1.CIM Los Andes September 21, 2009Mineral Reserve Estimation in the Real World: A Review of Best Practices and PitfallsMarcelo Godoy, Ph.D. Ore Evaluation Services Golder Associates

2. Overview Introduction CIM definition standards Technical disciplines Modifying factors check list Commodity price and cut-off grade Mineral Reserve Statement Audit trail Risk Assessment References September 22, 2009 3 3. Where in the world was the gold? 4. Viewpoint September 22, 2009 5 5. CIM Definition StandardsThe CIM Definition Standards provide standards for the classification of Mineral Resource and Mineral Reserve estimates into various categories gThe Mineral Resource and Mineral Reserve definitions were incorporated, incorporated by reference in National Instrument 43-101 reference, 43 101 Standards of Disclosure for Mineral ProjectsFor the CIM Definition Standards a Technical Report is defined as a report that contains the relevant supporting documentation, estimation procedures and description of the Exploration Information, or the Mineral Resource and Mineral Reserve estimateSeptember 22, 20096 6. Qualified PersonA Qualified Person means an individual who is an engineer or geoscientist with at least five years of experience in mineral exploration or operation or mineral p j pproject assessment, or any combination of these;, y ; has experience relevant to the subject matter of the mineral project and the Technical Report; and is a member in good standing of a professional association. September 22, 20097 7. Mineral ResourceA Mineral Resource is a concentration or occurrence of natural, solid, inorganic, or fossilized organic material in or on the Earths crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics, and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge.Mineral Resources are sub divided in order of increasing geological sub-divided, confidence, into Inferred, Indicated and Measured categories. September 22, 2009 8 8. Mineral Resource A Measured Mineral Resource is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on d t il d and reliable exploration, sampling and t ti i fdetailed d li bll tili d testing information gathered through appropriate ti th d th h i t techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity.An Indicated Mineral Resource is that part of a Mineral Resource for which quantity grade or quality Indicated Resource quantity,quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.An Inferred Mineral Resource is that part of a Mineral Resource for which quantity and grade or quality can b estimated on th b i of geological evidence and li it d sampling and reasonably assumed, b t be ti t d the basis f l i l idd limitedli d bld but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. September 22, 2009 9 9. Mineral ReserveA Mineral Reserve is the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A Mineral Reserve includes diluting materials and allowances for losses that may occur when the material is mined. September 22, 200910 10. Mineral ReserveA Probable Mineral Reserve is the economical part of an Indicated, and in some circumstances a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study yyyy y must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting that economic extraction can be justified.A Proven Mineral Reserve is the economical part of a Measured Mineral Resource demonstrated by at least a Preliminary Feasibilityyy y Study. This Study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting that economic extraction can be justified.September 22, 200911 11. Resource and Reserve Classification Increasing Confidence in Geologic DataMineral ResourcesMineral Reservessibility Studycal MeasuredProvenminary Feas IndicatedProbable PrelimInferred Application of economic, financial, regulatory, legal, social, environmental impacts to mining, processing, and commercial p parameters September 22, 2009 12 12. Mining Project Life CycleEXPLORATION Discovery of mineralisation PELIMINARY ASSESSMENT Development drilling PRE-FEASIBILITY STUDY Further drilling, testing, design FEASIBILITY STUDY Construction Production Closure September 22, 2009 13 13. Preliminary Assessment (PA)A PA means a study that includes an economic analysis of the potential viability of mineral resources taken at an early stage of the project prior to the completion of a preliminary feasibility studyBack of the envelope calculations Desktop studies p Formal studies based on untested assumptions The quality of the available data limits the validity of the results Such studies provide a guide to further work September 22, 2009 14 14. Preliminary Assessment Identifies key issues:MarketStrategic opportunitiesTonnage / Grade / Contaminants gLand tenure issuesInfrastructure and logistics gEnvironmental baselineUnanswered questionsSeptember 22, 200915 15. Preliminary Feasibility Study (PFS)A PFS is a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method, in the case of underground mining, or the p configuration, in the case of an open p ,gg,pitg, p pit, has been established, where an effective method of mineral processing has been determined, and includes a financial analysis based on reasonable assumptions of