Click here to recieve updates directly to you e-mail

Tuesday, May 17, 2016

Exploration - it's a question of scale

Once mineralisation has been discovered and the initial hubris generated by early drill results has died down (normally accompanied by a relaxation in the share price), exploration companies will be focusing on defining a resource as quickly as possible, but we all know the definition of a resource:

“A ‘Mineral Resource’ is a concentration or occurrence of material of economic interest in or on the Earth’s crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction.”

This is not an inventory of all mineralisation, and we often see a lot of companies pushing this by calculating a high equivalent grades by:
  • Including all elements under the sun
  • Using 100% recovery
  • Using metal price ratios (including the famous 60:1 for Au and Ag) that favor the element of interest.
The most important variables in the calculation and classification of a resource is geological and grade continuity, and a good rule of thumb is:
  • Implied continuity = Inferred Resources
  • Assumed continuity = Indicated Resources
  • Confirmed Continuity = Measured Resources.

There is no set spacing and grade and geological continuity will vary by deposit type:
  • In narrow, discontinuous deposits (e.g. veins, magmatic nickel, kimberlites etc.), drill-holes will need to be close together (e.g. ~50m apart) to define a resources
  • In disseminated or stratabound deposits (e.g. porphyries, sedex, sediment-hosted copper, Wits Basin gold etc.), grade is relatively consistent between drill-holes and they can be drill on a much wider spacing (e.g. 200m or more) to define a resource.

However, drilling costs money, you companies will try and maximizing the value from drilling by:

Focused Drilling - maximizing grade
This is drilling as many holes into a small, high grade area as possible so a company can pump out PR after PR announcing more and more excellent drill-intercepts.
This leads to the definition of a small, high quality resource, but with the "boy that cried wolf" effect, investors could be unimpressed with the size of the resource (i.e. they were expecting something bigger and better).

These releases include diagrams that make it hard to work out the drill spacing!
When we see a long section of the drilling we can quickly see that most of the holes are focused into the central high grade zone with a few holes outside this zone.

I'll like to illustrate this. If we take a hypothetical vein ("X") and overlay drilling that is concentrated into the high grade zone, what would it look like?
Black dashed line = resource outline

We can see that we have only drilled a small portion of the mineralisation, but with such close spaced drilling we have defined a very small tonnage of high quality (measured and indicated) resources.

Diffuse Drilling - maximizing tonnage
This is the opposite of focused drilling. The exploration company is drilling the deposit on very side spaced drill-holes to try and define the largest tonnage possible (i.e. quantity over quality). However, as all deposits have significantly more lower grade than high grade mineralisation, statistically the majority of the drill-holes will hit low grade mineralisation and will lead to the underestimation of the grade of the resources calculated

Let's bring back vein X and overlay it with holes drilled at various spacings.

200m spacing

Only a small proportion of the holes (5 of 12) intersected mineralisation. Confidence in the continuity of grade between holes is low, so no resources can be defined.

100m spacing
black = inferred resource limit; red = medium grade zone
We can start to see that the mineralised zone is becoming more continuous, to such an extent that we can see internal variation in grade and are becoming more confident that mineralisation continues between drill-holes. There is sufficient data to define inferred resources.

50m spacing
black = resource limits; red - med grade zone; magenta = high grade zones
We can see that drilling has defined several high grade areas and the limits to mineralisation. We can see that is excellent continuity of grade between drill-holes and can be confident enough to define Measured and Indicated resources.

 Some real world examples:

Guadalupe, 43-101 report was reinstated
Exploration companies will always try to portray their project as best as possible, their business is to get you to buy their shares to increase their share prices so they can raise money. Simple things like looking at scale bars on maps and figures can go along way to see if a company is trying to focus your attention either into small scale or very large scale features, but here are a few things to look out for:
  • Resource blocks defined by a single drill-hole (Ecu Silver - Velardena and Chicago deposits)
  • Using higher grade, narrow, intersections to report larger or wider intervals of mineralisation.
  • Ignoring geological features (rock types, faulting, weathering etc.)
  • Calculating resources from drill-holes with poor recovery (Nuevo Milenio deposit).
  • Creating resources from historic reserves/resources with no supporting information (Sterling Mining - Sunshine Mine)