bigjig Saturday, 09/27/08 12:01:09 PM Re: zappy post# 3593 Post # of 6929 How to Read a Mining Assay. I found this and thought a few here may like the read. Great information on How to Read Mining Assay Results, a must if you are doing research into mining companies.This is well worth saving for future reference. Given recent economic events perhaps the time to post this was when I started writing, about six months back. It is a post that may not have quite the relevance now that it did but, it may help newer members in understanding assay results to their future financial benefit. For those members who may not know me, i should state right up front that i have absolutely no technical or working background in the mining industry whatsoever. The contents of this post are based solely upon my own research and may therefore contain errors. I apologise in advance should this be the case and trust that my more learned T$ friends will correct me where this may have occurred. • Assays – what they are • Factors to consider when reading assays • Types of drilling • Other exploration tools • Ballpark figures for exploration costs • How assays are reported • Capital and operating costs in mining • JORC Code – Mineral resources and ore reserves • Oil & Gas reporting • Commodity profiles • Websites for further research If you skip ahead, please note the comments related to price and grades at the start of the Commodity profile section. An assay is a test performed on a mineral sample to determine its composition. Assays may be carried out on solid core samples, rock chips, or soil or drill samples. Assays are carried out by companies to determine the grades and possible economic worth of a resource. Important information Before you read on i think i should draw your attention to ten very important points that i believe underpin what i have tried to cover in this post. Each of these points should be considered when reading the assay results your company has released: 1. Commodity prices You need to keep the current market price of the commodity you are looking at firmly in mind. I have included links to many sites that will give you current commodity prices at the end of this post because i believe this is a critical aspect of your research, understanding and your decision making process. Think about what the anticipated future market is likely to be for the commodity your company is reporting on. Research the included websites to increase your awareness of commodities in general. Be aware that a large deposit and good grades will be required to withstand lower commodity prices should the commodity price fall in the future. 2. Commodity stockpiles Related to the commodity price is the commodity stockpile figure. This is probably more important to consider when talking about base metals as precious metals like gold, silver and platinum or perhaps in this market, rare earth minerals are nice to find at any time. It is essential to keep the current commodity stockpile figure and the likely future demand or use in the back of your mind when reading assay results. There is no point getting excited about a big find in say zinc, when prices are falling, stockpiles are rising and every second miner is searching for zinc. AIM resources for example, just put a mine on care and maintenance that twelve months ago looked to have huge potential. CBH has just done the same. Today i read that PEM has put off 440 workers [more than 50 percent of their workforce] and have only kept on maintenance workers! The LME [London Metals Exchange – link provided] site [amongst others] includes information related to commodity stockpiles. 3. Average grades What is the average grade of the mineral deposit? 20g/t Au [Gold] looks good but, was it only found in a small portion of a drill hole that extended over hundreds of metres? Beware of rock chip samples! These can be considered biased samples as a geologist will obviously have a trained eye and is likely to spot good samples sitting on top of the ground. In my experience, i have found that many of the follow up drilling results rarely live up to the grades that rock chip samples produce. Cut off grades. If you are lucky and the company has progressed far enough in their exploration [or perhaps has even proved up a JORC [[Joint Ore Reserves Committee – link provided and information to follow]] compliant resource], they may have indicated a cut off grade. This figure will state the minimum grade of mineralisation that is required to make mining of the stated resource economically viable. Underline this figure and come back to it after you have read this post. The cut off grade may put all of this information into some sort of context for you and may pull together many of the points contained in this post. Finally, don’t get too excited yet about extremely high assay grades as they may relate to a ‘nuggetty’ find. Nuggetty assay results can be very difficult to interpret accurately. This point relates to something i am thinking about related to gold and in the interest of keeping this post as reader friendly as possible, i have kept this thought for that section. 