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Issue49 Reconciliation Part1

Delivering Smarter Solutions ISSUE NO. 49 — December 2003 PAH NEWS PI ENERGY BILL ON HOLD TILL 2004 GABRIEL’S ROMANIA GOLD MINE CONSTRUCTION BEGINS IN 2005 IMPROVEMENTS EXPECTED AT OBUASI MINE SELECTED COMPANIES TO REVIEW LAS BAMBAS RESULTS Reconciliation of Reserves This newsletter is the first of two articles on the subject of reconciliation. This month will focus on the first stage of reconciliation: comparing the ore reserve/resource estimate to the production reported from the mine. The




  plan, and that will be ultimately sold to somecustomer. The reconciliation process shoulddocument this predicted material from theexploration model, through the miningprocess, through the milling process, and tofinal sales. Simply put, the reconciliation iscomparing the predicted production againstthe actual production.The difficulty arises from the sheer number ofways that the resource prediction can gowrong in mining. PAH typically segregatesmining reconciliation problems into thefollowing stages: ♦ Model to Mine Reconciliation – orcomparing the resource model predictionto the actual production as reported bythe mine; ♦ Mine to Mill Reconciliation – comparingthe mine reports to the tonnes, grade andmetal processed by the mill; and; ♦ Mill to Sales Reconciliation – whichmatches the mill metal production reportsto the sales results. ♦ Stockpiling – This category falls betweenthe mine and the mill, and examines theproblems encountered with stockpilingstrategies.A central concept in reconciliation is that oftime: a reconciliation must consider and ISSUE NO. 49 — December 2003 Reconciliation of Reserves This newsletter is the first of two articles onthe subject of reconciliation. This month will focus on the first stage of reconciliation:comparing the ore reserve/resource estimateto the production reported from the mine.The second article will appear in next month’sPincock Perspectives. During the conduct of an audit for lendinginstitutions, securities exchanges orcorporations, the resource model is consideredone of the high-impact risk elements for mostmining projects. For “green-fields” projects(i.e. no production history), PAH normallyemploys a combination of manual checks withstatistical and geostatistical tests of theresource model. For operating properties;however, the reconciliation of the resourcemodel to actual production is an addedrequirement, and is in many respects the ‘goldstandard’ for verification of project reserves.Reconciliation is often more than a basis forcalibration of the resource model. Whenmonitored on a regular basis, the reconciliationprocess will quickly uncover problems withgrade control, sampling, assay lab techniques,mining methods, processing problems and ahost of other technical problems.Reconciliation is a simple concept that isoften difficult to apply. A resource andreserve model is simply a prediction of thetonnes and grade of material that will beencountered during the execution of a mine Copyright 2003 by Pincock, Allen and Holt, a division of Hart Crowser, Inc. All Rights Reserved. ENERGY BILL ON HOLD TILL2004GABRIEL’S ROMANIA GOLDMINE CONSTRUCTION BEGINS IN 2005IMPROVEMENTS EXPECTED AT OBUASI MINE SELECTED COMPANIES TOREVIEW LAS BAMBAS RESULTS  CALENDAR PAH NEWS PI  Delivering Smarter Solutions  21st Annual Mineral Exploration Roundup  January 26–29, 2004Westin Bayshore Resort and MarinaVancouver, B.C., Canadaemail:[email protected] 106th National WesternMining Conference and Exhibition February 3–6, 2004Hyatt Regency Denver, Coloradoemail:[email protected] 9th Annual Investing in African Mining Conference February 10-12, 2004Cape Town International Convention CentreCape Town, South Africaemail: [email protected]  2004 SME Annual Meeting &Exhibit  February 23–25, 2004Colorado Convention Center Denver, Coloradoemail: [email protected]  2 compare production related to a specificperiod of time. More importantly, thelength of time considered in a reconcilia-tion is a major consideration of how closethe agreement should be; longer timeperiods should result in better reconcilia-tion, and can reveal trends in the project.Note that comparison of multiple years ofproduction in one massive mined volumecan be misleading, particularly if theoperational cutoff grades change overtime. Model to Mine Reconciliation The more difficult stage of reconciliationis a comparison of the exploration modelto the mining results. This stage of thereconciliation process focuses upon thecomparison of identical volumes ofmaterial, one as predicted from theresource model, and the other from themine production reports. The basis ofmost open-pit production reports is theblasthole model or ‘packet’ model, whichis developed with the more uniformly-spaced blasthole data. Undergroundtechniques for production monitoring aremore variable.While the long-range mine plans areguidelines for development, only theactual (or