A Framework for Presenting & Benchmarking Mineral Projects. Mark Noppe SRK Consulting Brisbane, Australia

Transcription

1 A Framework for Presenting & Benchmarking Mineral Projects Mark Noppe SRK Consulting Brisbane, Australia AusIMM Project Evaluation, Mar 2016

2 Content Presenting mineral project development status - how confident are we? Introduction Context is everything Technical factors Social, Environmental and Governance factors Codes, standards, guidelines and industry practice Accuracy, confidence and quality Case studies Conclusions

3 Introduction Mining is an inherently risky business The market needs transparent, consistent and balanced views of a project s technical confidence and development status, including social, environmental and governance factors Risks and opportunities exist for advancing an exploration prospect to a viable project, and operating a mine This talk focuses on presenting a mineral resource project in the correct context for the benefit of all stakeholders Noppe, 2014

4 Context Why feasibility studies or mine projects fail: technical factors Mined ore grade is lower than expected Processing plant under-performs Development cannot keep up with planned schedule Technical factors resulting in feasibility study failure: Geology, resource and reserve estimation: 17% Geotechnical analysis: 9% Metallurgical test work, sampling, mineralogy: 15% Geo-hydrology: 4% Mine design and scheduling: 32% Mining equipment selection: 4% Process plant design: 12% Cost estimation: 7% Some 50% of technical causes relate to geo technical data collection and interpretation How do we communicate uncertainty? McCarthy, 2014

5 Context Why feasibility studies or mine projects fail: Social, Environment, Governance (SEG) factors Development timelines have nearly doubled in the past decade (from 5-7 years to years) SEG themes critical to mining project success / failure: Communication Community conflict Quality of information Social investment versus risk mitigation Value versus cost / benefit decision making Timeframes: social / legal / technical / financial (incl. markets) Incentive structures (to manage adverse impacts) Market drivers (lenders, insurers, customers governments) Non-technical risks account for up to half of all risk factors faced by extractive industries Corder, Davis & Franks, Ernst & Young, Fraser Institute, 2014.

6 Context Importance of Resources, Reserves and SEG Mineral Resources and Ore Reserves underpin strategic and actual investment and technical valuations SEG and market factors moderate value Reserve (mine schedule) Valuation buckets Residual resources Exploration potential Xstract, 2014

7 Codes Reporting definitions Don t forget about: Development stages Timing Level of technical-economic study Level of confidence in all relevant factors, including SEG factors Transparent, consistent, balanced reporting JORC Code, 2012

8 Codes Project development stages VALMIN Code, 2005 Project development stage Exploration areas Advanced exploration areas Pre-development / resource Development Operating Criterion Mineralisation may or may not be defined, but where a Mineral Resource has not been identified. Considerable exploration has been undertaken and specific targets identified. Sufficient work has been completed on at least one prospect to provide a good geological understanding and encouragement that further work is likely to result in the determination of a Mineral Resource. Mineral Resources and/or Ore Reserves were identified and estimated. A positive development decision has not been made. This includes properties where a development decision has been negative and properties are either on care and maintenance or held on retention titles. Committed to production but not yet commissioned or not initially operating at design levels. Mineral properties, in particular mines and processing plants, which were fully commissioned and are in production.

9 Codes Project development stages VALMIN Code, 2015 Project development stage Early-stage Exploration Advanced Exploration Pre-development Development Production Criterion Mineralisation may or may not have been identified, but where Mineral Resources have not been identified. Considerable exploration has been undertaken and specific targets identified that warrant further detailed evaluation, usually by drill testing, trenching or some other form of detailed geological sampling. A Mineral Resource estimate may or may not have been made, but sufficient work will have been undertaken on at least one prospect to provide both a good understanding of the type of mineralisation present and encouragement that further work will elevate one or more of the prospects to the Mineral Resources category. Mineral Resources have been identified and their extent estimated (possibly incompletely), but where a decision to proceed with development has not been made. Properties at the early assessment stage, properties for which a decision has been made not to proceed with development, properties on care and maintenance and properties held on retention titles are included in this category if Mineral Resources have been identified, even if no further work is being undertaken. A decision has been made to proceed with construction or production or both, but which are not yet commissioned or operating at design levels. Economic viability of Development Projects will be proven by at least a Pre-Feasibility Study. Tenure holdings particularly mines, wellfields and processing plants that have been commissioned and are in production.

