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12/10/13

The trouble with 43-101, continued

Last week Mineweb ran an article, this week IKN shares a mail (with permission) from reader W who read the article and wanted to add to the conversation. This first appeared in IKN240, last Sunday:




The validity of 43-101: Follow-up
Last week, two articles from Kip Keen of Mineweb caught my and many other eyes. The first was a report of the round-table event at the Scotia mining bash last week which featured an exchange between Clive Johnson of B2Gold and Joseph Conway of Primero (P.to) (PPP) (20) that covered plenty of ground but along the way included this snippet:

Conway: I can tell you 43-101 is a piece of garbage. It's not worth anything.
Johnson: It's a joke.
Conway: It's a joke. It's not protecting you guys in any way, shape or form.
Johnson: Absolutely.
Johnson: What we typically see where it falls apart is the block model. We just say, give us your data...it usually fails right there. The extrapolation that they're using for their reserves and resources is probably completely out of whack relative to the geostatistical information or data that is there.
Moments later Johnson shared a thought; a bit in jest, but not entirely so, perhaps.
Johnson: We've often talked in our group that one day, some day in the future when we're ready for a change, it'll be interesting to take a technical team like ours and start our own little fund. And with the ability to judge things, and I'm sure you guys have that as well, I can tell you for sure that fund would be short more than it would be long.

The note was quickly followed by the reproduction of a mail Keen received from an anonymous “P. Geo”, who spoke a lot about the old-timer ways and the pressure put on report compilers (21). Again most interesting, thought-provoking reading that’s highly recommended, especially for the context of what follows here.

Along the winding road of IKN, I’ve been lucky enough to have made friends and acquaintances (some physical handshakes, some appreciated virtually) with a wide range of people in the mining trade. Many of them are experts in their field, such as long-time reader “W” who comes from a highly experienced geological background and was kind enough to write in with the following last week, as well as give permission to share it with a wider audience (just one or two minor redactions to protect both guilty and innocent, nothing in the message has changed) as long as W’s ID is kept off the map (in his words, “I insist that it is anonymous – no lights for me, let alone limelights). His thoughts were about 43-101 and its usefulness thereof, sparked by the Mineweb reports references above. Here’s W:

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I have very little respect for the NI 43-101 system and agree with those panelists that if we could, after reviewing the reports, we would short most company stocks who hold the asset(s)!  My thoughts:

1.       The U.S. has had a “certified geologist” classification state by state for a very long time; today, I believe that every state requires an exam for certification.  Most of the work is for civil projects, construction, etc., but there is a qualification hurdle!
a.       Such geologist must have professional liability insurance (because he/she is accountable for their work)
b.      There is an oversight body
c.       There are sanctions and “blacklisting”; “black lists” are generally published in the state’s professional newsletter

Thus, while NI43-101 and JORC have provided some standards to abide by, in the end, no one is accountable for these standards.  When a company contracts a 3rd party to write a compliant report, who is ultimately responsible for that report?  The company?  The 3rd party?  Everybody collectively even though the QPs may be responsible, but not really accountable, for only certain chapters in the report?  Generally, the 3rd party has a “hold harmless” clause in their contracts, i.e., if there is a foul-up, the client still must pay for services rendered and the 3rd party gets a “do over” (this was inserted after the Hatch debacle at Galore Creek).  Huh!  Early on the 3rd parties would have a disclaimer that essentially said “here are the data, this is the way I interpret all of it, and I am not accountable for that interpretation”.  Huh!  With respect to oversight and sanctioning, I will give you an example of an extreme case – a Qualified Person was rendered guilty by the Canadian courts of violating a CA by using data “unlawfully” acquired to advance a project, thus his client lost rights to the project.  No sanctions.  Huh!  No accountability, no meaningful oversight, no consequences.  Morality and ethics…….?????????

2.       Resource – the basic CIM definition is “reasonable expectation of economic extraction”; the SEC definition is “mineralized material”, i.e., it is not a reserve, but could be, or not.  I agree with the old-timer’s assessment of the process, for which you graciously provided a link.
a.       On compositing, a company geologist can request that the compositing be limited to defined boundaries for extrapolation, i.e., hard boundary, but if the 3rd-party modeler or geologist (rarely are they one in the same person) says no way, it’s “no way, dude!”
b.      On shareholder-funded science projects, the tables with a range of cutoff grades are just bullshit to me!  The counter-argument is that they provide a sensitivity – for what?  Using the old timer’s logic, the cutoff grade is that which can be mined at least break even or with a very small margin.  How does a 0.2% Cu cutoff for a sulfide project meet that criteria – I don’t care how big the pit or plant is, you just can’t make money on 0.2% Cu (that’s 4lb/t recoverable or $12.80/t rock at today’s prices)!
c.       On NI 43-101-compliant Feasibility Studies, any worthy Jr.-company Board would request a peer-review study before making a construction decision even though the banks and/or possible suitors would do their own study, or review, anyway.  The old timer’s suggestion would make that a formal process with his/her 2-track approach, but that would lead to a Strathcona-Snowden pissing match (except that Pretium is actually mining/producing gold from a bulk sample that Strathcona says is not a resource; imagine if it is all based on only drillholes).  Also, it opens the doors for lawyers (who quickly moved in on Pretium after Strathcona’s statement) – who’s right?  It goes to the old timer’s point that in the old days, if a geologist/engineer “misguided” the shareholder, it is because he trashed a project that came good later.
d.      On common sense, the old timer is right.  But as he aptly points out, we are victims of a perverted system.  In the old days, an underground vein mine would be run very well if it had 2 years of reserves year after year, decade after decade; with the current system, nothing is acceptable to the market unless there are many years of reserves, and certainly no banks would finance such a project without a reserve tail beyond the maturity date.

IKN back. When times are good, systemic weaknesses in the chain of mining development, from resource discovery to eventual operation, are either left undiscussed or are plain ignored because there are too many people making too much money. However (no need for evidence to this educated audience) we’re not in those times now. Blame is being apportioned here and there, with the first line of whipping boys so far the plethora of junior mining companies that have promoted moose/llama/wildebeest pasture on the market and benefitted from easy (aka dumb) money. But the blame cannot and should not stop at the door of the promoters, as theirs is only one segment of the whole mining scene that needs to change for the better. My personal bugbear are the parasite promoters and assorted mining hangers-on. We (and I very much include myself, so yes I am looking to put myself out of business here) are in need of some direct effect supply-demand economic lessons, another way of saying “unsubscribe from the parasites, stop feeding them, let them starve and disappear”. Meanwhile, reader “W” points the finger at another den of iniquity above, which can often be associated with the BS-purveying junior but is also guilty as hell of profiting without being accountable for their deceptions and lies.

If you believe the junior industry needs a shake-up, you’re in good company. However, it’s clear from this observer, one with one foot inside and one on the outside looking in, that there’s a lot more to do than just cosmetically scrape away a few hundred dead explorecos and then ride the next upwave in metals when it comes.