Buyers near 20x sellers, page-19

cptcaveman,

(a) You asked "what happens to the JORC Resources & Reserves with an ascending price?"

The short answer is that (all other things being equal) they go up and down with the gold price.

MML report them every 12 months. Obviously there will be depletion due to production and increases due to ongoing drilling - predominantly at lower levels.

For FY15 the total resources at Co-O were reported as 3.5m tonnes @ 10.2 g/t, and the reserves were reported as 1.8m tonnes @ 7.33 g/t.

The principle deciding factor in the reported tonnage is the lower grade Cut-Off that has been applied and it can be shown that this is directly proportional to the Gold Price. As the reserves are those tonnes of the resource which are economically viable to extract it is the lower cut-off applied to the reserves which are particularly important.

The lower cut-off is determined by (1) PoG, (2) Costs/tonne to mine & process, (3) Plant recovery %, with the lower bound being set by economic break-even.

Without going into further detail this can be simplified to:

Lower Cut-Off (g/t) = Costs/tonne / Recovery% / PoG x 31.1

Example: $90/94%/$1150 x 31.1 = 2.59 g/t

(b) " Can you re-book  resources & reserves"?

Yes. It is re-assessed once a year and will be recalculated based on JORC standards and average PoG prevailing.

(c) "Could the sensitivity of the resources/reserves to PoG be delineated"?

Yes. They often are shown at different PoG by explorers & developers. But not the sort of thing that gets put into reports by producers as it would be viewed as overly speculative in nature.

I have had a go at estimating the sensitivity of the Co-O reserves to PoG given their stated tonnage and grade and using the 4.5 g/t lower cut-off applied in the calculation for reserves in un-developed stopes. (note that different cut-offs are applied for development ore, developed stopes and un-developed stopes - so in reality it is quite complicated unless one has all the detailed data available.

I ended up with an estimated increase in tonnage of 11% for a +US$50 average change in PoG over the prior 12 months.

But this would assume that all other factors remain static and there may well be significant flaws in my estimation method, so don't put too much store by it !

Hope it helps.
CPDLC