As the mining sector continues on an upward trajectory, miners and explorers have an important imperative to assure investors and stakeholders that their Mineral Resource and Ore Reserve estimates can be trusted.
Mining is an inherently risky business; from the technical, environmental, social and economic uncertainties associated with advancing an exploration prospect to a viable project, to the operating, market and safety risks attached
to a developed mine.
Since we cannot totally escape the risk and uncertainty related to minerals projects, as an industry we should improve our presentation of the upside and downside risks in the context of the project’s development path and maturity.
More transparent, consistent and balanced views of technical confidence will better inform both internal and external stakeholders, particularly investors, about the expected risk in the project.
The JORC Code sets out the minimum standards, recommendations and guidelines for Public Reporting in Australasia of Exploration Results, Mineral Resources and Ore Reserves. However the JORC Code principles of Transparency and Materiality
are subject to the interpretation of the Competent Person(s), which may introduce a degree of subjectivity in reporting, particularly the level of disclosure regarding supporting information.
It is fundamental that resources, reserves and technical study outcomes are reported unambiguously to transparently present the level of inherent technical uncertainty (or confidence) in a project, while conveying a balanced view
of the opportunities a project presents. Reporting needs to consider various stakeholders who may rely on this information and present the data in the context of the changing risk profile associated with project development
paths and project maturity.
The importance of completing a Feasibility Study to the required level of detail and placing the outcomes in the correct context of technical risk and confidence is highlighted by following anecdotes (cited in a presentation by
Peter McCarthy to the Melbourne branch of the AusIMM titled “Why Pre-Feasibility Studies Fail”):
- In the 1980s, a study of 35 Australian gold mines found that 68 per cent failed to deliver the planned head grade (Burmeister, 1988).
- A review of nearly 50 North American projects showed that only 10 per cent achieved their commercial aims with 38 per cent failing within about one year (Harquail, 1991).
- A study of the start-up performance of nine Australian underground base metal mines found that only 50 per cent achieved design throughput by Year 3 and 25 per cent never achieved it at all (McCarthy and Ward, 1999).
A U.S. study comparing the final feasibility study production rate with the average sustained production rate from 60 steeply-dipping tabular deposits found that 35 per cent of the mines did not achieve their planned production
rate (Tatman, 2001).
Some other areas where study outcomes fall short are as follow (source: the AusIMM Online Professional Certificate in JORC Code Reporting):
- the capital cost of the project is higher than expected;
- the operating cost is higher than expected;
- the recovered grade is lower than expected, affecting revenue;
- the throughput is lower than expected;
- product prices are lower than expected, affecting revenue;
- the project takes longer to build and ramp up than expected, affecting costs and delaying cash flow
- initial performance cannot be sustained, though it may take several years for the failure to become evident; and
- the project incurs unforeseen negative environmental, social or political impacts
- commercial risks such as marketing, foreign exchange, hedging, funding
- force majeure such as industrial action, natural disasters, terrorism, wars.
Given that only a small percentage of financial investment globally finds its way into the minerals and mining sector, the industry needs to preserve and improve its risk perception in the eyes of investors.
Competent Persons should strive to better present the technical risk and uncertainty associated with resource projects in the context of project maturity to provide more consistent, and balanced views of confidence, risk and opportunities
for both internal and external stakeholders relying on this reported information. The 2012 JORC Code provides extensive guidance on the topics to be assessed, however Competent Persons need to step up and deliver the increased
transparency that those relying on the reported data require.
