![Page 1: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/1.jpg)
RESOURCE AND RESERVE AUDITS
GAA TALK
PERTH, WA
MAY 10, 2004
![Page 2: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/2.jpg)
RESOURCE AND RESERVE AUDITS BECOMING
INCREASINGLY COMMON
TYPES OF AUDITS
• Review of Methodology (“Fatal Flaw”)
• Due Diligence – (“Sign Off”)
• Endorsement – (“QA-QC”)
SUGGESTED STANDARDS IN RED
![Page 3: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/3.jpg)
REVIEW OF METHODOLOGY (1)
• 1-2 Days
• Site Visit Preferred
• Adequacy of Database to Support Resources and Reserves
• Identify Risk Areas
![Page 4: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/4.jpg)
REVIEW OF METHODOLOGY (2)
• Review Geological Controls
• Review Selectivity of Mining Operation
• Problem: Time or Scope Sometimes Insufficient to Find Fatal Flaw
![Page 5: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/5.jpg)
DUE DILIGENCE (1)
• Duration Typically Several Weeks
• Review Procedures
• Database Check
• Implementation Check
• Suitable to Support Project Financing, CP, 43-101,10-K and 20-F Reports, etc.
![Page 6: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/6.jpg)
DUE DILIGENCE (2)
• Site Visit Mandatory
• Field Check Hole Locations (5-10%)
• Verify Down-hole Surveys (5%)
• Verify Assays (5% Routine, Others That Appear Anomalous)
• Data Entry Error Rate < 1%
![Page 7: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/7.jpg)
DUE DILIGENCE (3)
• Review Sampling Procedures, Core Recovery, RC Weight Recovery
• Check Grade Versus Recovery
• Check for Down-hole Contamination
• Check Density Determinations (Number, Method)
![Page 8: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/8.jpg)
DUE DILIGENCE (4)
• Visit Assay Laboratory, Submit Checks
• Review QA-QC
- Coarse Rejects (1:20)
- Pulp Duplicates (1:20)
- Standard Reference Materials (1:20)
- Blanks (1:20)
![Page 9: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/9.jpg)
Cu Standards Analysed by ITS (n = 718) Percent Relative Difference from Certified value
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
0 100 200 300 400 500 600 700
Time series
Re
lati
ve
Dif
fere
nc
e (
%)
AABY std
Assay method change:
1st lab audit
AABY bias +1.7 RD
1 kg prep
![Page 10: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/10.jpg)
DUE DILIGENCE (5)
• Is Sampling and Assaying Protocol Reasonable?
• Check for Bias (Ideally < 5%)
• Check for Precision
- 90% within +/- 20% for Coarse Rejects
- 90% within +/-10% for Pulps
![Page 11: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/11.jpg)
Intralab Pulp Check AssayAbsolute Relative Difference
0
5
10
15
20
25
30
35
40
0 10 20 30 40 50 60 70 80 90 100
Percentage of Samples
Ab
solu
te R
elat
ive
Dif
fere
nce
less than ten times dl excluded
![Page 12: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/12.jpg)
DUE DILIGENCE (6)
• Logging Suitable, Consistent
• Geological Interpretation is Reasonable
• Supported by Plans and Sections That Reconcile
• Ore Controls Clear
• Compare to Similar Deposits
![Page 13: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/13.jpg)
DUE DILIGENCE (7)
• Check Choice of Rocktypes for Modeling (Particularly Ore Controls)
• Check Grade Distributions
• Check Domaining (Get Coefficient of Variation Down, Below 1 if Possible)
• Check Compositing (Consider Length versus Geological Variability, Mining Selectivity)
![Page 14: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/14.jpg)
![Page 15: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/15.jpg)
![Page 16: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/16.jpg)
DUE DILIGENCE (8)
• Check Frequency Distributions (Histograms) for Outliers
• Check Capping or Outlier Restriction:
Adjust Risk to 20th Percentile for High-Grade Population
![Page 17: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/17.jpg)
DETERMINATION OF METAL-AT-RISK MONTE CARLO SIMULATION
SIMULATION RESULTS PERCENTILE NUMHI TONS GRADE METAL 0 0 0. 0.000 0.000 10 3 28686. 141.140 5195.417 20 4 38248. 147.920 6997.185 30 5 47810. 155.454 8231.544 40 6 57372. 160.977 9321.229 50 6 57372. 166.887 10550.424 60 7 66934. 175.153 11647.569 70 8 76496. 183.816 12978.694 80 9 86058. 195.052 14614.562 90 10 95620. 217.760 17096.092 100 15 143430. 427.135 30505.174
![Page 18: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/18.jpg)
DETERMINATION OF METAL- AT-RISKRISK ADJUSTMENT
DETERMINATION OF RISK-ADJUSTED METAL CONTENT METAL CONTENT KILOUNITS UNADJUSTED ADJUSTED LOW GR 27341.305 27341.305 HIGH GR 10895.458 6997.185 ADJUSTED TAKEN AT 20TH PERCENTILE TOTAL 38236.762 34338.488 RATIO ADJUSTED/UNADJUSTED = 0.8980 METAL-AT-RISK = 10.2%
![Page 19: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/19.jpg)
DETERMINATION OF METAL- AT- RISK
Expected
High-grade Composites in
Period
Area No. Currently Available
Composites Mined in
year
High-grade
Threshold (g/t Au)
No. %
Metal Represented
Metal at Risk
High-grade Indicated
113 110 7 5.8 28.5 % 11.2 %
Low-grade Indicated
113 50 5 4.8 27.1 % 13.0 %
![Page 20: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/20.jpg)
DUE DILIGENCE (9)
• Check Variography – Have Variograms Been Computed in Down-hole Direction? Has Lag Been Adjusted to Composite Length?