as-built) mining limits withina given time period should beconsidered. The long-range plan limitsare rarely useful in reconciliation, sincethe long-range mine plans are notclosely followed in most operations.A simple illustration of the resourcereconciliation process is provided inFigures 1 through 6 (see page 4). Asimple application of model-to-minerecon-ciliation would involve thefollowing: ♦ The exploration model normally formsthe basis of long range forecasts (3years and beyond) (Figure 1). ♦ Mine plans are developed from theexploration model (Figure 2). ♦ As mining progresses to a newbench or level, blastholes or infilldrilling provides a more detailedpicture of the resources, whichnormally varies from the explorationdata (Figure 3). ♦ Following changes to the orelocation, mine plans or other causes,the actual mining limits are differentfrom the srcinal plan (Figure 4) ♦ The exploration model basis for thereconciliation is drawn from theactual mining limits and theexploration model (Figure 5). Thesrcinal long-range mine plans arenot relevant for the reconciliation. ♦ The mine production report is drawnfrom the actual mining limits andthe blasthole resource estimates(Figure 6).At this point in the reconciliation process,only the model and the mine arereconciled. There is no requirement thatthe tonnes and grade agree exactly, butclearly a closer agreement is preferable,since most production costs arecorrelated more to tonnage than metal.Typically, reconciliation on more difficultcommodities, such as gold or platinumgroup metals, should be less than 10%on tonnes, grade and metal over a yearstime. More well-behaved commodities(porphyry copper or iron) should be closerto 5%. Coal in most cases should alsoreconcile to within 5%.PAH also recommends that the entirevolume of material mined be reconciled,not just the ore-grade material. Wasteand sub-grade material can comprise asignificant portion of the operating costs,and confirming the volume mined is a Pincock Perspectives GABRIEL’S ROMANIA GOLD MINE CONSTRUCTION BEGINS IN 2005  Canada’s Gabriel Resources Ltd. announced construction of its Rosia Montana gold minein Romania is scheduled to begin during the second quarter of 2005. The start date had been delayed by six months due to ongoing problems with obtaining environmental  permits. The project also received criticismfrom ecologist, rights groups and historianswho were concerned about the relocation of thousands of villagers and potential for damage to nearby archaeological sites. TheRosia Montana project is expected to beEurope’s biggest open-cast mine with potential to produce 500,000 ounces of  gold annually. IMPROVEMENTS EXPECTED AT OBUASI MINE  Miners at Ghana’s giant Obuasi gold minehope that the takeover of the Ashanti Goldfields’ mine by South Africa’s AngloGold will mean improvements at the mine and the possibility of better wages. In October,Ghana’s government approved a $1.48billion bid from AngloGold to buy Ashanti Goldfields, which included Obuasi, thecountry’s largest mine. AngloGold has said it will invest $190 million immediately to fund the mine, which could allow excavation at Obuasi to go deeper than the current 5,000feet floor. AngloGold hopes to complete itstakeover of Ashanti in the first quarter of 2004. The merger will create a company withapproximately 7.3 million ounces of annual  gold output, rivaling U.S. Newmont MiningCorporation for top ranking in the sector. SELECTED COMPANIES TO REVIEW LASBAMBAS RESULTS Companies on the short list to take part inthe sell-off of Peru’s Las Bambas copper deposit received results of a recent exploration of the deposit. Eleven companieshave been pre-selected to view the data,which includes the results of 2,500m of drilling. Companies privy to the data include:Southern Peru Copper Corporation, U.S.miner Phelps Dodge, Anglo-Australianmining house BHP Billiton, London-based Rio Tinto, and Brazilian mining giant CVRD.No date has been set for the auction of thedeposit, but it is expected to occur in the first quarter of 2004. Land ownership disputes,which have recently been settled, made it difficult for Peru’s government to auction off the deposit. The Las Bambas deposit islocated in Apurimac and has proven reservesof 40.5Mt grading 2% copper and exploration potential of more than 500Mt.  3   3 simple gross check on material balances.Furthermore, in acid-generating wastedumps, the material may be crucial todetermination of reclamation costs.Reconciliation of the model to the mineis complicated by any number of issues.If a relatively large time period is underconsideration, it is likely that theoperational cutoff grades have changed,which requires that the volume ofmaterial mined under one set of cutoffsmust be kept separate from other cutoffgrade periods. If a cutoff grade ischanged between surveys, then thecomparability of the reconciliation isdisrupted. If cutoff grades are changed,they should either be changed at theend-of-month