JORC Code Exposure Draft - Feedback 4

If you would like to read my prior articles to this post's topic, these links (#1, #2 and #3) will take you there. This article is a first discussion on the topic of a Mineral Resource estimates, which starts on page 18, as Section 8 in the JORC Code Exposure Draft, and page 27 of its companion Guidance Notes, and it contains a whopping total of 37 clauses. Given that level of content, I'm only going to cover the key definitions in this article and pause the discussion after the sub topic on the 'Claytons' JORC Code Mineral Resource classification class - Inferred.

Mineral Resource

I'm again using a 'cherry picking and paraphrasing' method to reveal possible gaps in what is presented in the Clauses of Section 8 of the Exposure Draft. Using this method, the following is what I've put together to explicitly explain what a Mineral Resource Estimate might be.

A Mineral Resource estimate is all, or part, of a volume of potentially economic mineralisation that has been discovered through exploration of a Mineral Asset, where the Competent Person, who is taking responsibility for a Mineral Resource estimate in a Public Report, has constrained the estimate by four interrelated conditions as follows:

1. The volume of potentially economic mineralisation has been physically tested so that a spatially representative, and acceptably (for purpose) quality-assured and quality-controlled Data Package (containing both raw data and accompanying information) is available, with both the Data Package's data locations being surveyed to an acceptable (for purpose) level of precision, and all metadata relating to the Data Package is traceable and discussed in the Competent Person's Mineral Resource Documentation.
2. The Data Package's primary samples, or sub samples derived from the primary samples, have undergone acceptably (for purpose) precise sampling preparation and fully digestive and accurate analytical analyses (or demonstrably correctly calibrated remote sensor measurements) so a Competent Person can reasonably map throughout the volume of mineralisation the critical concentrations of potentially Saleable Products, and any other analytes or minerals important in the Saleable Product extraction and sale. Additionally, acceptably (for purpose) accurate and precise physical moisture and/or density measurements have been determined from the dataset's samples where a volume to mass conversion is required to report wet or dry tonnages.
3. The Competent Person has guided the use of the Data Package to prepare a three dimensional interpretation of the mineralisation between data locations, and has also deemed that the level of confidence in this interpretation acceptably (for purpose) supports the reporting of single values for the estimated volume (or mass) and estimated mean critical concentration of the Saleable Product in the Mineral Resource.
4. Through a Reasonable Prospects Assessment, the Competent Person has determined a value-based reporting threshold to constrain, where necessary, the reporting of the Mineral Resource estimate volume within a broader zone of mineralisation.

I suggest a Defined Term like 'Data Package' is needed in the Code to explicitly explain what information needs to be n place to form the foundation bricks of a Mineral Resource. This is likely well covered in the Documentation Checklist and the Guidance notes. Perhaps many of the Mandatory Elements could be wrapped up as being part of this Data Package? Moreover, the Data Package term likely has some utility in reporting Exploration Results as well.

In the contrived definition above of what a Mineral Resource might be , included the liberal use of the qualifier 'for purpose' to account for the fact that for different Mineral Resource confidence classes, the hurdle for 'acceptable' can vary. Note also , I'm thinking a Defined Term like 'Saleable Product' is needed in the Code to capture the many 'payable' materials that we seek in mining and exploration. However, I need to think a little longer on how this might relate to the definition of Mineral that I described in an earlier article.

However for now, let's look at the JORC Code's classification of a Mineral Resource Estimate into different confidence categories.

Reasonable Prospects Assessment

Now for the fourth item above on reasonable prospects, I need to work out what a Reasonable Prospect Assessment might be and it might be demonstrated in a Public Report. Here's an attempt.

When reporting a Mineral Resource estimate in a Public Report, a Competent Person must prepare and present a Reasonable Prospects Assessment that details the basis and/or status of each of the Modifying Factors for the Mineral Resource estimate to be considered potentially convertible to an Ore Reserve Estimate.

I think the Reasonable Prospect Assessment is a sensible idea, and most estimators in the 2020s do this analysis using as a starting point the pit or stope optimisation methods that are the usual precursors to Ore Reserve estimation. However the confidence in inputs to these precursor studies can be wide, ranging from simple inferences from proxy projects in the public domain for early stage resources, to cases of highly detailed and Ore-Reserve-Estimation-like inputs in the case where a Mineral Resource Estimate and Ore Reserve Estimate are being simultaneously reported, such as in the annual updates required for mining operations or in feasibility studies.

Modifying Factors

The Reasonable Prospects Assessment introduces yet another Defined Term associated with a Mineral Resource ... Modifying Factors. Here we go with the paraphrase method again to seek out gaps in the Exposure Draft.

The Modifying Factors that a Competent Person must consider in order to report a Mineral Resource Estimate in a Public Report:

1. Include all the Mandatory Elements that must be in place (or can reasonably be expected to be in place) to expect the possible extraction of a Saleable Product from a Mineral Resource Estimate.
2. Include (but are not necessarily limited to) the anticipated mining and processing method and production rates, mining losses and dilution, process recoveries or yields, operating costs , expected net market value of the Saleable Product and its market demand, foreign exchange considerations, infrastructure and staffing requirements, capital intensity estimates, and the status and timelines for approvals and licenses to commence land clearing, mining, processing, water extraction and waste disposal.
3. Do not necessarily require the study based precision, accuracy and confidence as is required for the Modifying Factors applied to an Ore Reserve Estimate. However, a Competent Person must discuss in a Public Report the level of confidence for each Modifying Factor and the reasons as to why the level of confidence is considered sufficient to report a Mineral Resource Estimate.

