For investors venturing into the gold exploration sector, interpreting drilling results can be a daunting task. However, these results are pivotal in assessing the viability and potential profitability of a gold mining project.
This comprehensive guide aims to demystify the process, focusing on key aspects such as grades, depth, and the importance of drilling in resource and reserve estimation.
Introduction
Drilling results are the data obtained from drilling programmes, which involve extracting core samples from the Earth's subsurface. These samples are analysed to determine the type, quality, and quantity of minerals present—in this case, gold. The results are often reported in grams of gold per tonne of ore (g/t), a unit that measures the concentration of gold in the ore.
Understanding grades
The grade of a gold deposit is one of the most critical factors in assessing its economic viability. Here's how to interpret grades:
High-grade vs low-grade: High-grade deposits contain a higher concentration of gold per tonne of ore. Anything above 5g/t is generally considered high-grade. Low-grade deposits, often below 1g/t, require more ore to be processed to extract the same amount of gold, which can increase operational costs.
Cut-off grade: This is the minimum grade at which it is economically viable to extract the mineral. The cut-off grade varies depending on various factors, including the current gold price and processing costs.
Depth matters
The depth at which gold is found can significantly impact the project's economics:
Near-Surface Deposits: Gold deposits close to the surface are generally cheaper to explore and develop. Even if the grade is relatively low, the lower operational costs can make these deposits economically viable.
Deep Deposits: High-grade gold found deep underground may seem attractive, but the costs and challenges of deep mining can offset the benefits of the higher grade.
Why low-grade near-surface can be better than deep, high-grade gold
Operational costs: Mining near the surface is generally less expensive than deep mining. Lower operational costs can make a low-grade, near-surface deposit more profitable than a high-grade, deep deposit.
Accessibility: Near-surface deposits are easier to access, reducing the time and money required for preparatory activities like digging shafts or tunnels.
Environmental impact: Surface mining techniques, such as open-pit mining, often have a lower environmental impact compared to underground mining, which can be a factor in securing environmental approvals.
Drilling to create a resource and reserve
Resource estimation: Drilling results are used to estimate the size of the resource, categorised as either 'inferred,' 'indicated,' or 'measured,' depending on the level of confidence in the estimates.
Reserve estimation: A portion of the resource can be categorised as a 'reserve' once economic viability is proven, usually through a Bankable Feasibility Study (BFS).
Importance of drill spacing
Drill spacing, or the distance between drill holes, plays a significant role in resource and reserve estimation. Closer spacing often provides more reliable data but comes at a higher cost.
Wide spacing: Used in the early stages of exploration, wide spacing is less expensive but offers less reliable estimates. It's generally used for inferred resources.
Close spacing: Employed in later stages, close spacing provides more accurate data suitable for indicated or measured resources and reserves. However, it is more costly and time-consuming.
Types of drilling
Different drilling methods yield different types of data, and the choice of method can affect the reliability of drilling results:
Reverse circulation: Often used in early-stage exploration, RC drilling is quicker and less expensive but generally provides less precise samples.
Diamond core: This method provides the most accurate samples and is used for detailed exploration and reserve estimation. However, it is the most expensive and time-consuming.
Interpretation
Drilling reports often contain a wealth of data, but several key elements are particularly important for investors:
Grade distribution: Look for the average grade but also consider the distribution. A few extremely high-grade intervals can skew the average.
Mineralisation depth: Check the depth at which the gold is found. Shallow mineralisation is generally preferable due to lower extraction costs.
Drill intercepts: These are the lengths of the core that contain mineralisation. Longer intercepts are generally better, but the grade is also crucial.
Case studies
Positive: A mining company in Nevada reported consistent high-grade intercepts at shallow depths, making it an attractive investment opportunity.
Cautionary tale: A project in Africa reported high grades but at significant depths, leading to questions about the project's economic viability due to the high cost of deep mining.
Geology & drilling results
Understanding the geological context can add another layer of depth to your interpretation of drilling results:
Host rock: The type of rock surrounding the gold deposit can affect extraction methods and costs. Certain types of rock may require specialised treatment, increasing operational costs.
Structural features: Geological structures like faults and folds can influence the distribution of gold within the deposit. Understanding these features can help in assessing how easily the gold can be extracted.
Quality control & assurance (QA/QC)
Reliable drilling results depend on rigorous quality control and quality assurance protocols:
Duplicate samples: Taking multiple samples from the same interval ensures the reliability of the results.
Standards and banks: Including known standards and blanks in the sample batch can help identify any issues with the assay process.
Assay labs
The reliability of drilling results is heavily dependent on the assay labs where the core samples are analysed:
Accreditation: Look for labs accredited by reputable bodies, ensuring that they meet industry standards.
Turnaround time: Faster results can expedite the exploration process, but it shouldn't come at the expense of accuracy.
Economic factors
Gold prices: The economic viability of a gold deposit is directly related to the current and projected price of gold. Higher prices can make lower-grade deposits economically viable.
Operational costs: These include not just extraction costs but also costs related to environmental protection, community engagement, and regulatory compliance.
Advanced techniques for resource estimation
As technology advances, new techniques are being developed for more accurate resource estimation:
3D modelling: Advanced software can create three-dimensional models of the deposit, providing a more comprehensive view of its size and grade distribution.
Geostatistics: Sophisticated statistical methods can offer more accurate estimates, especially for complex ore bodies.
Final thoughts for investors
Due diligence: Always conduct your own due diligence. While drilling results are a crucial part of the exploration process, they are just one piece of the puzzle.
Consult experts: If you're new to the sector, consider consulting geological or financial experts who can provide specialised insights.
Conclusion
Interpreting drilling results is both an art and a science, requiring a nuanced understanding of various technical, geological, and economic factors.
For investors, mastering these aspects can provide a significant edge in assessing the potential risks and rewards of investing in gold exploration projects.
As you gain experience and knowledge, you'll find that interpreting drilling results becomes less daunting and more enlightening, turning you into a more informed and savvy investor in the gold exploration sector.