1. NI 43-101 Engineering Reports from 2015
How Did they Measure Up?
Timothy S. Oliver, PE, P.Eng.
Mine Projects Consultant
March 8, 2016

2. Contents Background Introduction Findings Summary Assumptions/Limits
Methodology
Results
Odds & Ends
Conclusion
2016

3. Background
March 2014 Two-part Series in Brent Cook’s Exploration Insights (EI)
“Top 10 Signs of a Bogus NI Study”
Seminar Question “what percentage are bogus?”
Guessed a number and lost the room. Nobody believed it.
This presentation is a summary of the resulting followup report published in September 13, 2015 EI.
2016

4. Introduction
Examined 34 advanced NI Studies – SEDAR – May 1 to August 31, 2015
Preliminary Economic Assessment (PEA)
Pre-feasibility Study (PFS)
Feasibility Study (FS)
Quantified number of each type study during time period
Reviewed the studies for adequacy and quality, and
Collected data and prepare a snapshot picture of the Canadian Junior Mine development world.
Hopefully, Equipped EI subscribers with study analysis tools.
2016

5. Findings – part 1
13 of 34 studies, are not suitable as a basis for an investment decision. Another 6 are borderline.
Investors, would benefit from more engineering rigor:
project execution planning,
engineering documentation,
Scheduling,
more complete basis descriptions for operating and capital costs.
2016

6. Findings – part 2
Investors need to be alert to contingency calculations. Too low contingency means the financial model results are too rosy.
Counter to what I had previously thought, overstating metallurgical recovery does not appear to be a major cause of concern.
23 of 34, or 67%, passed the “qualified” part of Qualified Person. That number should be 100%.
Beware if one person wears too many hats.
2016

7. Limitations - Disclaimer
Assumes resource/geology is sound.
Only considers contents of study on SEDAR.
Snapshot May-August 2015
Binary (pass/fail) method criticized
2016

8. Methodology Top 10 Signs of a Bogus NI 43-101 Study Weighting Factor
QP Conflict of Interest 10
QP Qualifications
Commodity Price Deck 5
Metallurgical Recovery 6
Signs of Desperation
Lack of Engineering Documentation
Unrealistically Low Contingency 7
Cost Basis Discussion
Missing or Unrealistic Project Schedule
New or Exotic Technology
2016

9. Methodology - continued
39 Studies selected, 34 reviewed, 5 rejected
Each “Top 10” Item pass/fail
Standards vary according to study level
Example: PEA doesn’t require detailed project schedule, but cash flow model must show construction period.
Max score = 78
<50 fail
50-60 beware
2016

10. Results
2016

11. Results - continued Scoring Summary: Study Stage Number of Studies
Average Score
PEA 10 49
PFS 5 55 FS 19 53
2016

12. Results - continued Question Points QP Conflict of Interest 30
Weak Areas
The points shown are the total number of studies, out of 34, that pass the test question.
Question
Points
QP Conflict of Interest 30
QP Qualifications 23
Commodity Price Deck
Metallurgical Recovery 34
Signs of Desperation 29
Lack of Engineering Documentation 18
Unrealistically Low Contingency
Cost Basis Discussion
Missing or Unrealistic Project Schedule 14
New or Exotic Technology 32
2016

13. Odds & Ends CEOS Nine CEOs were Engineers Ten CEOS were Geologists
13 were Financial types
2016

14. Odds & Ends - continued
Geography – USA had most with eight. Ghana and Canada tied for second with three each, Mexico and Ghana had two and the hot bed of mining, Peru, only had one.
Continent Count
North America 16
Africa
South America 4
Europe 3
Oceana 1
Greenland 1
Australia 1
2016

15. Odds & Ends - continued Commodities Gold 21 Primarily Silver 2
Primarily Copper 2
Frac Sands 2
Rare Earths 2
Lead/Zinc 1
Phosphate 1
Niobium 1
Scandium 1
Alumina 1
2016

16. Conclusion (Soapbox)
Nearly half of the development stage NI studies lack engineering rigor.
A Qualified Person’s signature does not guarantee reliable results.
Investors can avoid losses if they undertake an independent engineering review of a project’s NI study before handing over their money.
If and when investors demand more rigor in these studies, the owners and engineers will need to step up their game and everyone will benefit.
2016

17. Questions??
2016

18. Thank you.
2016