technical, engineering, legal, operating, and economic factors and evaluation of other relevant factors which are sufficient for a QP, acting reasonably, to determine if all or part of the Mineral Resource may be classified as a Mineral ReserveThe first serious test of the project viability Define the likely mineable material and the impact of various styles and scales of mining and processing Provides targets and justifies further drilling, metallurgy test work, etc. The PFS often raises further questions September 22, 2009 16 16. Feasibility Study (FS)A FS means a comprehensive study of a mineral deposit in which all geological, engineering, legal, operating, economic, social, environmental and other relevant factors are considered in sufficient detail th t d t il that it could reasonably serve as th b i f a fi l d i i b ald blthe basis for final decision by financial institution to finance the development of the deposit for mineral production.Provide a detailed analysis of all the factors affecting a project's viability Enable determination of a go or no go decision Have become an aid in obtaining financial backing September 22, 2009 17 17. Reserve EstimationThe requirement for economic viability implies determination of annual cash flows and inclusion of all relevant economic parameters. FinancialOrebody ModelModifying Factors Forecasts Total Movement and Ore Tonnes 130Mt 13Mt Cashflow & Recovered Au120Mt 12Mt$1000M14Moz110Mt 11Mt13Moz $900M Cumulative Rec. Au - BASE CASE 12Moz 100Mt 10MtNPV 10% - BASE CASE $800M 11Moz 90Mt9Mt Cumulative CashFlow - BASE CASE 10MozTotal Movement $700MOr Tonnes 80Mt8Mt flow (M$) 9Moz $600M Rec. Ounces 70Mt7Mt 8Moz $500M 7Moz re 60Mt6Mt Cashf 6Moz 50Mt5Mt $400M 5Moz 40Mt4Mt $300M 4Moz 30Mt3Mt 3Moz $200M 20Mt Total Movement - Base CaseOre Tonnes - Base Case 2Mt 2Moz $100M10Mt 1Mt 1Moz$M 0Moz0Mt0Mt2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20112012 2013 2014 2015 2016 2017 Year Year September 22, 2009 18 18. Technical DisciplinesEstimation of Mineral Reserves is a team effort involving a number of technical disciplines, and should be based on input and information from a multidisciplinary team under the direction of Q ( ) p y QP(s). September 22, 200919 19. Mineral Reserve ClassificationThe category assigned to a Mineral Reserve estimate depends on:the level of confidence in the geological information availablethe quality and quantity of data available on the depositthe level of detail of the technical and economic informationthe interpretation of the data and informationThe classification of the Mineral Reserve allows the QP to identify technical risk September 22, 200920 20. Modifying Factor Check ListMiningData to determine appropriate mine parameters Mining method Production rate scenarios ProcessingCut-off grade Dilution GeotechnicalRecovery with respect to the Resource model Waste rock handling Fill management (underground mining) HydrologicalGrade control method OPEX and CAPEX Environmental E i t l Sustaining capital costBaseline studies Location Infrastructure Tailings management Waste rock management Marketing Factors Acid rock drainage issues Closure and reclamation plan Permitting schedule Legal requirements Product specification and demand Revenue Off-site treatment terms and costs Transportation costs Tt ti tCosts Sustainable development strategy Impact assessment and mitigation Social Issues Negotiated cost/benefit agreement Cultural and social influencesSeptember 22, 2009 21 21. Selection of an appropriate commodity price Commodity prices are used in the estimation of Mineral Resources andMineral Reserves and in the economic analysis of a property. In times ofrapidly changing commodity pp y g g y prices, or when p,prices are at the extreme endsof a commodity price cycle, the QP has a difficult job in selecting anappropriate commodity price.The selection of appropriate technical variables, including commodity price, is the responsibility of the QP. The QP must describe the reasons for selecting these variables, including price, in the technical report.The definition of a Mineral Resource contains the wording reasonable prospects for economic extraction, therefore, a QP must select economic parameters, incl ding commodity price, parameters including commodit price that will res lt in an estimate ofill result Mineral Resources and Mineral Reserves that have reasonable prospects for economic extraction.September 22, 200927 22. Commodity PriceCommodity price is usually the most sensitive and important factor in the development of a mining project.Resource companies are price-takers with little control over international prices. Commodity price forecasting has a poor success rate.Methods for the selection of commodity price: Current commodity price Three-year moving average Long term historical averages (10 to 20 years) Margin over Cash Cost of Production Consensus Prices Contract Pricing September 22, 200928 23. Cut-off GradeCut-off grade is a unit of measure that represents a fixed reference point for the differentiation of two or more types of material. Owing to the complexity of Mineral Reserve estimates, numerous cut-off grades mayp y ,g y be required to estimate a Mineral ReserveThe cut-off