Mineral exploration information, mineral resources, and the modifying factors

Mineral exploration is a process of examining prospects, selecting the most promising, and rejecting the less promising.

These examinations are largely geoscientific (geology, geochemistry, geophysics, and sampling). Most prospects do not pan out. The potential quantity of mineralisation is too small, or the grade or quality is too low.

But there may be other reasons for rejection, including the inability to obtain needed mineral rights or one or more deleterious elements (such as a radioactive element or asbestiform minerals) present that may make the prospect uneconomic. Furthermore, exploration financing fluctuates and when funding is reduced, less promising or less advanced projects are dropped. Environmental, social, governance (ESG) issues also often arise early in a project’s life. The exploration geologist with the first boots on the ground is often the first to learn about such issues, which may or may not be significant. All of these reasons are varieties of the modifying factors used in the major mineral resource and mineral reserve classification systems.

Some parts of these mineral resource and mineral reserve classification systems suggest that modifying factors are only applicable after an estimated mineral resource has been delineated. Indeed, a reasonably well-delineated deposit size and grade/quality distribution are required before effective mine and processing plant design can occur. But the ‘reasonable prospects for economic extraction’ phrase in the definition of ‘mineral resources’ in the JORC Code (2012), SME Guide (2017), SEC Regulation S-K 1300, CRIRSCO (2019), and similar classification systems, clearly indicates that application of a modifying factor – such as those listed above – are and should be applied to a prospect’s evaluation as soon the materiality of the factor becomes apparent. Other statements in the mineral resource and mineral reserve classification systems reinforce this conclusion (for examples, see later section in this article titled ‘Other relevant statements in the classification systems’).

Material influences on the economic value of the exploration results

Mineral exploration programs starting in their earliest stages continually evaluate the prospects for economic success for each property under consideration. The following unofficial and oft quoted ‘laws of exploration’ are examples of the application of modifying factors during the exploration stage.

• J P McKee’s third law of exploration: 'To be commercial, a low-grade deposit has to be big enough that you gotta take your lunch when walking around it.'
• McKinstry’s Law of Prospects: 'The very fact that a prospect is inactive is a sign that something is wrong with it.'
• Raymond’s Law of Production: 'The record of past production is a measure not of what is left, but of what is not left.'

Early in my career, I was involved in a grassroots exploration program to identify potential molybdenum prospects in Colorado. A starting point in the program was identifying all Colorado mountains having ‘red’ or a similar term in their names, because the hydrothermal alteration that was part of the formation of molybdenum deposits was frequently red. The peak overlying the Urad and Henderson molybdenum deposits is named Red Mountain. However, another common reason for red mountain names in Colorado is due to their being underlain by Pennsylvanian terrestrial red bed sediments. The Marron Bells are a well-known example. So having identified all mountains having red or something similar in their name, those known to be underlain by the Pennsylvanian terrestrial sediments were eliminated from further attention.

Texas Gulf Sulfur’s exploration program for metal sulfide deposits in the Canadian Shield provides another example of an early-stage exploration program. More than 15,000-line miles of airborne magnetometer surveys were flown that detected several thousand anomalies, several hundred of which warranted further exploration including acquisition of the appropriate mineral rights. Sixty-five of these anomalies were core drilled and most contained only barren pyrite or graphite. A few had sulfide deposits with grades too low to be commercially mineable. The 66th hole was drilled near Timmons, Ontario on the Kidd 55 prospect. This hole terminated at 655 feet total depth with a total of 599 feet having visually estimated 1.15 per cent copper and 8.64 per cent zinc. Subsequent assays revealed a metal content of approximately 1.18 per cent copper, 8.26 per cent zinc and 3.94 troy ounces of silver per ton over 602 feet of core (SEC v Texas Gulf Sulfur). The point being that examination of thousands of anomalies and hundreds of on the ground prospects were examined and most of them were rejected as having no reasonable prospects for economic exploitation. While most of these rejections were geologically based, the unavailability of mineral rights undoubtedly caused other rejections.

Development of the classification systems

The development of the classification systems or codes describing exploration information, mineral resources, and ore/mineral reserves, the JORC Code and the SME Guide, began in 1972 and continue to the present. These codes led to the development of the CRIRSCO Template (2019) and the new rules of SEC Regulation S-K 1300. The initial versions of the JORC Code focused on geological sampling including drill holes and the degree to which this geologic information demonstrated continuity. Later versions included mining and processing information and the concept of modifying factors that must be considered in converting mineral resources into ore reserves.

The initial JORC Codes (1972 and 1981) were fairly short, and primarily consisted of defining terms like ‘mineral resources’ and ‘ore reserves’ and their subdivisions: ‘measured,’ ‘indicated,’ ‘inferred,’ ‘proved.’ The 1972 and 1981 JORC Codes stated that, ‘The Committee considers that the pre-ore reserve stage extends from the earliest exploratory investigations to the stage at which an actual ore reserve can be estimated with reasonable assurance by a competent person as defined.’ The 1989 JORC Code introduced two new features, the earliest version of ‘Figure 1. – Reporting Terminology’ (exploration information was not included) and ‘Table 1 Resource assessment criteria,’ all of which were geologic factors. The 1990 JORC Code differed from previous Codes by, among other things:

• identifying a separate category of Pre-Resource mineralisation
• introducing the concept of Identified Mineral Resources as a precursor to Ore Reserves
• providing definitions for the categories of Identified Mineral Resources
• listing and explaining Resource assessment criteria (Table 1 from the 1989 Code).

The [1990 JORC] Code states that ‘an Identified Mineral Resource is quantified on the basis of geological data and a geological cut-off grade only’. The latter term refers to a lower limiting grade applied before constraints resulting from mine design have been taken into account. The Code further states however, that ‘in reporting an Identified Mineral Resource, there is an implication that there are reasonable prospects for eventual economic exploitation. This implies a judgement (albeit preliminary) by the Competent Person of the order of lower limiting grade likely to be required to enable economic exploitation’ (emphasis added).

The 1992 JORC Code’s paragraph 16 contains the statement that, ‘In defining a Mineral Resource, the Competent Person will only take into consideration geoscientific data. In reporting a Mineral Resources, there is a clear implication that there are reasonable prospects for eventual economic exploitation’ (emphasis added).

In 1991, the first edition of SME’s A guide for reporting exploration information, resources, and reserves (the SME Guide), expanded the JORC Code’s 1989 Figure 1 to include exploration information. The 1991 SME Guide also expanded the JORC’s Codes 1989 Table 1 to include, among other things:

• property ownership
• numerical geological modelling
• mining method and costs
• processing method and costs
• mineral recovery
• environmental compliance
• economic feasibility
• any other material information.

Figure 1 below presents Figure 1 from the 1991 SME Guide and Figure 1 from the 2019 CRIRSCO Template. The changes are the dotted box around the Indicated Resources to Proved Reserves categories, the diagonal dashed line between the Measured Resources and Probable Reserves categories, and the labelling and expansion of the Modifying Factors to include ‘processing,’ ‘economic,’ ‘marketing,’ and ‘legal’. The vertical axis, ‘increasing level of geological knowledge and confidence,’ reflects the emphasis on geological information in the various editions of the JORC Code and SME Guide.