Again, I think the Guidance Notes and/or Documentation Checklist can capture all the detail about Mandatory Elements that need to be assessed but it is still good to mention the principal considerations in the body of the Code. There are not really too many gaps in the Modifying Factors that are not already covered in my initial scan of the key documents in the Exposure Drafts, but I'll have a closer look when I get a detailed review of the checklist documentation.

The more difficult Modifying Factors for a Competent Person to assess are those that are external to a Competent Person's area of expertise, which I talk about in a later article where the new JORC Code character of a Specialist is introduced as the Competent Person's scapegoat for external Modifying Factors.

Production Targets

One of the key inputs into assessing Modifying Factors is the need to have some at least "back-of-the-envelope" assumptions as to rates of production to forecast how much Saleable Product might be produced over a given period from a Mineral Resource. This is a gap in the JORC Code at the Mineral Resource level and as I consider this is a key input to any Reasonable Prospect Assessment that returns some value based cut-off grade. The ASX listing rules are clear on what can and cannot be used for announcing Production Targets to the market, with Production Targets to include things like rates of quarterly (or even monthly) Saleable Product production, through to life-of-mine total forecasts.

Check out the ASX's Chapter 5 Listing Rules clauses 5.15 to 5.19 for its discussion Production Targets, which suggest you can report Production Targets based (in part) not only using Inferred Mineral Resource Estimates (accompanied by the right weasel words) but also an Exploration Target (which I think is a stretch) and also foreign (non-JORC Code) estimates. Again, at the Mineral Resource stage of Mineral Asset development, the Production Targets for Mineral Resource may not be as precise as those determined for an Ore Reserve, but simply stating some reporting cut-off without consideration of production rates is somewhat meaningless.

Mineral Resource confidence and classification

The JORC Code's trinity classification, which may partition a total MRE lump into three categorical clumps that intended to signal different levels of 'confidence' or risk to an investor who is considering the investment value (or not) of a Mineral Resource included in a Public Report. However, that immediately brings into mind the question of "How the heck is confidence quantified?"

Given that it's the MRE confidence class that largely decides the downstream Ore Reserve estimate (ORE) confidence class. I would like to see the idea that these classes are actually bins of the forecasting precision of Saleable Product quantities. Something like the following would do.

A Competent Person who is taking responsibility for a Mineral Resource estimate included in a Public Report, must classify the estimate into one, or more, of three classes that are discriminated by the adjectives of Inferred, Indicated and Measured, which are deemed to be respective categories of increasing confidence in the forecasting precision of the quantity of potentially Saleable Product that might be recovered and sold from each respective class.

In another article, I'll discuss a bit more about precision and accuracy in 'forecasting' but, as a primer, I very much like the following cartoon's demonstration of these two terms that are the key components of confidence of prediction in much of the statistical literature.

The point I'm trying to make here is that I suggest simply using the word "confidence" is insufficient to communicate risk and there are better ways to at least broadly quantify what confidence in a Mineral Resource estimate class might be. In terms of the scientific literature on confidence, a better approach to use might be reporting uncertainty bandwidths linked to some frequency of failure probability. Moreover, I'd argue that at the Mineral Resource stage confidence is more related to precision than accuracy, with accuracy being more the realm of Ore Reserve estimation where having a sufficiently higher precision in data and information is required before the concept of accuracy can be realistically assessed.

This post is getting too long, so I'll finish up with a look at Inferred Mineral Resource Estimates next and bump the discussion of the other more confident categories to the next article.

Inferred Mineral Resource Estimates

There is a 'special' requirement in the JORC Code in that Inferred Resources are considered to need more "exploration" before they can be considered sufficiently reliable for conversion to an Ore Reserve. So somewhat nonsensically, while an Inferred Mineral Resource qualifies as a category of part (or all) of a MRE total it does not really have Reasonable Prospects until more exploration is carried out. This paradox is apparently resolved by the inference that the "more exploration" will in fact result in an increase in confidence (to at least Indicated Mineral Resource) for the majority of the Inferred Mineral Resource, so therefore the Inferred Mineral Resource has its Reasonable Prospects confirmed by this somewhat conflated argument. I'm sure Vicky-Pollard well understands the reasoning here ... I'm not sure I do.

Notwithstanding this issue that has been in the JORC Code for many decades, the following is my attempt to describe what I understand to be an Inferred Mineral Resource.

The Inferred portion of a Mineral Resource is determined by a Competent Person to be the part of the estimate where:

1. The information used to prepare the Inferred part of a Mineral Resource is only sufficient to presume (not confirm) the continuity of mineralisation and/or key estimation variables between information locations in the Dataset, and/or the data itself cannot be acceptably verified or lacks sufficient precision and/or accuracy to support the application of a higher confidence category, unless additional exploration work is completed to increase the confidence to a level that the Competent Person would accept for an Indicated Mineral Resource.
2. A Competent Person has elected to apply an Inferred classification to all or part of a Mineral Resource estimate because the confidence in one or more of the key Modifying Factors is too low for that part of the Mineral Resource estimate to be considered as convertible to an Ore Reserve, even though the information supporting that part of the Mineral Resource Estimate would otherwise be deemed acceptable for a higher level of confidence classification.
3. Whatever the reasons that a Competent Person elects to classify all or part of a Mineral Resource Estimate as Inferred, an Inferred Mineral Resource Estimate cannot be used as a basis for an Ore Reserve, even though the Competent Person considers that a majority part of the Inferred Mineral Resource will convert to at least an Indicated Mineral Resource with improvements in the confidence of key Modifying Factors and/or further exploration.

Final Comments

I still have many things to discuss about Mineral Resources including what Indicated and Measured classes might be, how to report the numbers, what a Technical Summary of Mineral Resources should cover, and the topic of Mineral Resource reconciliation. That should be more than enough fodder for another article or possibly two!