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Tuesday, February 7, 2017

Lies, damn lies and metallurgical studies - part 2

We all like a great drill intercept, and we are blessed that exploration companies pander to our needs and desires, and as a result. we the investors, have built a symbiotic relationship with them. It goes something like this:

Junior company releases a hot drill-hole, we jump in and buy, 'cuz the project is good the management beautiful and honest. 

Deep down, we know that they are good, hard working folks, busy polluting lakes and rivers, pissing off and killing locals, just to satisfy the needs and desires of the retail investor to allow us to flick through a copy of the Robb Report and pick out our next car, house or spouse. God Bless 'em.

However, sometimes we get a few baddies, those companies that like to cheat a bit and rather than industriously explore the frontier exploration areas (deepest darkest Peru, the 'stans, or Ontario), they miraculously find a well drilled project, it is easiest and stick a few holes into the best bits, like our friends at First Mining Finance's Stripper-pole deposit project lake.

yellow > 0.4 g/t Au, orange > 0.8 g/t Au, red >1.2 g/t Au
I know they are metallurgical holes, and really important to do on a project that has already had 4 previous metallurgical studies done on it (1989, 2011, 2012 and 2013), but maybe they could have done a better job, I mean - WWAD?*

*WWAD = What would Avrupa do?

It is Exploration equivalent of Ice Ice Baby. Shamelessly ripping of a good song and producing something worse.....

And talking about lakes, only 75% of the deposit is underwater.
I've added some traditional Canadian fishes to make this image more sexy.
Fortunately, the Australians have Aquatic mining equipment
submersible drill-rigs (they never lose circulation)
aquatic loaders
Underwater dragline
submersible dump trucks
What First Mining are doing is outlined in the last technical report, they needed to take some more, representative samples so that they could better understand the nature of mineralization and hot to maximize recoveries, but as I've mentioned before, if a company ONLY focuses on the high-grade mineralization, which is often very different from the run of mine muck, it can distort the recovery assumptions, for example:

  • High grade ore may contain more free milling gold and require the plant to build a gravity circuit, or coarse gold that could be recovered by leaching
  • low grade ore may be refractory (i.e. encapsulated in other minerals) and may not be recovered through a gravity or leach circuit and require a finer grind.
This could lead to a mine building a plant that can only process material from a small proportion of the deposit and require may require 'upgrading' if the plant (increases CAPEX, mine down-time etc.) to process the ore that makes up the bulk of the deposit. All FMF had to do was drill a couple of short holes into the yellow zones so that they could conduct metallurgical studies on all the different ore-types and mineralization styles. They would have got the hot holes the market loves and adequately sampled the deposit.