Mineral estimate confidence premia: A transaction based statistical analysis

The value associated with the confidence level in mineral resource estimates can be gauged, in the case of gold deposits, by spatially distributing their sales prices of as a function of their sizes, grades and resources confidence index. The sale prices of 300 gold deposits in Australia, Canada and the United States reflect the expectation that, at some stage they may support a profitable mining operation and the magnitude of its potential future cash flows. The sales price is a function of the size (Moz) of the deposit, its gold grade equivalent (g/t Au), the mineral estimate certainty, scale and type of possible operation and its likely capital and operating costs. The dynamic relationship between these parameters is used in a 3D block-model to predict prices for future transactions in these safe, mature mining jurisdictions given any size, grade and estimate confidence combination. While this study confirms that transaction unit values generally rise with increases in size and grade, the main finding is that an increase in confidence does not necessarily always translate into an increase in value if the deposit is perceived to be 'small'. The blockmodel method adopted in this study has the potential to inject some comparability and objectivity in the otherwise arbitrary application of 'ruleof-thumb' in determining transaction prices for in situ resources, which may contain various classifications of ore reserves and mineral resources as well as other less formal mineral estimate classifications, helping project managers optimise exploration expenditure.