grade(s) should be clearly stated, unambiguous and easily understood. C d t d Complex ores may require complicated procedures tl i li t dd to determine cut-off grades and to define the Mineral Reserve.Consideration should be given to the pgproblems associated with selective mining where the cut-off grade is set high relative to the average grade of the Mineral Resource. September 22, 2009 29 24. Mineral Reserve StatementMineral Reserve statements should be clear and sufficiently detailed for a knowledgeable person to understand the significance of, for example, cut-off grade and its relationship to the Mineral Resource. gpIn the case of open pit Mineral Reserve estimates, the strip ratio should be clearly stated.There should be an obvious linkage of the Mineral Reserve estimate to the Mineral Resource estimate provided in a disclosure document. Best p practice includes documentation of those linkages ( g dilution and g (e.g. mining recovery) that were used. September 22, 2009 30 25. Audit TrailThe Reserve estimation process needs to be documented in such a way that the results can be exactly reproduced. Information should be easily retrievable readily available and catalogued in aretrievable, manner that allows easy assessment of the history of the evaluations carried out and records the location of all relevant information/reports/etc. The test of economic viability should be well documented as part of the Mineral Reserve estimation process. The requirement for economic viability implies determination of annual cash flows and inclusion of all the parameters that have an economic impact. The classification methodology should be well documented and easily understood. Best practice includes providing a narrative description of the qualitative reasons behind the classification selection. The procedures used to establish the cut-off strategies should be well documented, easily available for review, and clearly stated in disclosure statements.September 22, 200934 26. A Definition of RiskRisk has two aspects: Uncertainty - the state of not knowing Consequence - measure of the effect of a variable on a projectRisk = Uncertainty x Consequenceeg: taxes have high consequence but because they are well known littleuncertainty. Therefore risk is low. 27. Project Risk AssessmentWhile the classification of the Mineral Reserve allows the QP to identify technical risk in broad terms, best practice includes the establishment of a methodology to identify and rank risks associated with each input ofgy yp the Mineral Reserve estimate. This will provide an understanding of the technical risk associated with the Mineral Reserve estimate.What can we do to reduce risk?We may decrease uncertainty using knowledge, drilling, test workyy gg ,g, and studies.We may be able to impact consequence with more planning, more design, more money.September 22, 200936 28. Risk ProfileResidual Risk 29. Technical RisksResource - tonnage, grade, location, mineralogy Completion - cost overruns under achievement delays overruns, under-achievement, Operational - operating costs, production rates, equip/manpower Management - suitable for operation Environmental - cost, publicity, extra constraints Catastrophe/Force Majeure p j 30. Geological RiskGeological risk is known to be a major contributor to not meeting project expectations.Geological risk is the effect of geological uncertainty to project performance. It arises because geological information is obtained from a limited number of samples. 31. Assessing Geological Risk Response Parameter Probable models of the depositResponse 1Transfer Function Response 2 MininggResponse mProcess Parameters of interestResponse DistributionDavid,1988; Journel,1992; Armstrong and Dowd,1994; Rossi and Van Brunt,1997; Dimitrakopoulos, 1998,2000September 22, 2009 41 32. Assessing Geological Risk 9,000,000CS realisations First 2 years of production7,000,0007 000 000 5,000,000 Cash Flow A$Final year likely to be negative cash flow w3,000,000 1,000,000 -1,000,000 -3,000,000 -5,000,000 0 2 4 68101214 Production Period (1/4 Year)September 22, 200942 33. References CIM Definition Standards - On Mineral Resources and Mineral Reservesadopted by CIM Council on December 11, 2005 CIM Estimation of Mineral Resources and Mineral Reserves Best PracticeGuidelinesadopted by CIM Council on November 23, 2003 NI 43-101 - Standards of Disclosure for Mineral Projects - (December 30, 2005) Questions resulting from CSA-CIM Committee Meetings (April 14, 2008) Available on the CIM website: http://www.cim.org/committees/guidelinesStandards_main.cfmp ggFor information about Golder Associates go to www.golder.com September 22, 200943 34. www.golder.comMarcelo Godoy, Ph.D.Principal Mining EngineerOre Evaluation Services Golder Associates S.A.Av.11 de Septiembre 2353 - Piso 2, ProvidenciaSantiago, ChileT: +56 2 594 2080 | F: +56 2 594 2001 | C: +56 9 8233 1209mgodoy@golder.cl September 22, 200944 35. ORE E VA LUATION SERVICES South AmericaAround the world Under the earthAbove & beyondGolder Associates provides integrated services from project inception to mine closure for mining clients around the world.In South America, Golder Associates provides experience across the full range of