• Are Models Consistent in 3 Dimensions?
• Do Variogram Domains Reflect Zoning?
![Page 21: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/21.jpg)
DUE DILIGENCE (10)
• Check Interpolation Plan – Is There Stationarity of Mean Within Selection Neighborhood? Are Soft, Firm, Hard Boundaries Reasonable?
• Is There Overprojection of High-Grade Due to Increased Data Density?
![Page 22: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/22.jpg)
AuZone 2 (East) - Contact Analysis
0.0
0.5
1.0
1.5
2.0
2.5
-70 0 70
Distance from Contact
Au
Gra
de
(g
/t)
Samples
Composites
AuZone 4 (West) - Contact Analysis
0.0
0.5
1.0
1.5
2.0
2.5
-70 0 70
Distance from Contact
Au
Gra
de
(g/t
)
Samples
Composites
CuZone 2 (East) - Contact Analysis
0.0
0.5
1.0
1.5
2.0
2.5
-70 0 70
Distance from Contact
Cu
Gra
de
(%
)
Samples
Composites
CuZone 4 (West) - Contact Analysis
0.0
0.5
1.0
1.5
2.0
2.5
-70 0 70
Distance from Contact
Cu
Gra
de
(%
)
Samples
Composites
![Page 23: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/23.jpg)
DUE DILIGENCE (11)
• Verify Interpolation Program: Composite Selection, Weights
• Validate With Simple Model (Nearest Neighbor – Swath Plots
• Check Selective Mining Unit Distribution Versus Grades; SMU Consistent with Production Rate?
![Page 24: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/24.jpg)
Tonnage Versus Cutoff Grade
0.010.020.030.040.050.060.070.080.090.0
100.0
0.0 0.5 1.0 1.5
Cutoff Grade
Per
cen
t A
bo
ve C
uto
ff
SelectiveMining Units
Block GradeEstimates
Average Grade Versus Cutoff Grade
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
0.0 0.5 1.0 1.5
Cutoff Grade
Gra
de
Ab
ove
Cu
toff Selective
Mining Units
Block GradeEstimates
Ratio Blocks to SMUs Versus Cutoff Grade
0.00
0.20
0.40
0.60
0.80
1.00
1.20
0.0 0.5 1.0 1.5
Cutoff Grade
Ra
tio
Tonnage
Average Grade
Metal
![Page 25: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/25.jpg)
DUE DILIGENCE (12)
• Review Sections and Plans Showing Block and Composite Grades
• Assess Risk, Need for Drilling
![Page 26: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/26.jpg)
![Page 27: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/27.jpg)
DUE DILIGENCE (13)
• Review Classification of Blocks as Measured, Indicated, Inferred
- Measured = +/- 15% with 90% Confidence on Quarterly Basis = Confirm Continuity
- Indicated = +/-15% with 90% Confidence on Annual Basis = Assume Continuity
![Page 28: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/28.jpg)
KONIAMBO NICKEL – ORE THICKNESS
RESOURCE THIKNESS > 2m THICK and >2%Ni
Input Data
![Page 29: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/29.jpg)
EXAMPLE CONDITIONAL SIMULATION
![Page 30: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/30.jpg)
QUARTERLY CONFIDENCE LIMITS
Quarter Confidence Limits for reblock
![Page 31: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/31.jpg)
ANNUAL CONFIDENCE LIMITS
Annual Confidence Limits for Reblock
![Page 32: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/32.jpg)
DUE DILIGENCE (14)
• Check Resource Statements
• Check Final Model for Mine Planning: External Dilution Factors Reasonable?
• Mining (Ore) Recovery Reasonable?
![Page 33: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/33.jpg)
EXTERNAL DILUTION SIMULATION
ASSUMPTIONSVein Strikes North +/- 10 DegreesVein Dips East 7- to 90 DegreesMining Comes in from East - Face Angle Dips 70 Degrees East
Mine from Mixing Dilution Ore Loss NetZone From (m) To (m) Hz, Width Hz. Width Increase/
Width (m) (m) (m) Decrease(m)
Hw waste into vein 1 0.5 1.5 1.17 0.16 1.01Hw waste into vein 1 1 2 1.57 0.06 1.51Vein into Fw waste 1 -1 0 0.81 0.33 0.48Vein into Fw waste 1 -1.5 -0.5 1.15 0.17 0.98Vein into Fw waste 1 -2 -1 1.56 0.07 1.49
Position of Mining Face
![Page 34: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/34.jpg)
DUE DILIGENCE (15)
• Geotech/Hydrogeology in Hand to Support Slopes, Stope Design?
