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A Monday Morning Musing from Mickey the Mercenary Geologist
On December 23, 2005,
Canadian Securities Administrators (CSA) added a new wrinkle to the NI-43101
regulation of resource estimations with official creation of the so-called
“preliminary economic assessment” (PEA). This is a document that can be
tabled after a series of resource estimates and purports to address the
economics of a mineral occurrence prior to technical pre-feasibility and
feasibility studies.
In actuality, the
preliminary economic assessment violates the very core principle of the
NI-43101 mineral resources and reserves classification system. Nearly 10
years ago, I explained the Canadian Institute of Mining and Metallurgy (CIM)
classifications in detail (Mercenary Musing, August 25, 2008).
The CIM systematic
classification of mineral resources and mineral reserves is shown in this
graphic:
 
The important item to
note is that Inferred Mineral Resources are shown outside of the dashed box
that contains all other categories. The reason is explained in an excerpt from
the CIM Standards on Mineral Resources and Reserves published in 2000:
“Note that the
confidence level in Inferred Mineral Resources is insufficient to allow the
application of technical and economic parameters or to enable an evaluation
of economic viability worthy of public disclosure.”
The guidance on Inferred
Mineral Resources was modified in 2010 to read:
“Confidence in the
estimate is insufficient to allow the meaningful application of technical and
economic parameters or to enable an evaluation of economic viability worthy
of public disclosure. Inferred Mineral Resources must be excluded from
estimates forming the basis of feasibility or other economic studies.”
A “preliminary economic
assessment” actually allows both economic evaluation and public
disclosure of inferred resources, which as per the above definitions
published by the regulatory bodies that created the regulations, do not have
sufficient geological confidence to be evaluated economically.
Yikes!
This is a veritable
bureaucratic Catch-22 of irrational circular reasoning in the best
tradition of protagonist Yossarian’s dilemma in the novel by Joseph Heller
(1961).
Prior to NI-43101, this
level of mineral evaluation was universally called a “scoping study”. It was
an internal document generated by exploration and mining companies
after a cycle of advanced exploration. Internal scoping studies were used to
determine if a project:
·continued to present
economic possibilities for becoming an ore deposit and warranted additional
exploration; or,
·had fatal flaws or did
not meet company criteria and should be immediately shelved, abandoned, or
sold.
In the real world of
advanced mineral projects, a scoping study was more than a simple one-off
affair. It was a series of early-stage attempts to construct technical and
economic models of a mineral occurrence that underwent constant revision as
more data was generated.
It was a non-public
document compiled and written by company geologists and engineers and
designed exclusively for management, insiders, and those who had signed
confidentiality agreements; e.g., technical consultants and potential buyers,
partners, and/or financiers.
The internal scoping
study was never ever intended for release to the public or designed for
public consumption by non-technical investors.
In my opinion, the
invention and promotion of the preliminary economic assessment by Canadian
Securities Administrators five years after adoption of regulations for
technical reports was designed as a means to:
·collect additional
filing fees from listed companies;
·increase the bureaucracy
and workload of securities commissions;
·provide more work for
consulting engineering firms;
·permit companies to
include inferred resources in economic evaluations thus increasing the
likelihood of a positive evaluation for the project;
·allow companies to
prolong the tenure of advanced mineral projects of questionable economic
value.
Most of the preliminary
economic assessments that I review are not worth the time, the cost, the
paper, or even the digital megabytes that they occupy in cyberspace for
exchange filings, news releases, and company websites.
Taken in whole, I submit
that:
·They often contain
technical and economic assumptions that are far from rigorous or even
acceptable by industry standards.
·The bad assumptions lead
to flawed economic conclusions that involve inferred resources, which by
definition cannot be evaluated economically.
·These documents often
become liquidity events for early-stage professional speculators looking to
off cheap stock at high-prices to retail “dumb money”.
·All of the above result
in mal-investment by the lay public.
·Bad investments result
in reluctance by retail lay investors to speculate in a marketplace that they
surmise is rigged against them.
To reiterate: a preliminary
economic assessment by a junior exploration company is an economic
evaluation of inferred resources with no demonstrable economic viability.
Therefore, I conclude
that every preliminary economic assessment is simply and unequivocally fake
news.
The preliminary economic
assessment has bastardized the technical review process. I propose that it
should be banned as a public document.
But since that is highly
unlikely to happen anytime soon, you must always beware of frogs masquerading
as princes:
Ciao for now,
Mickey Fulp
Mercenary Geologist
The Mercenary Geologist
Michael S. “Mickey” Fulp is a Certified Professional Geologist with a
B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc.
Geology from the University of New Mexico. Mickey has 35 years experience as
an exploration geologist and analyst searching for economic deposits of base
and precious metals, industrial minerals, uranium, coal, oil and gas, and
water in North and South America, Europe, and Asia.
Mickey worked
for junior explorers, major mining companies, private companies, and
investors as a consulting economic geologist for over 20 years, specializing
in geological mapping, property evaluation, and business development.In
addition to Mickey’s professional credentials and experience, he is
high-altitude proficient, and is bilingual in English and Spanish. From 2003
to 2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and
British Columbia.
Mickey is
well-known and highly respected throughout the mining and exploration
community due to his ongoing work as an analyst, writer, and speaker.
Contact: Contact@MercenaryGeologist.com
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