geological, mining, geotechnical, civilengineering, hydrogeological and environmental services.DATA MANAGEMENTTECHNICAL AUDITING & COMPLIANCEMINE WATER MANAGEMENT Database management Resources and reserves audits Open Pit and underground mine Digital data capture systems Competent Person reports dewatering Integration of legacy data National Instrument 43-101 (Canada) Slope depressurization assessment Quality control and assurance JORC Code (Australia) Surface and groundwater modelling Data analysis and validation SAMREC (South Africa) Water balance studies Software development PERC (Europe) Hydrogeology and hydrology studies SEC Requirements (USA) Field investigation and monitoring GEOLOGICAL MODELLING programs Geological modelling GEOTECHNICAL ENGINEERING AND ROCK Site characterisation Sampling studies MECHANICS Flood studies Grade control studies Geotechnical and geomechanicalinvestigation Surface and groundwater management 3D geotechnical modelling Rock characterisation Hydraulic design GEOSTATISTICAL ANALYSIS Water supply studies Pit slope stability analysis Resource estimation Geochemistry studies Numerical modelling Resource classification studies Acid rock drainage - ARD Stability analysis and design of Drill spacing studiesunderground minesENVIRONMENTAL SERVICES Reconciliation studies Pit slope and ground support design Baseline studies Conditional simulation Geotechnical monitoring Environmental impact studies Risk assessment Geometallurgical modelling MINE WASTE MANAGEMENT Permitting master plans Geotechnical investigation and site Closure planning MINING ENGINEERING selection Site evaluation and risk assessment Strategic mine planning Geotechnical and hydrogeological Monitoring and modelling Mineral reserve estimation characterisation Sustainability studies Scoping, pre-feasibility and feasibility Stability analysis of tailings dams studies Tailings management plans and dam design Economic evaluation and risk analysis Design of slurry, thickened paste and Capex and Opex estimationfiltered tailings deposits Mine optimisation Construction management Design of underground and open pit mines Quality control and assurance Mine equipments design Closure planning Cut-off grade and stockpile optimization Mining method selection Optimisation of unitary operations Operational diagnostics Wast dump design Design of materials handling systems Underground ventilation design 36. COMPONENTS OF A MINERAL RESERVE REPORT Every deposit is different and thus deserves an experienced and open-minded approach to estimating mineral resources and reserves. Golder uses a multi-disciplinary approach in preparing Competent Person or Qualified Person reports and technical audits. Each report includes a detailed review of vital aspects of mining including:Data ValidationRock Mechanics Valid data is the basis for all soundOpen pit and underground mine resource estimation, for which Golderdesigns must be prepared using robust can provide assistance in evaluating the parameters that reflect the expected accuracy, precision and representativity rock mass conditions and behaviour. The of the quantitative data inputs as well as mine design must consider methods to the appropriateness of legacy data.ameliorate adverse conditions, improvestability and increase productivity. Geological Modelling Geological interpretations need to Metallurgy be transformed into a robust three The requirement for a mineral reserve dimensional geological model thatis that all the geological, mining and characterises all the needs of miningmetallurgical technical aspects have been and processing, including grade, density,defined by appropriate studies. Golder material types, geotechnical features, uses in-house expertise and contracts and geometallurgical aspects.specialist technical experts to ensure thatthe metallurgical testing, scale-up issues, Grade Estimation mill recoveries and geometallurgical Grade estimation is carried out usingmodels are adequately defined. advanced geostatistical techniques with consideration of the deposit style and Environmental Aspects mining method. Key environmental issues need to beaddressed in any mining operation orOTHER MODIFYING FACTORS Mineral Reserves project including identifying key sources To define a mineral reserve it is expected The estimation of a mineral reserveof environmental information, identifying that all economic, social and legal (also known as an ore reserve) requireskey stakeholders that will be integral to obstacles have been identified and a robust resource model, economicthe social component and identifying anyappropriately addressed. Golder produces parameters, mine planning and design,obvious potential fatal flaws and issuesreports that clearly identify the work metallurgical recovery and consideration of concern associated with developmentcarried out and where appropriate makes of all relevant modifying factors. of the project. recommendations to improve futurestudies. Global IssuesLocal SolutionsARGEntinABRAZiLCHiLEPERUSan Juan Belo HorizonteSantiago Lima[+54] (264) 426 1377 [+55] (31) 2121 9800[+56] (2) 594 2080 [+51] (1) 610 1700oes@golder.cloes@golder.com.br oes@golder.cloes@golder.com.peWWW.GOLDER.COMOES@GOLDER.COM