4. Assay grade depth How deep is the deposit? As a rule of thumb, the deeper you go, the better the grade you have to have in order to mine for profit. Depth = expense and therefore you need to be looking at higher reported grades the deeper you go. 5. Mining operation type Is the company you are looking at intending to mine the resource underground or by open pit? Open pit mining costs are much lower. Some mining may be termed alluvial. Alluvial deposits are those deposits of sedimentary material transported from their source, most notably influenced by erosional forces and gravity. By definition, this means they may lie very close to the surface. Tin mining for example, can be carried out via alluvial mining, however, i have yet to come across a highly lucrative alluvial gold mining project … but that’s not to say one doesn’t exist. Alluvial resources are possibly the cheapest to mine. Some companies may mine the alluvial deposits first, in order to secure enough income to start mining the solid rock resource located upstream or nearby. 6. What is the timeline for production? How far out is your company planning to have production for sale? What could happen to the commodity price during this time? How many other companies are jumping on the same bandwagon? If it takes two years to get a product to market, you don’t want to be the last to arrive at the party! Something that may be difficult for newbies to come to grips with is that during the time your company will take to prove up a resource, secure any extra necessary funding [dilution] or to get the product to market, the share and / or option price will vary markedly. This is inevitable without even considering general market trends. Depending on your personal tax situation, there may be several opportunities to increase your exposure by trading the announcements. You may be able to use time to increase your position or to build a free carry. Patience is a virtue, trust me. 7. How pure are your assay results? Some minerals are less attractive to mine if they have other elements present. Iron ore is one such example. Contained in this post is important information related to the less desirable elements in your assay results. Refer back to these after researching further. 8. Does the company have a contract or off take agreement with a leading buyer? If your company has a contract, you can be pretty sure the concentrate grade is going to be okay. Check closely to see if there are any specifications outlined in the agreement. It might also be worth checking to see if there are any hedging facilities stated in either commodity prices or exchange rates and to check these against the current and predicted future commodity / currency prices. 9. What is the infrastructure like? Lack of infrastructure can add markedly to the cost of production and may be reflected in higher than normal cut off grades. A resource that is located close to roads, other forms of transport, existing gas or oil pipelines, power etc is likely to be cheaper to mine than a resource without existing infrastructure. Don’t underestimate the value of infrastructure when doing the maths! And finally, 10. Look for hidden problems in mining and processing operations. Other potential problems an investor should investigate include: • is the processing facility (mill) located nearby or will it be trucked hundreds of kilometres? • workforce availability; • the capital costs and payback on those costs; • mine permitting; • anti-mining activity in the region; • financing for the project; • access to the deposit [can the deposit be accessed at all?]; • the company’s market capitalisation in relation to timeline for production. Does the deposit have blue sky potential? and • sovereignty risk [is the Government user friendly, is there a risk of disruption to production due to changes in Government or policy, war, civil unrest or an unreliable or unhappy workforce?]. How to Read a Mining Assay. (Part Two) Published by strudy1 September 24th, 2008 in Daily Diary, Find Profitable Shares., Fundamental Analysis., Getting Started PART TWO Various types of drilling The cost per metre of drilling given here is a ballpark figure. Drilling costs are highly variable and can be affected by depth, terrain, rock type, time the rig will stay in the one area, demand for drilling etc. There are three main drilling techniques used when searching for minerals: • RAB [rotary air blast]; • RC [reverse circulation]; and • Diamond drilling. Rotary air blast [or RAB] drilling is the cheapest and least penetrative type of drilling used. It makes use of compressed air [or a mixture of compressed air and water] to ‘break’ the ground. Compressed air is pumped down the hole through a drill pipe, and the cuttings are blown up the hole along the space between the drill pipe and the wall of the hole. The cuttings are laid in distinct mounds [each representing 1 or 2m of drilling], and then described, identified, and analysed. RAB drilling only penetrates the weathered cover above fresh [or unweathered] rocks, and generally extends for only some tens of metres [60–70 m on average]. This form of drilling is the cheapest but the accuracy is the lowest as the drill cuttings arrive at the surface with a low level of confidence of their true location down the drill hole. Typically, the cost of RAB drilling is in the order of about $6/m. Reverse circulation [or RC] drilling penetrates deeper than RAB drilling and can usually reach depths of 70–200 m. The system makes use of a dual-wall pipe. High-pressure air or water is forced down the outer pipe to the drill bit, and is then directed to the