Mineral Development: A Short Guide to Understanding the Process

For information on the initial process of identifying mineral deposits, known as mineral exploration, please read our previous blog post titled “Mineral Exploration: A Short Guide to Understanding the Process”.

The Decision

The accumulation and interpretation of quality data has always been an important factor in identifying potential mineable operations.

A mineral project is first explored for and prospectors conduct early exploration activity to justify the decision to proceed with developing the project. Exploration efforts including geophysical surveys, surface sampling and drilling have all been conducted. The data gathered from exploration work is used to determine whether a company will continue to explore and develop a mineral resource. After a mineral resource is discovered, a qualified person (QP) and/or team of professionals will compile the exploration data into a technical report. All technical disclosures for mineral projects must follow National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101). The Canadian Securities Administrators developed the NI 43-101 rules to ensure that misleading or fraudulent information relating to mineral properties is not published and promoted to investors on the stock exchanges overseen by the Canadian Securities Authority. Canada is a leader in terms of how information relating to a mineral project is reported.

Before reading the rest of this guide, please see some important definitions below:

Mineral Resource:

Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. An Indicated Mineral Resource has a higher level of confidence than an Inferred Mineral Resource but has a lower level of confidence than a Measured Mineral Resource. A Mineral Resource is a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation.

Modifying Factors:

Modifying Factors are considerations used to convert Mineral Resources to Mineral Reserves. These include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors.

Inferred Mineral Resource:

An Inferred Mineral Resource is that part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration.

Indicated Mineral Resource:

An Indicated Mineral Resource is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit.

Measured Mineral Resource:

A Measured Mineral Resource is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit.

Mineral Reserve:

Mineral Reserves are sub-divided in order of increasing confidence into Probable Mineral Reserves and Proven Mineral Reserves. A Probable Mineral Reserve has a lower level of confidence than a Proven Mineral Reserve.
A Mineral 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 or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified.
The public disclosure of a Mineral Reserve must be demonstrated by a Pre-Feasibility Study or Feasibility Study.

Probable Mineral Reserve:

A Probable Mineral Reserve is the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. The confidence in the Modifying Factors applying to a Probable Mineral Reserve is lower than that applying to a Proven Mineral Reserve.
The Qualified Person(s) may elect to convert Measured Mineral Resources to Probable Mineral Reserves if the confidence in the Modifying Factors is lower than that applied to a Proven Mineral Reserve. Probable Mineral Reserve estimates must be demonstrated to be economic, at the time of reporting, by at least a Pre-Feasibility Study.

Proven Mineral Reserve:

Relationship between Mineral Reserves and Mineral Resources, CIM Definition Standards. Click to Enlarge.

A Proven Mineral Reserve is the economically mineable part of a Measured Mineral Resource. A Proven Mineral Reserve implies a high degree of confidence in the Modifying Factors.
Application of the Proven Mineral Reserve category implies that the Qualified Person has the highest degree of confidence in the estimate with the consequent expectation in the minds of the readers of the report. The term should be restricted to that part of the deposit where production planning is taking place and for which any variation in the estimate would not significantly affect the potential economic viability of the deposit. Proven Mineral Reserve estimates must be demonstrated to be economic, at the time of reporting, by at least a Pre-Feasibility Study.

Preliminary Economic Assessment (PEA):

‘Preliminary economic assessment’ means a study, other than a pre-feasibility or feasibility study, that includes a preliminary mine plan, schedule and a cash flow model to provide an economic analysis of the potential viability of mineral resources.

Pre-Feasibility Study:

A Pre-Feasibility Study is a comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, is established and an effective method of mineral processing is determined. It includes a financial analysis based on reasonable assumptions on the Modifying Factors and the evaluation of any other relevant factors which are sufficient for a Qualified Person, acting reasonably, to determine if all or part of the Mineral Resource may be converted to a Mineral Reserve at the time of reporting. A Pre-Feasibility Study is at a lower confidence level than a Feasibility Study.

Feasibility Study:

A Feasibility Study is a comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of applicable Modifying Factors together with any other relevant operational factors and detailed financial analysis that are necessary to demonstrate, at the time of reporting, that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a Pre-Feasibility Study.

Is It Economic?

Operations at Indonesia coal mine. Source: Dominik Vanyi. Click to enlarge.

