resource and reserve audits gaa talk perth, wa may 10, 2004
TRANSCRIPT
RESOURCE AND RESERVE AUDITS
GAA TALK
PERTH, WA
MAY 10, 2004
RESOURCE AND RESERVE AUDITS BECOMING
INCREASINGLY COMMON
TYPES OF AUDITS
• Review of Methodology (“Fatal Flaw”)
• Due Diligence – (“Sign Off”)
• Endorsement – (“QA-QC”)
SUGGESTED STANDARDS IN RED
REVIEW OF METHODOLOGY (1)
• 1-2 Days
• Site Visit Preferred
• Adequacy of Database to Support Resources and Reserves
• Identify Risk Areas
REVIEW OF METHODOLOGY (2)
• Review Geological Controls
• Review Selectivity of Mining Operation
• Problem: Time or Scope Sometimes Insufficient to Find Fatal Flaw
DUE DILIGENCE (1)
• Duration Typically Several Weeks
• Review Procedures
• Database Check
• Implementation Check
• Suitable to Support Project Financing, CP, 43-101,10-K and 20-F Reports, etc.
DUE DILIGENCE (2)
• Site Visit Mandatory
• Field Check Hole Locations (5-10%)
• Verify Down-hole Surveys (5%)
• Verify Assays (5% Routine, Others That Appear Anomalous)
• Data Entry Error Rate < 1%
DUE DILIGENCE (3)
• Review Sampling Procedures, Core Recovery, RC Weight Recovery
• Check Grade Versus Recovery
• Check for Down-hole Contamination
• Check Density Determinations (Number, Method)
DUE DILIGENCE (4)
• Visit Assay Laboratory, Submit Checks
• Review QA-QC
- Coarse Rejects (1:20)
- Pulp Duplicates (1:20)
- Standard Reference Materials (1:20)
- Blanks (1:20)
Cu Standards Analysed by ITS (n = 718) Percent Relative Difference from Certified value
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
0 100 200 300 400 500 600 700
Time series
Re
lati
ve
Dif
fere
nc
e (
%)
AABY std
Assay method change:
1st lab audit
AABY bias +1.7 RD
1 kg prep
DUE DILIGENCE (5)
• Is Sampling and Assaying Protocol Reasonable?
• Check for Bias (Ideally < 5%)
• Check for Precision
- 90% within +/- 20% for Coarse Rejects
- 90% within +/-10% for Pulps
Intralab Pulp Check AssayAbsolute Relative Difference
0
5
10
15
20
25
30
35
40
0 10 20 30 40 50 60 70 80 90 100
Percentage of Samples
Ab
solu
te R
elat
ive
Dif
fere
nce
less than ten times dl excluded
DUE DILIGENCE (6)
• Logging Suitable, Consistent
• Geological Interpretation is Reasonable
• Supported by Plans and Sections That Reconcile
• Ore Controls Clear
• Compare to Similar Deposits
DUE DILIGENCE (7)
• Check Choice of Rocktypes for Modeling (Particularly Ore Controls)
• Check Grade Distributions
• Check Domaining (Get Coefficient of Variation Down, Below 1 if Possible)
• Check Compositing (Consider Length versus Geological Variability, Mining Selectivity)
DUE DILIGENCE (8)
• Check Frequency Distributions (Histograms) for Outliers
• Check Capping or Outlier Restriction:
Adjust Risk to 20th Percentile for High-Grade Population
DETERMINATION OF METAL-AT-RISK MONTE CARLO SIMULATION
SIMULATION RESULTS PERCENTILE NUMHI TONS GRADE METAL 0 0 0. 0.000 0.000 10 3 28686. 141.140 5195.417 20 4 38248. 147.920 6997.185 30 5 47810. 155.454 8231.544 40 6 57372. 160.977 9321.229 50 6 57372. 166.887 10550.424 60 7 66934. 175.153 11647.569 70 8 76496. 183.816 12978.694 80 9 86058. 195.052 14614.562 90 10 95620. 217.760 17096.092 100 15 143430. 427.135 30505.174
DETERMINATION OF METAL- AT-RISKRISK ADJUSTMENT
DETERMINATION OF RISK-ADJUSTED METAL CONTENT METAL CONTENT KILOUNITS UNADJUSTED ADJUSTED LOW GR 27341.305 27341.305 HIGH GR 10895.458 6997.185 ADJUSTED TAKEN AT 20TH PERCENTILE TOTAL 38236.762 34338.488 RATIO ADJUSTED/UNADJUSTED = 0.8980 METAL-AT-RISK = 10.2%
DETERMINATION OF METAL- AT- RISK
Expected
High-grade Composites in
Period
Area No. Currently Available
Composites Mined in
year
High-grade
Threshold (g/t Au)
No. %
Metal Represented
Metal at Risk
High-grade Indicated
113 110 7 5.8 28.5 % 11.2 %
Low-grade Indicated
113 50 5 4.8 27.1 % 13.0 %
DUE DILIGENCE (9)
• Check Variography – Have Variograms Been Computed in Down-hole Direction? Has Lag Been Adjusted to Composite Length?
