r b s have used west african as example

Resource analysts from the Royal Bank of Scotland have used West African Resources Limited (ASX: WAF) as the example case for explaining the exploration process based on the evolution of a micro-cap explorer. The explanation highlights the stages of the exploration process in brief and the possible effects on a company's share price that can occur prior to making a discovery.
RBS chose West African Resources as it has recently commenced possibly its most material stage of the exploration process in terms of the share price impact potential.
Stock specifics
Item($A)
stock codeWAF
share price0.38
shares -fully diluted200m
market cap76m
cash7.5m
cash burn rate (qtrly)1m
EV68.5m

Pre IPO / Management - share price impact: determines IPO potential
The core tenements for WAF were pegged in 2006 by Managing Director, Richard Hyde. Richard was the West African regional manager for geological consultancy company Resource Services Group (RSG), which was later acquired by Coffey Mining. After some privately-funded first pass exploration to improve the marketability of the IPO, the company floated in June 2010 at 20cps.
How exploration starts - share price impact: nil
In 2006 Burkina Faso, north of Ghana, was still relatively vacant as far as pegging tenements was concerned. The green areas in the map below represent greenstone - which is a generic term for a collection rock types that are prospective for gold. Generally, greenstone belts are relatively narrow and sinewy in nature but can be quite long, so it's not practical to peg the whole thing. However, if you find a greenstone belt along strike (parallel to the long axis of mineralisation) from a known deposit (like the 3.5Moz Bombore deposit) which has artisanal (local) gold mining occurring at surface, it helps focus the area to be pegged. This is what WAF did, and has continued doing. The company now has roughly 6000sq km pegged in Burkina, and it is the largest land holder in the region.

Regional geological map of Burkina Faso with WAF tenements in blue

Local gold mining at Meguet

Geophysics and geochemistry - share price impact: nil to limited
Once the ground has been pegged (and money raised via IPO), exploration can begin. This is via geochemistry and geophysics. Geochemical exploration involves sampling the entire land holding to see if there is any indication of gold being present. If it is a particularly large land holding then geophysics can be used to provide better targeting than is possible from the green and pink map above, but it's only guess work as geophysics can't tell you if there is any gold present, it simply shows where the rocks have folded, faulted and altered. This is important as metals (precious + base metals) don't just exist in a rock, the rock was there first and the metals were deposited later. The process of depositing metals requires (very hot) fluid flow, which usually coincides with folding, faulting, chemical alteration (or all three) of the host rocks. The folding etc. creates zones of dilation in the rock, fluids move to fill the zone of dilation and deposit/concentrate any metals the fluids dissolved from passing through other rocks.
In WAF's first field season (Oct 2010 - July 2011), it sampled the best and most accessible ground it had under tenure. As seen from black hashed lines (crosses) in the image below, the vast majority of those samples contained no gold. This is normal but it does mean that a lot of samples are taken for zero news flow, which is important to understand for a share price perspective. If the company gets lucky, eventually some of the samples will return positive for gold and a gold-in-soil anomaly will result. See the Moktedu discovery image below. Soil samples are purely indicative of any metal present, they in no way reflect the grade, size, depth of any mineralisation present. That said, bigger and high-grade is obviously better.

Regional soil sampling plan (Oct 2010 - July 2011) super imposed over aeromagnetic image
– many holes drilled with no gold which is common in early exploration

Moktedu Discovery - soil sampling density is increased in areas of gold anomalism to aid
targeting of first pass drilling

First pass drilling - share price impact: moderate
Once a soil anomaly has been identified, more sampling takes place to close the gap between samples in hope of identifying the highest grade or "bullseye" part of the anomaly. This infill process is critical as it helps target the drilling, which is expensive. This is often overlooked by investors who wonder why it's taking so long to get the rigs on the ground but is critical from a cost management point of view.
First pass drilling is usually done with a RAB (rotary air blast) rig. RAB drilling blows air down the drill rods, blasting dirt back up to the surface between the drill rod and the wall of the hole. This is a cheap means of drilling but due to the possibility of sample contamination from the sides of the hole, sample quality is quite low and data cannot be used in resource calculation. That said, data is useful to vector in on higher grade zones which will be targeted by more expensive RC and diamond drilling. The market doesn't discriminate on sample quality and will rally on positive results. The limiting factor for share price impact is the depth of the hole, which is usually quite shallow, so intersections are generally quite short (20m max), which is not sufficient to assess economic potential.
If a soil anomaly is genuine then the results of first pass drilling might look something like below. WAF soil sampling is a bit more involved than most as the company uses an auger to drill through the transported soil horizon, and samples in-situ rock, thereby reducing the likelihood of false positive results.

Moktedu Discovery - RAB drilling results

By comparing the grades of the soil sample results (0.1 - 0.5g/t) to the drill results (1.0 - 10.7g/t), it shows how the soil results don't really reflect the grade of the rocks deeper down. This is a rare example of drilling immediately confirming the presence of mineralisation under a soil anomaly. It doesn't work this way most of the time. Drilling usually hits nothing significant on the first pass and sometimes no mineralisation is found at all. The rule of thumb for gauging a significant intersection is 100 gram metres i.e. length of intersection x grade. So 50m at 2g/t or 10m at 10g/t etc. If you can hit a couple of 100 gram metre intersections then it's a chance of having discovered something that might be able to be mined.

West African Resources share price chart

WAF's field season started again in late October. The drills are back up and running and the first results were released from Meguet in the September 2011 quarterly report.
Second pass drilling - share price impact: material
Second pass drilling generally has the greatest share price impact as it is during this phase that a feel for the economic potential (if any) of a deposit can first be assessed. As mentioned above, the rule of thumb for gold is +100 gram metre intersections (10m at 10g/t or 50m at 2g/t etc.) have a reasonable chance of turning into something economically viable.
In WAF's case, as the location of gold mineralisation has already been established in first pass drilling, second pass drilling can justify the use of more expensive reverse circulation (RC) rigs which can drill deeper and produce samples of adequate quality for resource calculations. If there is a decent sized ore body present, often RC drilling produces some quite impressive results as holes can be +200m deep, as opposed to RAB holes which may be as little as 20m deep. A generic open pit mine usual extends to 250-300m in depth so RC drilling tests the natural limits of a pit shell. In this way a rough assessment of the viability of a deposit is possible, which is of material importance to share price impact.
Interpreting results
From a share price impact perspective within the 100 gram-metre rule of thumb, 50m at 2g/t would be a preferable intersection over 10m at 10g/t as it implies the gold is reasonably evenly dispersed through the rock, which is better for resource confidence. If individual metre samples are disclosed and grades are pretty consistent around the 10g/t mark as opposed to 3m at 30g/t and low grades for the rest, the difference between intersections is negligible from a share price impact point of view. Second pass drilling is also the stage at which the resource size can be assessed. Typically first RC holes are drilled in sections 200m apart. So if intersections of a material thickness are intersected in one section, then another, it adds 200m strike (long axis extent). In West Africa you probably need 1Moz before considering development. As a rough guide 500m long x 100m wide x 200m deep x density of 2.0 (typical) x grade of 2g/t = 1.3Moz.
This sums up where West African Resources currently stands. Moktedu will be the driver on news flow near-term, but in the background work will be continuing on Sartenga. WAF identified this anomaly at the very end of the last field season. There is still some infill soil sampling to be done before first pass drilling, but that will be completed this field season.