After discovery and definition of an estimated tonnage of a mineral deposit, a company will want to proceed with project development. Engineering studies are typically the next phase of development and will require funding, much like any other exploration or development activity. Typically, a company will choose a mining engineering firm to conduct a Preliminary Economic Assessment (PEA), which is the first technical study that will assess the economic viability of a mineral project.

After the PEA, the company will look to continue with exploration work to delineate more of its resource, evaluate any potential technical, economic, financial, social, political and environmental risks on its way to initiating further engineering studies. The Pre-Feasibility and/or Feasibility studies completely answer the question of, is the project going to be profitable? If a project proves to be economically feasible, then the company will need to evaluate and finally locate sources of funding to take their project through permitting and construction. The junior mining company will need to properly market their project to attract financing, which will not only require a certain degree of technical expertise but a sense of the capital markets from which the financing will come from.

Development Planning

The economic, environmental, and social benefits of sustainability. Source: A.T. Kearney Analysis. Click to Enlarge.

Planning occurs at all stages of the mineral exploration/development life-cycle, however planning is a specific focus during the development stage. Planning in the development stage focuses on formal plans for project financing, permitting, construction, operation and finally, closure and reclamation.

Permitting

Permitting requirements are a very important part of planning, as they will affect things like mine design, cost of development and site rehabilitation. Mining permits and most of the other authorizations for mineral exploration and mining activities fall under the jurisdiction of provincial / territorial governments. While the regulatory environment in Canada includes multiple steps, the system is generally reliable and stable. It is important for mining companies to have positive relationships with members of government in order to expedite and ensure efficient permitting for their projects.

Sustainable Development

The definition of sustainable development is development that meets the needs of the present without compromising the ability of the future. Mining, as conducted presently, is not a sustainable activity in that there is only a finite amount of resources on the planet. However, mining can be environmentally sustainable with proper remediation programs, which reset land to prior state to mining. Environmental assessments prior to mining consider physical impacts to the environment and mitigation measures. Additionally, mining companies can create sustainable economic growth for the communities in which they work by investing in things that benefit the wider communities of interest.

Corporate social responsibility is at the heart of sustainable development and is something that miners have evolved to be more aware about. It is defined as a business approach contributing to sustainable development by delivering economic, social and environmental benefits for all stakeholders. Mining companies today need to work for tomorrow’s economy by keeping sustainable practices at the core of their business.

Mine Construction

The mining method must be considered when thinking about construction cost. A mining operation will either be classified as a surface (open pit) mine or an underground mine. Underground mines present unique challenges for project developers compared to an open pit mine operation. Open pit mining is more cost-effective, safe and less complex. Miners do not have to safeguard against loss of air or a cave-in from directly above in an open pit. Operators are generally able to utilize larger equipment in their fleet in an open pit operation.

Mining underground can become extremely complicated based on the vast infrastructure required. The cost of constructing an underground mine is inherently greater than that of an open pit mine. Some important infrastructure to consider is ore and personnel transport, ventilation, electricity and water. These are all extra considerations that have to be taken into account for an underground operation. On top of infrastructure, local geologies and rock mechanic characteristics will dictate the appropriate mining method, therefore impacting the cost of construction and development.

Source: https://www.nrcan.gc.ca/publications/18887.

Construction proceeds after government approval and permit process and it can take several years to complete depending on the scope and location of the project. Mineral exploration and development usually continue during this phase and through the life of the mine until the mineral deposit is mined out.

Reclamation

Above: Goldcorp Marlin mine site reclamation. (Finished operations May 31, 2017). Click to Enlarge.

Today’s regulations in most countries ensure that all exploration and mine sites will be returned as near as possible to their previous conditions after mining is complete. This means that most equipment, buildings and facilities will be removed and any affected land reclaimed and restored. Some necessary monitoring equipment, buildings and facilities may remain. Planting and native species placements are used to restore disturbed ecosystems to what they were before the mine site was built. Reclamation occurs at every stage of the mineral exploration life cycle.

Mineral Development

Ultimately, the mineral exploration and development process for any given project is something that often takes years to undergo. Junior explorers and miners assume the risk that comes with their business of mineral exploration and development.

Junior mining or exploration companies utilize best practices to ensure a positive outcome at the conclusion of the mineral project development life-cycle. For every company that has been able to develop their deposit into a producing mine, there are 100 that have not been as fortunate. However, for the people that do their research and decide to invest in the companies and teams that do get it right, there are usually very significant rewards.

Sources

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