closing, or an inter-mediate survey should be conducted.In cases where an indirect method ofmeasuring grade is used, such asradiometric measurement in uranium, ormagnetic measurement in iron,calibration of the measuring equipmentis crucial and should be conductedregularly. Furthermore, the results of thecalibration should be clearly docu-mented and available in the case ofaudits, and changes to the calibrationmust be considered in determining thequality of reconciliation.Dynamic models, or models thatincorporate blasthole data and areupdated frequently, are often used bymistake in the reconciliation process.The value of dynamic models lies inimproved grade estimates for revenueforecasts. The long-range predictivepower of the srcinal modelingmethods must be calibrated against thewider-spaced exploration and in-filldrilling. Including blasthole informationin the reconciled model can create anillusion of long-range confidence whileeffectively calibrating the blastholemodel against the blasthole data. Ingeneral, the exploration model shouldonly be modified with either newgeological interpretations or newdrilling, and the results of any modelchanges should be carefullydocumented.There are a number of subtle problemsassociated with reconciliation. In themine environment, accurate data isdifficult to come by. Volumetricmeasurements in any realistic sense aregenerally no better than one or twopercent accurate. The density that relatesthe volume to a tonnage is itself anestimated value: even homogeneousmodels will see density variations of afew percentage points. Grade estimatesare similarly prone to considerablevariation. Repeat assays on splits fromthe same pulp sample can easily vary fivepercent between samples, not evenconsidering the myriad problems thatarise from sample collection andpreparation. Furthermore, there is a widerange of problems associated withgeological constraints and geostatisticalestimation.Discussion of the implications andresolution of each of these individualissues can and does fill entire books. Inmany cases, the best the operator canaccomplish is an unbiased estimate witha minimum variance in the assumptions.In terms of reconciliation, of course,these issues combine to make longertime periods more closely reconcilablethan short time frames. Next Month: Closing the loop – Mine tomill reconciliation, mill to smelter reconciliation, and smelter/refiner to sales reconciliation. This month’s article was provided by GeraldD. (Dave) Crawford, P.E., Principal MiningEngineer [email protected] Delivering Smarter SolutionsMinerals Corner  —   ActinoliteCa 2 (Mg,Fe 2+  ) 5  Si  8 O 22 (OH) 2, Calcium Magnesium IronSilicate Hydroxide  Actinolite belongs to a series with theminerals tremolite and ferro-actinolite. A series occurs when ions can freely  substitute between each other. In the caseof actinolite, when iron is predominant the mineral is ferro-actinolite and whenmagnesium is predominate the mineral istremolite. Actinolite is the intermediatemember. This mineral is usually green,white or gray and is a relatively commonmineral in some metamorphic rocks. Actinolite come from the Greek, aktinos,meaning “ray” in allusion to it’s fibrousnature. Actinolite is an ornamental stoneused for carvings and jewelry. Byssolite, avariety of actinolite, is composed of microscopically fibrous crystals (asbestos),which is used for fire retardant materialsand brake shoes and pads. Actinolite canbe found in the Lake Baikal Region,Russia; China; New Zealand: BritishColumbia, Canada; and Taiwan. ENERGY BILL ON HOLD TILL 2004  A Senate filibuster has ended any hope of the energy bill being passed by Congressbefore it adjourn for the holidays. Inability to break the filibuster was due to abreakdown in party discipline, with sevenRepublicans voting in support of thefilibuster. Chief concerns with the energy bill include the exemption of methyl tertiary-butyl ether (MTBE) manufacturersfrom possible future legal liabilities; anethanol mandate which would allow gasrefiners to use ethanol to reformulate their  gasoline; and the cost of the bill, whichwould total roughly $23.5 billionaccording to the Joint Committee onTaxation. Republicans in support of thefilibuster included: Lincoln Chafee (R.I.), John McCain (Ariz.), John Sununu (N.H.),Olympia Snowe (Maine), SenateRepublican Majority Leader William Frist (Tenn.), Susan Collins (Maine), and Judd Gregg (N.H.). Check out PAH’sredesigned web site at  4  4 Pincock, Allen & Holt is a consulting and engineering firm serving the international mineral resource industry. Your comments and suggestions are alwayswelcome. Contact Pincock, Allen & Holt ã 274 Union Blvd., Suite. 200, Lakewood, Colorado 80228 ã TEL 303.986.6950 ã FAX 303.987.8907 ã Pincock Perspectives is published as a free information service for friends and clients. Information for News Pix is paraphrased from various sources; references available upon request. Delivering Smarter SolutionsPincock Perspectives