• Are Models Consistent in 3 Dimensions?
• Do Variogram Domains Reflect Zoning?
DUE DILIGENCE (10)
• Check Interpolation Plan – Is There Stationarity of Mean Within Selection Neighborhood? Are Soft, Firm, Hard Boundaries Reasonable?
• Is There Overprojection of High-Grade Due to Increased Data Density?
AuZone 2 (East) - Contact Analysis
0.0
0.5
1.0
1.5
2.0
2.5
-70 0 70
Distance from Contact
Au
Gra
de
(g
/t)
Samples
Composites
AuZone 4 (West) - Contact Analysis
0.0
0.5
1.0
1.5
2.0
2.5
-70 0 70
Distance from Contact
Au
Gra
de
(g/t
)
Samples
Composites
CuZone 2 (East) - Contact Analysis
0.0
0.5
1.0
1.5
2.0
2.5
-70 0 70
Distance from Contact
Cu
Gra
de
(%
)
Samples
Composites
CuZone 4 (West) - Contact Analysis
0.0
0.5
1.0
1.5
2.0
2.5
-70 0 70
Distance from Contact
Cu
Gra
de
(%
)
Samples
Composites
DUE DILIGENCE (11)
• Verify Interpolation Program: Composite Selection, Weights
• Validate With Simple Model (Nearest Neighbor – Swath Plots
• Check Selective Mining Unit Distribution Versus Grades; SMU Consistent with Production Rate?
Tonnage Versus Cutoff Grade
0.010.020.030.040.050.060.070.080.090.0
100.0
0.0 0.5 1.0 1.5
Cutoff Grade
Per
cen
t A
bo
ve C
uto
ff
SelectiveMining Units
Block GradeEstimates
Average Grade Versus Cutoff Grade
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
0.0 0.5 1.0 1.5
Cutoff Grade
Gra
de
Ab
ove
Cu
toff Selective
Mining Units
Block GradeEstimates
Ratio Blocks to SMUs Versus Cutoff Grade
0.00
0.20
0.40
0.60
0.80
1.00
1.20
0.0 0.5 1.0 1.5
Cutoff Grade
Ra
tio
Tonnage
Average Grade
Metal
DUE DILIGENCE (12)
• Review Sections and Plans Showing Block and Composite Grades
• Assess Risk, Need for Drilling
DUE DILIGENCE (13)
• Review Classification of Blocks as Measured, Indicated, Inferred
- Measured = +/- 15% with 90% Confidence on Quarterly Basis = Confirm Continuity
- Indicated = +/-15% with 90% Confidence on Annual Basis = Assume Continuity
KONIAMBO NICKEL – ORE THICKNESS
RESOURCE THIKNESS > 2m THICK and >2%Ni
Input Data
EXAMPLE CONDITIONAL SIMULATION
QUARTERLY CONFIDENCE LIMITS
Quarter Confidence Limits for reblock
ANNUAL CONFIDENCE LIMITS
Annual Confidence Limits for Reblock
DUE DILIGENCE (14)
• Check Resource Statements
• Check Final Model for Mine Planning: External Dilution Factors Reasonable?
• Mining (Ore) Recovery Reasonable?
