Evaluation of an Ore Body to Determine Whether the Deposit Can Be Profitably Mined

For the investor who wishes to invest in a new mining venture there are a number of potential pitfalls that the investor may be exposed to. The Australia's Joint Ore Reserves Committee ("JORC") published a watershed paper that defines internationally accepted reporting standards for both mineral resources and mineral reserves as well as defining universally accepted definitions for key terms.

Once the investor knows that the mineral resources and mineral reserves that are reported by the mining company comply with these standards, the investor will have a certain level of confidence that the information supplied is accurate. This is the first hurdle towards evaluating the feasibility of the ore body that has to be overcome.

In the absence of at least some confidence that the information reported about the ore body is accurate, no investor in his right mind will proceed with any further evaluation. Once the investor is satisfied that the reporting complies with some defines internationally accepted reporting standard such as the "JORC" standard an evaluation needs to be done to determine whether the ore body can be worked profitably. To do this a number of factors needs to be assessed.

Ore Body Evaluation Factors

Availability of Finance

The first and probably one of the most important factors is to establish whether the company has the available capital to finance the exploration and exploitation of the ore body. The investor should have a clear picture of the cost of exploration to increase the confidence levels in respect of the quality and quantity of the mineral content of the ore body on the one side and the cost to recover the minerals of economic interest in the ore body.

This evaluation involves the assessment of the prioritization, allocation and management of funds by the company and whether it is consistent with good mining practice.

Mineral Content

The investor should study all available geological reports in an attempt to confirm that the quality and quantity of the mineral content of the ore body is sufficient to justify the investment. Only concentrating on the grade or the tonnage of the minerals of economic interest may not be sufficient for revaluation purposes. It is the combination of these two factors that often makes an ore body economically feasible.

Mineral Content Pricing

In order to conduct a suitable and sufficient economic evaluation the investor needs to establish the likely price of the mineral product as well as future trends envisaged in the price of the minerals of economic interest in the ore body.

This is an extremely important aspect of the evaluation as mines are normally price takers and not price makers.

Mode of Occurrence

Establishing the mode of occurrence of the minerals in the ore body and its distribution in the ore body may significantly affects exploration and working costs.

The type of deposit can vary significantly. Some ore bodies are located on surface or just below the surface, lending itself to open pit mining with minimal cost to strip over burden. Other ore bodies are located deep underground that may require expensive shafts or even sub shafts or tertiary shafts before the ore can be extracted.

The actual configuration of the ore body will also play a significant role in the evaluation process. Some ore bodies occur as a massive homogeneous deposit that makes mining easier while other may occur in numerous veins or lenses that could be flat or vertical and may be geographically distributed in the lease area. These have an impact on the cost to create a suitable access to the ore body and the building of the extraction plant.

Extraction Requirements

The metallurgical processes of beneficiation and treatment required to extract the minerals of economic interest can vary widely. Some ore types requires only simple and cheap extraction methodologies while others requires complex and expensive metallurgical processes.

The investor should also obtain information about the mineralization of the ore body to establish the extractability of the mineral content reported as this is one of the primary factors that influence the extraction requirements.

In some cases the mineralization makes it difficult to practically extract the minerals of economic interest or it may be extremely challenging from a metallurgical perspective to have a reasonable recovery utilizing standard extraction methodologies. If specialized extraction methodologies needs to be utilized it could require investments in excess of the economic benefit of the extracted mineral.

Geographical Location

The geographical location of the ore body in relation to infrastructure is a significant factor when determining the economic feasibility of an ore body. The availability of air, road and rail transport, seaport facilities, electric power, supplies, repair and distance to other facilities such as housing and commercial developments will not only impact on the construction cost of the mine but may influence the running cost of the mine until closure.

In some regions an adequate supply of water with a suitable quality could be problematic. The availability of the water whether form surface or underground sources should be considered as this may impact on the cost of extraction.

Some regions have a relatively cheap supply of electricity of sufficient capacity while in other areas the mine needs to generate its own electricity. This can have a significant impact on the cost of mining.

Labor

The availability and cost of skilled and unskilled labor and the effect of any restrictive labor legislation on mining operations will have a significant impact on the cost of extraction and consequently the profitability of the venture.

The stability of the labor market and the propensity for labor unrest should be established and evaluated. The cultural values and beliefs of the available labor should be considered as a potential limiting factor that could influence the productivity of the mine.

Climatic Conditions

The climatic conditions, particularly in respect of extreme weather patterns the occurrence of excessive rain during the wet season may result in the loss of many production days in an open pit environment.

In climatic conditions where rain occurs regularly the use of certain types of extraction methods such as heap leaching is limited as the rain may dilute the leach too much to make it a feasible alternative. In other areas where there are high temperatures and low humidity the application of the chemicals on a heap leach pad should be limited to drip lines to minimize the evaporation of chemicals and water. This mode of application of the chemical is normally less effective than applying the chemicals as course droplet.

The effect of the climate on the health and happiness of workers should also be evaluated. In an arid environment some employees may not be very comfortable and thus be less productive.

Mineral Specific Hazards

The occupational health hazards peculiar to certain minerals should be clearly understood by any investor. The mining of gold may seem innocent enough but in deposits where it occurs with certain levels of arsenic the arsenic may have a negative impact on the health of workers or the environment unless additional controls are instituted. These additional controls may increase the cost of mining and extraction to beyond the economic feasibility of the deposit.

Care should be taken to ensure that any special industrial legislation that may be in force mitigate mineral specific hazards is known as it may affect the cost of operations.

Statutory Costs

In most countries the government imposes certain royalty and taxation charges particular to the mining of minerals in the country. The requirement to establish a rehabilitation trust fund or the paying of fees to the government in respect of a rehabilitation fund should be determined as this may alter the cash flow of a mining company completely.

In addition mining some minerals may also require that a government lease be granted. This lease may require regular minimum payments or payments relating to with the value of the value of the mineral recovered.

Other statutory costs may include the cost to conduct environmental impact assessments and the potential consequential cost of relocating rare species that may be found on the property.

Other costs such as royalties to other parties such as the holder of the surface rights should also be included in the assessment exercise.

Adjacent Properties

Adjacent properties could be the origin of significant costs that needs to be added to the mining and extracting processes as the owners of the adjacent properties may not be overjoyed to have a mine or an extraction plant on their doorstep. This could than result in many founded or unfounded complaints which in turn could result in a number of consequential costs or the reduction in working hours.

Information about neighboring producing closed down mines can be a valuable source of information about the ore body and the best way to mine and process the ore.

Information about ceased operations is usually available from the local or national government offices dealing with mining licenses, where all records of old workings are kept. The information about operating companies is normally available form the annual reports of companies.

Conclusion

The evaluation to evaluate the financial viability, technical and financial risks and suitability of the deposit as discussed above only form a small part of the feasibility study of the mining project.

Incorporating the evaluation of the ore body results in the feasibility study will allow an investor to make a decision as whether to develop or walk away from a proposed deposit.

The feasibility study should include a comprehensive mine planning exercise to evaluate the practical economically recoverable portion of the deposit. This will normally include the metallurgy and ore recoverability, marketability and playability of the ore concentrates as well as engineering requirements and limitations. The crushing, milling, extraction, recovery and infrastructure costs as well as the finance and equity requirements and a prospecting to mine closure analysis of the possible mine, from the initial excavation all the way through to reclamation completes the feasibility study.