centre of the pipe. The air returns the cuttings to the surface via the inner pipe. RC chips are typically stored in plastic bags, each representing 1 m of drilling. Typically, the cost of RC drilling is in the order of $30–35/m for the first 100 m of drilling, and $42–44/m from 100 to 200 m in depth. Diamond drilling is the most expensive type of drilling [of the order of $75–100/m, depending on the diameter of the core], but it also allows the greatest penetration and recovery of whole samples of rocks not just chips. Diamond drilling can reach depths of several kilometres especially in sedimentary basins in the search for oil. Diamond drilling allows clear identification of rock types and their relationships as a solid rock core is cut rather than drilled, as well as providing samples for analyses. Diamond drilling also allows 3-dimensional assessment of the lateral extent and depth of an orebody. Diamond cores can have variable diameters. Investors should be wary of reserves based on RAB drilling alone, due to the low order of accuracy. For continuous bulk commodity orebodies, such as coal, it is not such a major issue. RAB drilling is the more common drilling method, but it is important that there is strong correlation between RAB results and any nearby diamond drilling results. Oil and Gas Drilling The method employed in the drilling of an exploration well is on a much larger scale due to the very large depths that this type of exploration requires [from hundreds to many thousands of metres]. A diamond drill bit, which might start with a diameter of one metre, turns and grinds away the rock. Drilling muds are set down the centre of the drill string and the bit, to lubricate cutting and place pressure on the bottom of the hole to prevent any blow out of high pressure gasses that may be encountered on the way. The drill cuttings return to the surface with the mud where they can be analysed. Other tools for mineral exploration Remote sensing tools: • aeromagnetic and radiometric surveys; • gravity surveys; • seismic surveys. Ground exploration: • historical data; • geological mapping; • GIS [Geographic Information System] or similar facility in individual State mining departments – links provided at the end of this post; • magnetic surveys; • drilling [RAB, RC, diamond] • sampling [soil, chip, rock, etc.]; and • chemical assays. This resource from http://www.doir.wa.gov.au/documents/LOAM_1_Exploration.CV.pdf explains all of these terms and gives examples of each. Ballpark figures for other exploration types These figures are taken from the 2004 edition of Mining Valuation Handbook – For Projects, Companies and Shares by Dr Victor Rudenno and were supplied to me by fellow member Verdi. Once again, these costs are highly variable and the following information should be used as a guide only. Remember they are already four years old! • airborne geophysics - $10/km • ground geophysics - $20-$1500/km • soil geochemistry - @$20 a sample • rock, rc sample or core assays - $20/sample • air photo interpretation - $15-$20 per photo • rab drilling - $7-$15/m including sampling • rc drilling - $35/m inc consumables and mobilisation • diamond core drilling - $100/m inc consumables and mobilisation • onshore seismic 2d - $4000-$5000/km • offshore seismic 2d - $1500/km • offshore seismic 3d - $10000/sq km • onshore oil and gas drilling - $350-$450/m • offshore oil and gas drilling - $3000-$4000/m How assays are reported Generally assay results for metals are reported in one of the following ways: Grams per tonne – g/t The total sample of the assay will be reported as Xg/t of material targeted, where X is the number reported by your company. This material may be rock or soil. The higher the number of g/t, the better the assay result. Parts per million – ppm One part per million equals one gram per tonne. That is, there are one million grams to the tonne. As above, the higher the grade the better the assay result you have to investigate. Not so long back some companies were reporting ppb [parts per billion]! Unless metals prices have gone through the roof by the time you are reading this i’d suggest you have a chuckle and move on. Uranium may be the only metal worth looking at but this is generally reported as a percentage. Percentages Some metals may be reported as a percentage of the material mined. It may be time to get the calculator out and convert these back to grams per tonne. Uranium results are usually reported as a percentage and despite what may appear to be very low levels you need to look closely at the commodity profile related to this metal. Cubic Metres Mining by dredging – such as alluvial mining of tin, may be reported in cubic metres. There should be some percentage or gramage mentioned within these results. If not, be aware that metals have varying degrees of specific gravity; i.e some weigh more than others by ‘volume’ and therefore you may have to look more closely at the results. Note: Whatever the reporting method, you need to be aware that whatever is reported in the assay may not necessarily be what will be available for sale. This is because there is a difference between the reported assay grade [head grade], the concentrate grade and the concentrate recovery. You will need to look carefully at these grades in your analysis, try to identify reasons for any large discrepancies and possibly factor in any