10 Industry practice Timeline of project development stages 5-15 years 1-10 years 1-5 years Construct Financing Social, Environment and Governance engagement

11 Industry practice & guidelines Technical-economic study levels Accuracy and confidence levels are not provided in reporting Codes There are industry guidelines Actual cost accuracy is often less Measure / Item Scoping Study Pre-feasibility Study Final Feasibility Study Cost accuracy ±25%-50% ±15-25% ±10-15% Cost contingency 30-50% 15-30% <15% Proportion of Engineering complete Resource categories Reserve categories <5% <20% <50% Mostly Inferred Mostly Indicated Measured and Indicated None Mostly Probable Proved and Probable Mining method Assumed General Optimised Mine design Scheduling None or high-level conceptual Annual approximation Preliminary mine plan and schedule 3-monthly to annual Detailed mine plan and schedule Monthly for much of payback period Risk tolerance High Medium Low M E White & I Harrington, Feasibility Studies Scope and Accuracy. AusIMM Monograph 30.

12 Context How it all fits together Project advancement Data quantity and data quality Technical/economic assessment - Resource & Reserve reporting Final engineering / Construction Commissioning Production Noppe, 2014

13 Context How it all fits together Project advancement Data quantity and data quality Technical/economic assessment - Resource & Reserve reporting Final engineering / Construction Commissioning Operating SEG factors Environmental Social Governance Operations Noppe, 2014

14 Context weak links in the chain How it all fits together Project advancement Data quantity and data quality Technical/economic assessment - Resource & Reserve reporting Final engineering / Construction Commissioning Operating SEG factors Environmental Social Governance Operations Noppe, 2014

15 So why do we still get it wrong? Technically: ASX Release ASX Retraction More work to be done: DFS was far from a definitive Feasibility Study

16 Codes & guidelines Technical Reporting Codes Provide minimum standards, recommendations and guidelines Materiality All reasonable information expected Principles of transparency and materiality in reporting Transparency Clear, unambiguous presentation Reporting is subject to interpretation, therefore require greater transparency and consistency Competence Work completed by Competent Person

17 Codes & guidelines Mineral Resources - reasonable prospects for eventual economic extraction assessment of all matters likely to influence the prospect of economic extraction including the approximate mining parameters not an inventory of all mineralisation drilled or sampled, regardless of cut-off grade, likely mining dimensions location or continuity. Economic assessment applies equally to Inferred Resources Eventual economic extraction does not provide a license to speculate Approximate mining parameters are not necessarily the same as Modifying Factors required for defining an Ore Reserve

18 Codes & guidelines Mineral Resources to Ore Reserves Indicated and Measured Mineral Resource Consider and apply Modifying Factors At least a Pre-feasibility Study level of assessment The level of confidence in the relevant Modifying Factors must be sufficient to support the category of Ore Reserve Must demonstrate a technically achievable and economically viable mine plan and schedule for the reported Ore Reserves Modifying Factors Cut-off parameters Mining factors or assumptions Metallurgical factors or assumptions Environmental Infrastructure Costs Revenue factors Market assessment Economic Social Other material naturally occurring risks material legal agreements and marketing arrangements Critical governmental agreements and approvals

19 Codes & guidelines Ore Reserves timing of study & reporting The studies at Pre-Feasibility or Feasibility level demonstrate that, at the time of reporting, extraction could reasonably be justified Applicable if longer term price trends, market conditions, political, environmental, social or infrastructure issues, legislation or approvals, or funding issues that may prevent the intended project being developed in the time frame considered in the relevant technical study If re-evaluation indicates that the Ore Reserves are no longer viable, the Ore Reserves must be reclassified as Mineral Resources or removed from Mineral Resource/Ore Reserve statements

20 Codes & guidelines Ore Reserves infrastructure, approvals & contracts The term Ore Reserves need not necessarily signify that extraction facilities are in place or operative, or that all necessary approvals or sales contracts have been received Transparency and materiality Highlight and discuss the materiality of: any unresolved matter that is dependent on a third party on which extraction of the Reserve is contingent It does signify that there are reasonable grounds to expect that such approvals or contracts will eventuate within the anticipated time frame required by the mine plans

