METALLURGICAL REPORT

PMRC 101 Webinar

July 18, 2020

ENRICO C. NERA, ASEAN Eng. APEC Eng.

CP Metallurgy
 Metallurgical Report

Learning outcomes

• Determine when a technical report is needed

• Understand the responsibilities of a CP
• Know the scope of Technical Report No. 3 – Metallurgical Engineering Study
• Know and understand the necessary metallurgical considerations in reserve
estimation
• Identify the risks in the CP reports
• Understand the basis for the metal equivalents
When to do a Technical Report
When disclosing for the 1st time any of the following:
• Exploration result
• Mineral Resources
• Ore Reserves
• Preliminary Economic Assessment
• Feasibility Studies (PFS, DFS, BFS)
If there are material changes to any of the above.
Changes that can significantly affect or alter the value (share value) of a
company
100% increase or 50% drop in resources or reserves
When to do a Technical Report
Must be reported within a specific timeframe

Use the specific Technical Report Forms

• TR 01 – Exploration Results and Mineral Resources
• TR 02 – Ore Reserves Estimation and Feasibility Study
• TR 03 – Metallurgical Engineering Study on a Mineral Deposit

Events requiring the Technical Reports are given in the PMRC 2007 IRR
Sec. 5.1.
CP’s responsibility
Comply with the professional association’s code of ethics.
Perform work in your area of competency and be honest, fair and
objective
Follow industry best practices and standards
Perform due diligence and validation of technical data
Clearly report material risks understandable to investors
Check disclosures for risks of being misinterpreted
PMRC
• Provides technical and moral guidance on report writing.
• Not mineral estimation standard.
• Rather rules to ensure disclosure is based on reliable information
• Reflecting professional opinions
• Based on industry best practices
• Using standard terms
• Is not a vetting process at the regulatory agency
The role of a metallurgist is to ensure
that the mineral resource is viable to
be considered as a ore reserve upon
applying the metallurgical modifying
factors.
Metallurgical considerations
 Exploration Results
MINERAL RESOURCES ORE RESERVES
Inferred
Increasing
Level of Indicated Probable
Geological
Knowledge
and
Measured Proven
Confidence
Consideration of mining, metallurgical, economic,
marketing, legal, environmental, social and
governmental factors
(“the Modifying Factors”)
Reliance on other experts
As Met CP, shall perform work in his/her area of competency, i.e.
• with at least 5 years experience relevant to the subject matter being
reported
• 10 years of experience in a specific process (i.e. flotation, acid leaching,
etc.) regardless of the mineral or metal
• 10 years of experience on a specific mineral or metal, regardless of
mineral processing or extraction process.

Use other experts where necessary, such as

• related to legal, political, environmental, tax matters
• related to valuation, pricing of commodities
ASSESSMENTS OF THE MODIFYING
FACTORS ARE AT THE MINIMUM
LEVEL OF A PRE-FEASIBILITY STUDY.
What are the metallurgical inputs
that will determine the viability
of the resource?
Net revenue = gross value - costs
Gross Value
• Metal quantity (from ore reserve estimation)
• Mineral/metal recovery
• Product grade
• Penalties
• By product minerals/metals
• Commodity price
Costs
• Capital expenditure
• Operating costs
• Depreciation
• Taxes
• Royalties
• Overhead costs
• Environmental costs
• Government licenses and permits
• Social development
PRODUCTION OF FINAL PRODUCT
• Process Description
• Metallurgical parameters and factors
• Plant throughput
• Recovery
• Costs: CAPEX and OPEX
• Product Quality
• Penalty elements
• Plant availability
Sampling and assaying

