /t* 0.74 g/t * 0.93 = $40.5 per tonne with Au,
• Calculation of $58.8/g /t =13.2 B$ shown on the study
• $0.59/g /t * 5.8 g/t* 0.65 is value in silver, for $0.59/g it produces $723

Changes in Grade

• Converting resources to reserves hinges on a careful consideration of many different modification factors.
• Grade and tonnage alterations can either increase or decrease with differences in quantity.
• Total metal content in a reserve is always less than a resource because metallurgy is applied
• Cut-off grade increases from resource to reserve

Geological Model

• Simplified version that allows for underlying processes
  • Helps understand controlling features and to guess/predict how interest is going to change in deposit (behave)
  • Enables known mineralization controls and to be constrained it during estimation

Creating a Geological Model for MRE

• Geological database is the information that gets mineral resource estimates
• Estimates starts with database primarily coming from drilling
• High-quality geological and geochemical data
• Detailed drill hole information, rock, and mineralization types
• Geochemical & assays and down-hole survey data for 3D location

Geological Database

• A good database must be representative, valid, auditable, understandable, usable, transferable and secure

In order to verify lithography of good information, must have

• From/To errors composites,
• Grades into veins and hardcopy for logs (handwritten)
• In early stage, bulk data, classical logging and photos are to be recorded

Geological Model Must Have These Characteristics…

• Spatial location, distribution, type, continuity
• This must consider: Genesis, geological environment, style, mineralizations, data, and operations for 3D representation of geological model in Earth

Models in creating a 3D for MRE

• To establish estimation domains that reflect the controlling properties of mineralization
• Should have concepts, structures, domain layers, and an interpretation
• These models can be examined for both sections and plan maps and examined for cross-sections

Geological Controls & Importance for Grade Estimation

• Important geological structure, unit, and multiple phases
• Models will have importance depending on hard rock and are deep, compared to no models in weathering
• Types of Boundaries*
• Ore body shapes come in diffuse or sharp, so bodies get taken into account with modelling
• Conventional Methods*
• Mineral deposit is subdivided into 3D blocks surrounding drillholes
• Combine all grades in those blocks to estimate tonnage for deposit
• Volume x density = weight for calculating tonnage
• Formulas for Conventional Methods*
• Weighted mean used to calculate grade for drill results within a block
• Grades of assays are calculated for deposit using a mean of all block values

Polygonal Method

• Polygons are drawn around each data point (drill hole)
• Grades derived from drillholes
• Good for tabular deposits like like veins/VMS

Geostatistical Methods (Kriging)

• Complex calculations such as kriging for cubic grade (and tonnage) per block
• No need for drillhole in block, calculations based on holes