21 Accuracy, confidence & quality Accuracy and the nature of the deposit No two deposits are identical Essential the Competent Person s meaning of Resource or Reserve categories is provided May be possible to report the same accuracy for Measured Resources for a stratiform base metal deposit over a 3-month period a nickel sulphide deposit over a 6-month period, or A nuggetty gold deposit over 2-years of production

22 Accuracy, confidence & quality Discussing reporting confidence What do we really mean? Discuss and where possible provide a statement of the relative accuracy and confidence level of the reported Resource and Reserve categories, or Provide at least a qualitative discussion of the relevant uncertainties Over what particular scale or period of time: a resource block, selective mining unit, mining panel or strip, or the entire resource domain? The Code terminology Measured, Indicated, Inferred Proved and Probable accuracy, uncertainty, reliability, confidence, confidence level, quality of data, quality of information, quality of reported results

23 Accuracy, confidence & quality Need for increased disclosure on confidence What is meant by confidence and accuracy levels in the context of your project Over a particular scale or period of time Confidence in a resource block, selective mining unit, mining panel or strip, or the entire resource domain 28

24 Context - quantity & quality Item Reconciliation Ore Reserves Increasing Confidence in Quantity and Quality of Grade Information (JORC Code, ASX) Production Target on Measured + Indicated (ASX) Measured and Indicated Resources Production Target on Inferred (ASX) Inferred Resources Foreign / Historical Estimate (ASX) Exploration Target Exploration Results Early Exploration

25 Context - project development stages Exploration Areas Advanced Exploration Project Development Stage Prospect Evaluation Development Operating / Production Resource Definition Preliminary Development Options Final Development Option

26 Context - study accuracy Exploration (pre-discovery) Level of Technical-Economic Accuracy Approximate Mining Parameters Scoping Study Mineralisation Delineation (postdiscovery) Pre- Feasibility Study Feasibility Study Final Engineering Operating/ Production

27 Context - project reporting

28 Context - project reporting DATA DRIVEN CONCEPTUAL ASPIRATIONAL

29 Example

30 Context project reporting example

31 Example retraction & clarification

32 Context project reporting example Still to update Resources Yet to define a Reserve; Economics not available; Development decision conditional Not a definitive Feas Study

33 Project development & reporting context

34 Conclusion Investors have access to an array of public information. Inconsistent use of reporting definitions, supporting information / project assumptions and outcomes may be confusing and even misleading. Confirming the correct project development context is essential for assessing the risk, opportunity, relative confidence and value associated with a resource project. A simple Resource Project Framework can provide a balanced assessment of a project s reported technical, SEG and financial status. Such a Framework readily allows cross-checking and benchmarking of project development and reporting confidence in a structured context. Mark Noppe: mnoppe@srk.com.au

35 Thank you References Corder, G.D., Insights from case studies into sustainable design approaches in the minerals industry. Elsevier, Minerals Engineering 76 (2015), Davis, Rachel and Daniel M. Franks, Costs of Company-Community Conflict in the Extractive Sector. Corporate Social Responsibility Initiative Report No. 66. Cambridge, MA: Harvard Kennedy School. Ernst & Young, Business risks facing Mining and Metals Forrest, A., Responsible mining investment in Africa. Resource Capital Funds. Fraser Institute, Survey of Mining Companies, McCarthy, P.L, Managing risk in Feasibility Studies. In AusIMM Ninth International Mining Geology Conference Proceedings, Adelaide August 2014, and In AusIMM Monograph 30, Mineral Resource and Ore Reserve Estimation, 2nd Edition. Noppe, M A, Reporting and converting resources to reserves how confident are we? In AusIMM Ninth International Mining Geology Conference Proceedings, Adelaide August 2014, and In AusIMM Monograph 30, Mineral Resource and Ore Reserve Estimation, 2nd Edition. Noppe, M A, A framework for presenting and benchmarking resource projects. In preparation for the 2016 AusIMM Project Evaluation Conference. Xstract, AusIMM Monograph 30 Roadshow Presentations by Noppe, M A. Mark Noppe: mnoppe@srk.com.au