positive or negative by product[s] to the final sales your company receives. Some of the costs associated with mining Indicative Capital Costs in Mining The capital cost to develop a mine is dependent on a range of issues. These issues include but are not limited to: • type of mineral - metal, bulk or hydrocarbon; • underground or open cut; • existing infrastructure - power, town site, airport, roads and rail; • water and power supply; • topography - terrain and availability of suitable areas for mine facilities, tailings dam, waste dumps etc; • weather conditions - rainfall, freezing or snow. The estimation of capital costs is thus a complex issue, that requires adequate and detailed information about a particular deposit. This level of information is often not available to the market, and approximate values or rule of thumb estimates are used in placing a value on a resource project. A gauge of the order of magnitude of capital costs can be obtained from published information as listed in the tables below. For those commodities such as coal and oil where there is little secondary processing the cost is in units of mine production. For those commodities where there is considerable secondary processing such as base metals etc, the cost is shown on a per tonne milled or processed. For gold mines it is not uncommon for the cost to be quoted on a per ounce basis. Indicative Operating Costs in Mining Operating costs, as with capital costs, will vary from project to project dependent on location, mining and metallurgical factors. Two mines producing identical quantities of a resource product, can have quite different operating costs, however, the order of magnitude of operating costs will often be related to the size of the operation. Additionally, there is often an economy of scale [exponent] so that the larger the operation the higher the absolute cost but the lower the relative cost on a unit basis. For oil and gas the economies of scale are not so apparent, while the cost of oil production is a relatively small part of the overall costs. Some of the costs involved in various types of mining include: Wages; on costs; materials; maintenance power; administration; transportation – rail and port; excise [coal] sampling; exploration, maintaining mining leases and royalties. Royalty costs One cost that you may not associate with mining a resource is a royalty cost. Mineral resources are vested in the Crown and therefore State Governments charge royalties for the right to use their mineral resource. The Federal Government has jurisdiction over most of offshore Australia and charges royalties on oil and gas production. The royalties generally take the form of either unit royalties which are a fixed cost per unit of production, or ad valorem royalties which are charges based on the value of the commodity. Profit based royalties are rare, with the Federal Government applying a resource rent tax for newer offshore oil and gas discoveries and the Tasmanian Government including a profit based element. A brief summary of the current royalty rates can be found in the resource i have used below or you can obtain more recent information from the Government Mineral Resource Bodies i have listed in the weblinks section at the end of this post.. How to Read a Mining Assay.(Part Three.) Published by strudy1 September 25th, 2008 in Daily Diary, Find Profitable Shares., Fundamental Analysis., Getting Started Great information on How to Read Mining Assay Results, a must if you are doing research into mining companies.This is well worth saving for future reference. Because it is so long the article will have to posted in installments. This was contributed by “Perdant”a professional trader who is also one of the popular contributors to “Topstocks.” Topstocks are still offering a “Free Pro “account for one month with no strings attached. 35,000 Plus members can’t be wrong. So do yourself a favour and see for yourself. You can get there by clicking on the link provided at the right hand side of this page.:- Part three JORC – Joint Ore Reserves Committee I don’t intend to reproduce the entire JORC Code here as you can download your own copy to read from here http://www.jorc.org/main.php however, there are some important points that fit nicely in the context of this post. If you are familiar with JORC reporting protocol, skip to the next section. Reporting of mineral resources A ‘Mineral Resource’ is a concentration or occurrence of material of intrinsic economic interest in or on the Earth’s crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confidence. It is inferred from geological evidence and assumed but not verified geological and/or grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability. An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource. The Inferred category is intended to cover situations where a mineral concentration or occurrence has been identified and limited measurements and sampling completed, but where the data are insufficient to allow the geological and / or grade continuity to be confidently interpreted. Commonly, it would be reasonable to expect that the majority of Inferred Mineral Resources would upgrade to Indicated Mineral Resources with continued exploration. However, due to the uncertainty of Inferred Mineral Resources, it should not be assumed that such upgrading will always occur. Confidence in the