• Sampling
• Sample Preparation
• Analytical procedures
• Quality Assurance

Are they appropriate and adequate for the style of mineralization

being assessed?
METALLURGICAL TESTWORK
• Mineralogical and characterization studies (e.g. work indices, SG,
and in-situ densities)
• Preferred processing route and their optimal operating conditions.
• Reliability of the test work programs aimed to establish the design
criteria for building the process plant, development of forecast
recovery models for production planning, and expected variations in
ore hardness and abrasiveness over the life of mine.
• Confirmatory and variability testing
 Metallurgical test work, sampling, and scale up-
What can go wrong
• Metallurgical domains within the ore body not understood
• Testing is done on representative composites
• Failure to identify process contaminants
• Inability to handle ore types as per mining schedule
• Process water chemistry differs from lab
Project Infrastructure
• Infrastructure to support operations
• Ore processing facilities
• Tailings storage facility
• Environmental structures
• Power and utilities
• Workshops
• Water treatment
Market Studies
• Market studies that form the basis for revenue assumptions
• Forces that control the metal prices
• Events that can significantly alter economic parameters (i.e. oil
price, etc.)
• Penalty elements and materials
• Minerals that exceed allowable levels – i.e. silica in Cu conc., P in
iron ores
• Deleterious elements that are disallowed due to environmental
restrictions – As and Sb in copper ores, etc.
Environmental and Permitting
• List of significant permits, licenses and agreements required
• Environmental Protection and Enhancement Program
• Environmental permits
• Business permits
• Final Mine Rehabilitation and/or Decommissioning Plan
Economic Analysis
• Capital, Sustaining Capital, Operating Cost
• Methodology employed and parameters used in the estimation based on acceptable
engineering and financial practices
• Commodity Price Assumptions
• Lesser of the 3-year trailing average or the current spot price
• Long term average
• Industry/peer consensus, but avoid using “eventual” price because it connotes an
extremely forward-looking price assumption
• Contract price
Economic Analysis
• Results of PEA, PFS or FS should include after tax economic results
(Annual cash flow, NPV, IRR, Debt Service Coverage Ratio) of the
project.

• Tonnes and grade figures are not precise calculations and should be
referred to as “estimates”
• Estimates – rounding off to 2nd significant figure is suggested

Example: 12,345,678 tonnes at 1.54% Ni should be stated as 12 Mt at 1.5% Ni

The true accuracy of capital estimates from many studies
%
Completed No. of % Level of Time,
Study Type Description Engineering drawings Accuracy months
Based on empirical data from other
Conceptual Study projects 0 ~10 - 50 + 30 3
Based on conceptual design and
Pre-feasibility Study estimated prices 0-30 ~200 - 27 +30 3
Feasibility Study
Based on known flowsheets, equipt
Definitive sizes, layout, and budget prices 30+ ~300 - 20 + 27 6
Based on material take off from engg
Bankable draws and tenders 60 ~500 - 15 + 20 12
Detailed Design 100 ~1000 - 10 + 15 12
It takes twice as much effort (and cost) to reach +/- 10% as it does to reach +/- 15%. While there is some methodology for
determining estimation accuracy in a processing plant, accuracies for mine development capital are just a thumb suck.

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Inadequate Contingencies

Study Type Description Contingency %

Based on empirical data from other
Conceptual Study projects 24
Based on conceptual design and
Pre-feasibility Study estimated prices 17
Feasibility Study
Based on known flowsheets, equipt
Definitive sizes, layout, and budget prices 15
Based on material take off from engg
Bankable draws and tenders 13
Detailed Design 9
The contingency WILL be spent. We just don’t know where until it happens

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Risks
• The capital cost is higher than expected
• 26% on average
• Getting worse because of rapidly escalating costs
• Delays tantamount to costs (contractors, financial fees, interests, insurance, …)
• The operating cost is higher than expected
• The recovered grade is lower than expected
• Sales revenue is lower than expected –commodity price
• It takes longer to build and ramp up than expected
• Initial performance cannot be sustained, though it may take several
years for the failure to become evident.
• Management factors
Common Disclosure Issues
• Overly promotional language
• Such as ….. Abundant Visible Gold!... Overwhelmingly Exceptional
Grade Results! Massive sulfide ore with absolutely no oxides!
• Abuse of metal equivalents resulting in misleading technical
disclosure
• Disclose the grade of each metal used to establish the metal
equivalent grade in a multiple commodity deposit
• Disclose metal prices used, metallurgical recovery, and show metal
equivalent calculation
Example
• Example: A silver mine with some gold cannot be portrayed as a gold
equivalent if silver is the more valuable metal

Metal g/t % Recovery Price, $/oz Revenue, $

Gold 1.5 77% 1,200 44.37
Silver 100.0 90% 17 49.19
Total 93.56
Au Equivalent 3.2 77% 1,200 93.56
Ag Equivalent 190.2 90% 17 93.56
Conclusions
• The role of the metallurgist in PMRC compliance applies to projects
where the mine output is to undergo a process treatment to produce
a marketable product.
• The CP Metallurgist can perform the task of the lead CP especially if
the viability of the mining project relies heavily on the successful
extraction of the valuable mineral or metal.
• Otherwise, as mining projects often involve multi-disciplinary teams,
the CP Metallurgist can perform secondary roles as a contributor to
the assessment of the modifying factors which determine the mineral
reserve.
THANK YOU!