Every why hath a wherefore

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:
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
) 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:
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
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
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.

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