estimate of Inferred Mineral Resources is usually not sufficient to allow the results of the application of technical and economic parameters to be used for detailed planning. For this reason, there is no direct link from an Inferred Resource to any category of Ore Reserves. Caution should be exercised if this category is considered in technical and economic studies. An ‘Indicated Mineral Resource’ is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confirm geological and/or grade continuity but are spaced closely enough for continuity to be assumed. An Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource, but has a higher level of confidence than that applying to an Inferred Mineral Resource. A ‘Measured Mineral Resource’ is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are spaced closely enough to confirm geological and grade continuity. Mineralisation may be classified as a Measured Mineral Resource when the nature, quality, amount and distribution of data are such as to leave no reasonable doubt, in the opinion of the Competent Person determining the Mineral Resource, that the tonnage and grade of the mineralisation can be estimated to within close limits, and that any variation from the estimate would be unlikely to significantly affect potential economic viability. This category requires a high level of confidence in, and understanding of, the geology and controls of the mineral deposit. Confidence in the estimate is sufficient to allow the application of technical and economic parameters and to enable an evaluation of economic viability that has a greater degree of certainty than an evaluation based on an Indicated Mineral Resource. Reporting of ore reserves An ‘Ore Reserve’ is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. Ore Reserves are sub-divided in order of increasing confidence into Probable Ore Reserves and Proved Ore Reserves. A ‘Probable Ore Reserve’ is the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. A Probable Ore Reserve has a lower level of confidence than a Proved Ore Reserve but is of sufficient quality to serve as the basis for a decision on the development of the deposit. A ‘Proved Ore Reserve’ is the economically mineable part of a Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. A Proved Ore Reserve represents the highest confidence category of reserve estimate. The style of mineralisation or other factors could mean that Proved Ore Reserves are not achievable in some deposits. Oil & Gas drilling reporting This is a section i will probably have to revisit after some more research. The recovery of oil and gas is uniquely different from the mining of hard and soft rock. The oil and/or gas is contained in a porous rock such as sandstone [not in some cavernous Void]. Development/production wells are drilled into the hydrocarbon bearing reservoir to optimise the extraction. Each of the wells will be cased in steel to ensure that the well’s integrity is maintained. At the appropriate level(s) where the reservoir(s) are located the steel casing will be perforated, to allow the hydrocarbons to flow into the well. It is important that other non hydrocarbon horizons are not perforated as this may allow escape of the hydrocarbons. Primary production is obtained from the reservoir’s own pressure driving the hydrocarbons to the surface. However, this may only result in partial recovery of some 30% to 50% of the field. Secondary recovery techniques include the re-injection of water or gas recovered from the reservoir, through separate wells, to increase pressure. Gas lift or artificial lift is employed whereby the gas is sent separately down to the bottom of the oil producing well to “lift” more oil to the surface. Down hole pumps can also be used to pump oil to the surface. An important aspect of oil production is the decline in oil production over time due to falling pressure and increasing water production. As mentioned above, remedial action may be taken to mitigate the decline rate, however, production will decline over the life of the field at a geometric rate. Common practice is to use a 15 to 20% per annum decline rate when specific details are not known. Definition of oil reserves Oil reserves are primarily a measure of geological risk - of the probability of oil existing and being producible under current economic conditions using current technology. The three categories of reserves generally used are proven, probable, and possible reserves. • Proven reserves - defined as oil and gas “Reasonably Certain” to be producible using current technology at current prices, with current commercial terms and government consent- also known in the industry as 1P. Some Industry specialists refer to this as P90 - i.e having a 90% certainty of being produced. • Probable reserves - defined as oil and gas “Reasonably Probable” of being produced using current or likely technology at current prices, with current commercial terms and government consent - Some Industry specialists refer to this as P50 - i.e having a 50% certainty of being produced. - This is also known in the industry as 2P or Proven plus probable. • Possible reserves - i.e “having a chance of being developed under favourable circumstances” - Some industry specialists refer to this as P10 - i.e having a 10% certainty of being produced. - This is also known in the industry as 3P or Proven plus probable plus possible.