EXTERNAL DILUTION SIMULATION
ASSUMPTIONSVein Strikes North +/- 10 DegreesVein Dips East 7- to 90 DegreesMining Comes in from East - Face Angle Dips 70 Degrees East
Mine from Mixing Dilution Ore Loss NetZone From (m) To (m) Hz, Width Hz. Width Increase/
Width (m) (m) (m) Decrease(m)
Hw waste into vein 1 0.5 1.5 1.17 0.16 1.01Hw waste into vein 1 1 2 1.57 0.06 1.51Vein into Fw waste 1 -1 0 0.81 0.33 0.48Vein into Fw waste 1 -1.5 -0.5 1.15 0.17 0.98Vein into Fw waste 1 -2 -1 1.56 0.07 1.49
Position of Mining Face
DUE DILIGENCE (15)
• Geotech/Hydrogeology in Hand to Support Slopes, Stope Design?
• Metallurgical Data Representative, Sufficient?
• Prices, Costs Reasonable?
• Cutoff Grade Reasonable? Assess Risk
• Mine Design Refined, Annual Production Schedule? Assess Risk
DUE DILIGENCE (16)
• Review Past Production Versus Models Ideally Within 5% (Cu), 10% (Au)
- Grade Control to Model – Check Planned Dilution/Ore Loss (Aim for 0%)
- Plant to Model – Check Unplanned Dilution/Ore Loss (Within 5-10%)
• If You Do Not Measure It, You Cannot Control It!!!!!!!!
Changes In Resource Tonnage (000's)
10130
-1788
1198
-2134
12854
-5000 0 5000 10000 15000
Old Model Begin Year
Depletions
New Model
Change in Cutoff Grade
New Model End of Year
DUE DILIGENCE (17)
• Review Other Factors: Legal, Environmental Permits, Socioeconomics, Sales Contracts
ENDORSEMENT
• Same Procedure as Due Dilligence
• Responsible for QA-QC of Entire Data Entry, Resource Modeling, Reserve Conversion
• Anticipate Needs of Future Auditors
CONCLUSIONS
• Resource and Reserve Modeling is a Serial Process
• Even Small Errors (10%) Can Make Big Impact on Profits; Nearly Everything is Potentially Material
• ASSUME NOTHING; CHECK EVERTHING
• TRUST NO ONE
PARALLELISM TO FINANCIAL AUDITS (1)
• Based on Discussions with:
- Matthew Hird (Deloitte & Touche)
- Jason Burkitt (PricewaterhouseCoopers)
PARALLELISM TO FINANCIAL AUDITS (2)
• Financial Audits: Follow the Money
• Resource/Reserve Audits: Follow the Metal
PARALLELISM TO FINANCIAL AUDITS (3)
• Same General Steps
- Planning
- Field Work
- Check Correctness of Presentation
DIFFERENCES
• Financial Audits Rely More on Test of Controls; Procedures are Routine; Are They Followed?
• Emphasis on Risk Areas That Could Affect Viability of Business, Incorrect Statement of P/L, Balance Sheet
• Analytical Review a Major Tool
DIFFERENCES
• Codified Industry Standards for Accounting and Audits
• Working Papers Highly Structured
• Extensive Internal and External Peer Review
WHERE WE MUST GO
• Better Definition of Best Practice
• Publication of Audit Standards
• Corporate and Regulatory Policies on When Audits Required
SEC/SME RESERVES WORKING GROUP
• Commodity Prices (3 year average versus ?)
• Definition/Declaration of Resources
• Definition of Feasibility Study
- Base Case Versus Optimization
• Permitting Requirements
• Competent Person
JORC CODE VERSUS CIM 43-101 AND SEC
• JORC Code is a Minimum Standard
• Contains Loopholes or Loosely Interpreted- Geological and/or Grade Continuity- Inferred Resources Given Positive Value to
Support Pit Designs Used to Declare Reserves
• Measured Resources Much More Restrictive in Canada, not Used Much in USA
• SEC More Active, Strict than In Past but Selective Enforcement
• Regulatory Pressure to Upgrade Standards
CHALLENGES
• Fast-track Drilling and Resource Modelling
• Increasing Optimization in Engineering
• Declining Cutoffs Increase Risk of Failure
• Pigrooting in Sparsely Drilled High-Grade Areas
• Narrow Cuts to Minimise Stripping
• GPS Controlled Mining, Robotics
MEETING THE CHALLENGES
• Increased Education and Training
• Take Back R+D from Vendors
• Conditional Simulation to Become Routine Tool
• Increased Drilling Density to Support Design
• More Focus on Reconciliation and Improvement
• Standards, Professionalism and Audits