ON THE SUBJECT OF RESOURCE ESTIMATIONSThe company consultant's...

ON THE SUBJECT OF RESOURCE ESTIMATIONS

The company consultant's have now delivered their theoretical but industry approved findings for mineral resources at Rocklands, which has paved the way to move forward with the EIS, cash flow analysis, the DFS, financing, mining approval, mine construction and finally to commisioning a mine at Rocklands. Yet most appear bamboozled by the sorry state of affairs with a share price that has been decimated and a project that appears to be in complete disarray.

Appearances however can be deceptive. Certainly the languishing share price is real enough, but the company is actually in full steam ahead mode and is totally focussed on fast tracking mining. It is patently obvious that cash flow and production grades from mining will be the final arbiter about the robustness of the resource. Only then, will all arguments will be settled, once and for all.

In terms of the confusion about the accuracy or otherwise of resource estimations, the following article is well worth reading. It teases out some of the issues that have historically lead lead to inaccurate assessments being made.

LINK:
http://www.qgeoscience.com/images/downloads/stephenson_vann.pdf

CLICK HERE

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SOME SNIPPETS

Mineral Resource and Ore Reserve estimation is a challenging and demanding field, requiring application of professional knowledge, skill and experience of the highest
order. If the many potential pitfalls are to be avoided, however, there are two other requirements which are of equal, if not greater, importance:

Good communication, and

Common sense

Estimation of Mineral Resources and particularly of Ore Reserves is almost always a team effort, involving a number of disciplines. Good teamwork requires good communication, both between team members and between the team and other parties having an interest in the process. Breakdown in these lines of communication can have far reaching effects on the project under consideration.

The need to use common sense during a Resource or Reserve estimation exercise would seem to be self-evident. It is surprising, however, how often rigid adherence to procedures and methods prevails at the expense of clear thinking, usually with adverse and sometimes fatal effects on the project under consideration.

This has become increasingly true as computerised methods have assumed a central role in Resource/Reserve estimation.

Considerable emphasis is placed these days on techniques employed in the estimation of Mineral Resources and Ore Reserves, with discussion tending to concentrate on the comparative merits of alternative computational approaches. While this subject is important and fully deserves its wide public airing, it is only part of the story, being concerned primarily with the tools employed in arriving at an estimate of Resources and Reserves. Of more fundamental importance is the way in which those tools are applied, and in particular, whether they are used sensibly and in full consultation with all those involved.

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The single most important factor in Resource/Reserve estimation is an understanding of the geology of the deposit. This cannot be emphasised too strongly. Without a sound geological understanding, and a sensible application of that understanding, an estimation exercise becomes merely a mathematical treatment of sample results with no practical value. More seriously, any result which does not take sufficient account of geology is almost certain to give a seriously misleading impression of the value of the deposit.

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Potentially open-pittable, hard-rock deposits are often drilled primarily by reverse circulation percussion ('RC') holes, which provide little detailed structural geological
information.....there is a chance that core samples may not be representative of material that will eventually be mined, and too much should not be made of preliminary mining and treatment observations.

NOTE: In CDU's case the argument is that RC drilling doesn't report Native Copper as accurately as diamond core drilling and that the Resource in the central zone has been understated as a result.

A point often overlooked when considering the reliability of a Resource/Reserve estimate for a new deposit is the fact that the geological model, upon which the estimate is wholly dependent, is based almost entirely on interpretation from drill samples which themselves represent only a tiny fraction of the mineralised body (often less than 0.001%). This must necessarily impose a constraint on the reliability of the estimate. In the final analysis, confirmation of the geological model can only be gained once mining has provided sufficient exposure to enable geological mapping.

Commonly, the potential errors associated with an incorrect or inappropriate geological interpretation are orders of magnitude larger than the potential errors associated with grade estimation. Changes in the fundamental understanding of the geological controls on mineralisation can dramatically alter an assessment of tonnage.


These days, more and more use is made in Resource/Reserve estimation of computerbased grade interpolation techniques, both geostatistical and non-geostatistical. Such techniques constitute major advances in our ability to make maximum use of large amounts of data. However, there is a risk that in the blind application of technology, common sense will be ignored.

Geological interpretation must not, of course, be considered sacrosanct and immune from change; indeed, reinterpretation must be an ongoing activity. In the end, however, grade interpolation must be governed by observation of the deposit geology and character, not vice versa.

One final point on geology. Old geological plans, especially on old mining properties, should never be ignored. They can usually be used with sensible caution and with appreciation for the fact that many geologists of yesteryear were much better observers and mappers than modern-day geologists (they probably spent more time "down the hole" and less time staring at screens....).

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A COUPLE OF POINTS:

There has always been a strong difference of opinion between the company view of what is contained at Rocklands and the assessment of external consultants who, when in doubt need to err on the side of caution as per the requirements of the jorc code and the modeling theories they are implementing. Particularly so if instructed to come up with a high confidence estimate for the resource (ie measured and indicated) as was their Charter with Rocklands.

In the methodology associated with resource modeling, my understanding is that grades in the middle of 2 holes are assumed to approach zero just to ensure that extrapolation doesn't provide an unsubstantiated upward bias to the results. To prove this methodology wasn't appropriate for parts of Las Minerale, the MD then proceeded to drill at 12.5m centres. The result was that grade continuity was demonstrated to exist, but as it has transpired, the exercise didn't have much success in changing the consultant's mindset or their standardized approach to the modeling of the resource. Presumably, if the holes at 12.5m centres were in fact included, the approach was then to assume zero grades in the middle of holes 12.5 metres apart also approached zero. I guess it is a case of the rules are the rules and they need to be adhered to as per the code! But it doesn't make an incorrect theory correct if mining proves otherwise.

The close spaced drilling might not have provided the boost to resources as per the theoretical models encapsulated in the mine modeling software used, but it did give the company a very thorough understanding of the grades to expect from mining. Last week's announcement attempted to expand upon this very notion.

The company's confidence in the project also stems from historical mining at Double oxide, where bumper grades were mined, yet drilling right along side the old workings only delivered something like 2 to 3% grades. Double Oxide provides a historical case study of what to expect in the sweet spot of Las Minerale and some insights about the difficulties of getting reliable grades when drilling with RC rigs into solid native copper zones.

The referenced article goes a long way to explain the disconnect between the consultant's assessment of Rocklands and those who are inclined to believe that while the resource statement is very good in itself, chances are that the statement tends to understate the resource.

Certainly that is the thinking up on site within management, the exploration team, amongst the Chinese observers who have been actually been monitoring developments for several years, and by a couple of brokers who with a bit of luck might be updating their research following recent announcements.

Some genuine, rational, unemotional, fact based commentary from within the industry would certainly make for a welcome change.

Cheers
Nev

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