Assessing risks and opportunities in mineral resource estimates

Many times, I was told by the geologists that the drilling is tight enough to classify mineral resources in Indicated and Measured Category based on 'uncertainty'. Then I become really curious. So, 'how did you measure' - I would like to know with this kind of open-ended question. My expectations vary. Sometimes, the discussion leads to an extremely useful actionable outcome and other times it turns out to be really a 'guestimate'. I feel like really helping the team: helping them in understanding what 'risk' and 'uncertainty' really means, how to measure risk statistically, etc.

It is almost impossible to correctly assess risks and opportunities with certainty without proper statistical modeling, which does not take too much work. There are many tools available to quantify risk and opportunity with statistical terms for mineral resource estimates. It just takes a slightly different approach to realize the uncertainty and then measure the risks.

I recall a phone call: 'It takes weeks to do conditional simulation' the voice of very experienced geologist on the other side of the line said. I said 'it can, but it took 30 mins for your iron ore deposit.' The point is ' one should always try, experiment and have the exposure and experience before making such a claim.

As market warms up, the mining operators and exploration companies need to change their outlook towards the funds that are available for them to spend on exploration to get the best outcome possible. The ultimate outcome is the 'mineral resource' that is ultimately mined and processed to realize the actual value in the market. Therefore, it is crucial for them to have accurate knowledge of the uncertainty associated with the estimates. The financial institutions should always assess risk and opportunity in order to minimize the effect.

Geostatistical tools such as variants of conditional simulations are very powerful in providing all necessary information in assessing the extents of the risks and opportunities. It is important to acknowledge the uncertainty is real and can not be avoided. Understanding the causes leads to quantification of uncertainty. Some known causes are geological, poor modeling techniques and an inadequate number of sample.

Many managers believe that uncertainty is a problem and should be avoided. In reality, investors (banks or corporates) can take advantage of uncertainty. With the knowledge of the uncertainties, the strategic investments can be protected from its adverse effects while remaining exposed to its upside potential. Uncertainty can create opportunities and value. 

Please contact me (arsamal@geoglobal.co), if you like to test how the 'uncertainty modeling' can lead you to make better decisions and protect your investment from its adverse effects.

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