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Subject: Comments to Draft Specifications for Application of UNFC-2009: from Michael Forrest, Mining Research

20 December 2012



Comments on the draft document:  EGRC/2012/INF.1/PC
I have little to add and regard the present draft as a much improved version over the previous draft in bringing together the resource  / reserve into the CRIRSCO family of codes.  There will always be differences between the views of the Stock Exchanges around the world to prevent a single code eg NI43-101 from becoming the international reporting standard. I also appreciate although it is difficult to combine oil / gas resources with solid minerals especially in the amount that is recoverable, the wide ranging low high estimates goes some way to accommodate the differences.

The mining industry has gone a long way to meet international environmental standards.  Investors will not be interested in a project without environmental approvals in place.  However, most companies go further with social programmes that give them the ‘licence to operate’ locally and nationally.  Part of this will be employing nationals and ensuring that a skilled work force and infrastructure is left behind after mine closure.  These programmes to support ‘licence to operate’ (as opposed to government licences) can be comprehensive in developing countries with clean water supply, accommodation blocks, support for schools etc.  Even junior companies provide these for locals.

Reserves and Resources
CRIRSCO makes a clear distinction between reserves and resources defines what makes the difference.  It is easier to define a solid resource, oil and gas estimates are more difficult to quantify.  Although the solid hydrocarbon resources are definable using mineral terms such as CRIRSC,  I dont think it will be possible to merge the two without qualification, which is achievable.

The other point mentioned is the instance of a date for resource estimates.  It is essential for resource estimates have a component of time for price to be built into them (the F factors in the draft).  The measured, indicated and inferred resources indicate varying degrees of geological certainty.  Reserves add an economic component, as in Figure 111 p 17, it is an important distinction.  Metal and hydrocarbon demand price escalation has been responsible for falling mined grades in precious and base metal mines (oil and gas don’t have this problem, but they are reflected in oil shales, coal grades).  Without this differentiation it is difficult for investors to make an informed choice.

This price component also reflects on what is a company or national resource/reserve.  Taking it to the extreme all elemental values within the earth’s crust could be considered as a resource but cost of production would prohibit mining for recycling / recovery may be cheaper. Although we may pass peak oil or peak copper production (ie the maximum annual global amount produced) it is unlikely that we will run out of commodities, just the price will be too much and alternatives will be found.  This makes a ‘national resource’ a time related value.  Furthermore estimating a national resource, as the draft rightly says, depends upon the data from company exploration results.  Most companies only develop resources as they need them.  It would be economically pointless to convert say 20 years of inferred resources with an extensive and expensive drilling programme to measured reserves if you already have 10 years of measured reserves at current production rates.  Company values are always going to understate what is in the ground at any one time.

 The USGS is one of the few institutions that attempts to put a value of resources. Below is the one from the 2012 copper mineral commodity summary

“A 1998 USGS assessment estimated 550 million tons of copper contained in identified and undiscovered resources in the United States.  Subsequent USGS reports estimated 1.3 billion tons and 196 million tons of copper in the Andes Mountains of South America and in Mexico, respectively, contained in identified, mined, and undiscovered resources. A preliminary assessment indicates that global land-based resources exceed 3 billion tons. Deep-sea nodules and submarine massive sulfides are unconventional copper resources.”

As you will see national resources will always be an estimate, and a changing one at that.

Mining Research

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