What is a Scoping Study?

GoldMinerPulse Blog, September, 2009

What is a Scoping Study? What is a Feasibility Study?

Date: September 21, 2009

A recent comment on Talk Back asked a question about scoping studies and how a scoping study differs from a feasibility study.

That is a very interesting question. This blog considers the question of scoping study versus feasibility study in the context of MAG Silver (MAG), who has recently released a scoping study, completed by Wardrop -- see Valdecañas Scoping Study Results Reviewed.

Summary Answer

The key differences between a scoping study and a feasibility study have to do with:

Given that Inferred resources have a greater uncertainly associated with them, a scoping study relying on Inferred resources in going to have a much higher degree of uncertainty associated with it than a feasibility study limited to reserves and Measured + Indicated resources would have. Perhaps, it was the uncertainty associated with Inferred resources that caused Fresnillo to release Statement re MAG Silver announcement of Valdecañas scoping study on September 14, 2009 (viewed September 2009) which states:

The Management of Fresnillo plc has concerns about a number of the assumptions on which the results of this scoping study are based. This scoping study is a hypothetical development scenario and is based on preliminary information and therefore must not be mistaken for a pre-feasibility study.

Supporting rational for caution with respect to the reliance of Inferred resources is provided by disclosure history of the Valdecañas deposit. A quick check at www.sedar.com confirms that the Mineral Resource Estimation Valdecañas Silver-Gold Project Zacatecas State, Mexico NI 43-101, July 25, 2008 report by SRK Consulting showed an Inferred resource of 7.3M tonnes with gold at 2.06 g/t, silver at 1,011 g/t, lead at 2.31% and zinc at 3.94%. The next NI 43-101 TECHNICAL REPORT ON THE MINERAL RESOURCE UPDATE FOR THE JUANICIPIO JOINT VENTURE, ZACATECAS STATE, MEXICO, April 8, 2009 report by Scott Wilson Roscoe Postle Associates Inc. reports:

At a net smelter return (NSR) cut-off of US$50/t, Indicated Mineral Resources are estimated to total 2.95 million tonnes of 879 g/t Ag, 2.22 g/t Au, 2.39% Pb, and 4.15% Zn (including the Valdecañas and the Hanging Wall veins). Inferred Mineral Resources are estimated to total 7.21 million tonnes of 458 grams g/t Ag, 1.54 g/t Au, 1.89% Pb, and 3.14% Zn (including the Valdecañas, Footwall, and Hanging Wall veins and the Stockwork zone).

Between these two reports, the 7.3M tonne with silver at 1,011 g/t changed to 2.95M tonnes at 878 g/t and 7.21M tonnes with 458 g/t. Clearly, Inferred resources are subject to substantial changes such as 50% drop in grade which would have an obvious impact on an economic analysis relying on the original grade.

Whose Definitions Applies?

Canadian securities laws are currently governed at a province level making selection of authoritative sites challenging. Which province's rules apply? For example, Ontario Security Commission states there mandate as:

We administer and enforce securities legislation in the Province of Ontario. Our mandate is to:
• Provide protection to investors from unfair, improper and fraudulent practices; and
• Foster fair and efficient capital markets and confidence in capital markets

The British Columbia Securities Commission lists their mission as:

Our mission is to protect and promote the public interest by fostering:
• A securities market that is fair and warrants public confidence
• A dynamic and competitive securities industry that provides investment opportunities and access to capital

MAG Silver is headquartered in British Columbia and MAG Silver has used the Ontario Security Commission in matters related to its joint venture partner, Fresnillo. For example, MAG Silver Provides Update on Fresnillo "Take-Under" Bid, May 8, 2009:

MAG has also asked the Ontario Securities Commission to enjoin Fresnillo from proceeding with its announced "take-under" bid if Fresnillo refuses to comply with any document production order so as to finally put an end to this take-over bid threat that has persisted for over five months.

Therefore if it is probably reasonable to rely on the Ontario Securities Commission and the British Columbia Securities Commission for definitions on scoping study, feasibility study and related disclosure requirements.

Scoping Study Definition

Feasibility Study Definition

Use Talk Back or e-mail dennis@goldminerpulse.com to leave a comment.

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