• Metallurgical Data Representative, Sufficient?
• Prices, Costs Reasonable?
• Cutoff Grade Reasonable? Assess Risk
• Mine Design Refined, Annual Production Schedule? Assess Risk
![Page 35: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/35.jpg)
DUE DILIGENCE (16)
• Review Past Production Versus Models Ideally Within 5% (Cu), 10% (Au)
- Grade Control to Model – Check Planned Dilution/Ore Loss (Aim for 0%)
- Plant to Model – Check Unplanned Dilution/Ore Loss (Within 5-10%)
• If You Do Not Measure It, You Cannot Control It!!!!!!!!
![Page 36: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/36.jpg)
Changes In Resource Tonnage (000's)
10130
-1788
1198
-2134
12854
-5000 0 5000 10000 15000
Old Model Begin Year
Depletions
New Model
Change in Cutoff Grade
New Model End of Year
![Page 37: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/37.jpg)
DUE DILIGENCE (17)
• Review Other Factors: Legal, Environmental Permits, Socioeconomics, Sales Contracts
![Page 38: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/38.jpg)
ENDORSEMENT
• Same Procedure as Due Dilligence
• Responsible for QA-QC of Entire Data Entry, Resource Modeling, Reserve Conversion
• Anticipate Needs of Future Auditors
![Page 39: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/39.jpg)
CONCLUSIONS
• Resource and Reserve Modeling is a Serial Process
• Even Small Errors (10%) Can Make Big Impact on Profits; Nearly Everything is Potentially Material
• ASSUME NOTHING; CHECK EVERTHING
• TRUST NO ONE
![Page 40: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/40.jpg)
PARALLELISM TO FINANCIAL AUDITS (1)
• Based on Discussions with:
- Matthew Hird (Deloitte & Touche)
- Jason Burkitt (PricewaterhouseCoopers)
![Page 41: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/41.jpg)
PARALLELISM TO FINANCIAL AUDITS (2)
• Financial Audits: Follow the Money
• Resource/Reserve Audits: Follow the Metal
![Page 42: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/42.jpg)
PARALLELISM TO FINANCIAL AUDITS (3)
• Same General Steps
- Planning
- Field Work
- Check Correctness of Presentation
![Page 43: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/43.jpg)
DIFFERENCES
• Financial Audits Rely More on Test of Controls; Procedures are Routine; Are They Followed?
• Emphasis on Risk Areas That Could Affect Viability of Business, Incorrect Statement of P/L, Balance Sheet
• Analytical Review a Major Tool
![Page 44: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/44.jpg)
DIFFERENCES
• Codified Industry Standards for Accounting and Audits
• Working Papers Highly Structured
• Extensive Internal and External Peer Review
![Page 45: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/45.jpg)
WHERE WE MUST GO
• Better Definition of Best Practice
• Publication of Audit Standards
• Corporate and Regulatory Policies on When Audits Required
![Page 46: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/46.jpg)
SEC/SME RESERVES WORKING GROUP
• Commodity Prices (3 year average versus ?)
• Definition/Declaration of Resources
• Definition of Feasibility Study
- Base Case Versus Optimization
• Permitting Requirements
• Competent Person
![Page 47: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/47.jpg)
JORC CODE VERSUS CIM 43-101 AND SEC
• JORC Code is a Minimum Standard
• Contains Loopholes or Loosely Interpreted- Geological and/or Grade Continuity- Inferred Resources Given Positive Value to
Support Pit Designs Used to Declare Reserves
• Measured Resources Much More Restrictive in Canada, not Used Much in USA
• SEC More Active, Strict than In Past but Selective Enforcement
• Regulatory Pressure to Upgrade Standards
![Page 48: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/48.jpg)
CHALLENGES
• Fast-track Drilling and Resource Modelling
• Increasing Optimization in Engineering
• Declining Cutoffs Increase Risk of Failure
• Pigrooting in Sparsely Drilled High-Grade Areas
• Narrow Cuts to Minimise Stripping
• GPS Controlled Mining, Robotics
![Page 49: RESOURCE AND RESERVE AUDITS GAA TALK PERTH, WA MAY 10, 2004](https://reader036.vdocuments.us/reader036/viewer/2022062717/56649e195503460f94b05faa/html5/thumbnails/49.jpg)
MEETING THE CHALLENGES
• Increased Education and Training
• Take Back R+D from Vendors
• Conditional Simulation to Become Routine Tool
• Increased Drilling Density to Support Design
• More Focus on Reconciliation and Improvement
• Standards, Professionalism and Audits