Mineral Resources, Orebody Models, Deposits and the Stock Exchange with Ignatius Kamwanje

MINING & SOCIAL ISSUES with Ignatius Kamwanje

Mineral Resources, Orebody Models, Deposits and the Stock Exchange

Exploitation of a mineral means digging into the earth to find a mineral for which people will pay a lot of money. If the minerals exist in quantities large enough to be considered worthy mineable, then this is referred to as a “resource”. But public companies cannot talk about resources until they have developed a model and use appropriate geostatistics to qualify the model and the grade and tonnage estimate calculated from it. Geostatistics is the art of applying specialized statistical methodologies to predict the value of something in three-dimensional space based on the values of that something located more or less close to the point of interest.

(a) Mineral Resources

A resource can either be huge or small. But the most important question is; does it contain enough minerals at a high enough grade to become economically mineable? This can be packaged in such a way that it has to be attractive to investors. First, note that there are two aspects to a resource that are very important to their owners, stock exchanges and potential investors – the size (tonnage, volume) and the quality (grade). An assessment of both aspects is necessary to differentiate rocks from a resource.

Therefore, a resource must be defined by its size and grade. If a prospector or a geologist says, he has found a huge deposit of a mineral say zinc, the most likely questions one/an investor will ask are how big and how rich the deposit is. A model of the mineral occurrence leads inevitably to a calculation of the tonnes and grade of the occurrence. This is called a resource estimate which then becomes a reserve estimate. In other words, mineral resource estimates are used to estimate mineral reserves. There have been stories of people who have lost a great deal of money because they didn’t ask these important questions to get enough details before making a decision.

Naturally, geostatistics affirms that some resources are better defined than others and this makes definition of a resource conveniently to be divided into three categories; inferred, indicated and measured. However, a measured resource, by definition, means that the orebody has been sufficiently drilled and assayed to confidently calculate the tonnes and average grade of the deposit and normally a      resource will be defined by a combination of the three categories (i.e. measured+ indicated + inferred).

Ideally, the Mineral Reserve estimate of the Kayelekera Uranium Orebody in Malawi was arrived at by using measured Resources to report Proven Reserves and only Indicated Resources to report Probable Reserves. No Inferred Resources were used in estimating the Mineral Reserve and this was based on the assumptions that were put forward that time not forgetting a simplified project analysis based on pretax basis. In reality on the ground, one will find out that the most important aspect to come up with such a combination of resource definition is drilling that entirely reduces the value of the deposit.

Resource definitions for the three categories described above are publicly quoted by exploration companies who trade on stock exchanges and must hire someone known as a Qualified/Competent Person who has particular qualifications to make the estimate of resources who swear under oath to be accountable if the estimate is not accurate to avoid shock and embarrassment.

When an ore is mined it is either mixed with waste material or else some of it is left behind. It is therefore recommended that a mining engineer should decide whether it makes more sense to leave some of the ore (recovery) or bring some of the waste (dilution). If the ores occur in layered formation or veins that are very thin, then it will be hard to keep it out which leads to more dilution. In reality, it means the plant will receive an ore of lower grade than anticipated. However, if the layers of ore are much thicker than the layers of waste, then probably a recovery problem persists because some of the ore is left behind in order to feed the plant according to need.

The determination of percent dilution and recovery is a value judgment based on the operating experience of the engineer doing the calculation and it can have a very significant impact on the economics of the final operation. In open pit mines it is relatively easy to come up with workable estimates for dilution and recovery but in an underground mine where the ore can collapse on its own, there is complexity. No one knows whether it is an ore or waste.

(b) Ore body Models and Deposits

A Model can be defined as a functional idealization of a real-world situation used to aid in the analysis of a problem. As such it involves synthesis of available data and should include the most informative and reliable characteristics of a deposit type, identified on a variety of scales and including definition of the average and range of each characteristic.

To come up with a quantifiable model, availability of valid data is very crucial. This model will guide a mining company to estimate and quantify how much tonnage is sitting on the ground ready to be exploited. Therefore, some tools shall be needed to determine the reliability of the model based on time and space.

One of the aims of the planning stage is to identify areas for reconnaissance and to do this one must have some idea of how the materials sought relate to geological factors including geophysics and geochemistry. This is best achieved by setting up a model or models of the type of   deposit sought.

In mineral deposit models there are two main types which are often combined; the empirical model based on deposit descriptions and a genetic model which explains deposits in term of causative geological processes. The genetic model is necessarily more subjective but can be more powerful, as it can predict deposits not contained in the descriptive data base. Another type of model which is extremely useful for preliminary economic evaluations is a grade tonnage (Grade Control) model. This accumulates grade and tonnage data for known deposits and from this it is possible to estimate the size and grade of an average or large deposit and the cash flow if one was found.

If a model is more quantifiable, then the better and that is qualified by the type and quantity of data used to create it is perfectly valid. There is need to have consistent data points to create a significant model. It must be borne in mind that to come up with a significant model, geological, structural and the grade of such a mineral have to be collected and made readily available.

When a mining company estimates that it has discovered such million tonnes of an ore in an area, the most important aspects to validate such information is through involvement of a Qualified / Competent Person and whether it fits with the specific standard definitions of resource or reserve and if these are ignored, then one doubts where the company is up to.

(c) Stock Exchange

Some exploration companies are bragged in presenting unrealistic resource figures sometimes inorder to attract the attention of buyers of shares at the stock market. This has also an impact on a prospective investor. Others are cheated to buy shares at a stock exchange market from manipulated figures on measured, indicated or inferred resource by an exploration company. Similarly, some company employees themselves might be tempted to tamper with samples in order to increase the value of their stock. With officers and directors of the company responsible for the correct reporting of their exploration results at Stock Exchanges, the probability of this happening is diminished. However, to cover that possibility the Board of Directors of most public mining companies will insist on a third-party review of the corporate chain of custody procedures and may pay for third party check sampling and assaying to ensure that their employees are correctly fulfilling their responsibilities.

Stock exchanges require much more qualifying information prior to a mining company talking publicly of the model and the estimate of mineralization determined by the model. This is a very good for investors. When an exploration/ mining company is close to a major discovery, a decision must be made on what to do next. The stock price of the company will never be higher than it is now unless something new is actually found. In practice, mineral exploration discovery results are what makes an exploration company to have stock market price rise.


This piece was initially published in Malawi’s Mining & Trade Review Issue Number 64 (August 2018).

The full edition is available for download here. This monthly publication is edited by Marcel Chimwala.


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