Many people associated with the mining industry are familiar with JORC (Joint Ore Reserve Committee) reserves (proven and probable) and resources (measured indicated and inferred) signed off by an AusIMM competent person. However, a number of gold mining companies such as Bendigo and Ballarat in Victoria had been pushing for JORC to recognise a new “potential” ore resource category, and in about February 2005 both companies managed to get their potential resources into the 2004 version of JORC.

Bendigo Mining (BDG) as per its 28 January 2005 release has an inferred resource of 23.5mt at 14.5g/t for 11.00moz plus an indicated resource of 0.72mt at 10g/t for 0.24moz which contains a probable reserve of 0.66mt at 9g/t for 0.19moz. BDG published the JORC code requirements for inferred resources in their release, which states as its 5th point on page 3 of the release, that “Geological and grade continuity can be assumed. They do not have to be verified.”

In 1997, Bendigo had initially estimated the resource potential of 5 out of the 15 known major lines of reef as 10moz below the old workings to 1.5km below surface, and increased it in 2000 to 13moz. Drilling and some development since then have resulted in the latest 11moz estimate, with a conceptual additional 11moz to 13moz based on 3 adjacent lines of reef and extensions to the 5 main lines of reef. Historically Bendigo reputedly mined 18moz over about a 100-year period from 1851 at an average head grade of 17g/t.

Bendigo has stated that they expect to construct a 600,00tpa plant for about A$53m commencing at 450,000tpa by June 2006 at a rate of greater than 120,000ozpa (implying a recovered grade of 8.3g/t) and cash costs of A$380/oz in the first 3 years. Production is expected to increase from 54,000oz in 2006 to 160,000oz (and 525,000tpa) in 2009, and then jump to more than 550,000ozpa at cash costs of about A$200/oz by about 2011. Reserves are targeted to be about 240,000oz by June 2006.

Ballarat Goldfields announced on 23 February 2005 that it had increased its inferred resources by over 0.4moz to 3.1mt at 11g/t for 1.1moz and its total exploration potential to 9.2moz. The inferred resource is based on an estimate of the “very” coarse gold content, with possible grades ranging from 3.1mt at 9g/t for 0.9moz and 0% very coarse gold, to 3.1mt at 18g/t for 1.8moz and 50% very coarse gold. Historical data from Ballarat South and testwork by BGF since 1997 apparently indicate that up to 50% of the total gold recovered is very coarse (>1.2mm).

BGF has assumed a 20% “very” coarse gold factor because it is using a top-cut of 85g/t which apparently eliminates the influence of the “very” coarse gold, and hence a 20% factor has been used to raise the estimated average grade from 9g/t to 11.4g/t. The exploration potential resource has also risen, by 6.0moz to 9.2moz with 4.5moz in Ballarat East, 1.1moz in Ballarat West and 2.7moz in Ballarat South for 8.3moz from Ballarat, plus a further 0.9moz from Berringa. BGF state that the 8.3moz has a 90% confidence range of between 2.3moz and 14.4moz.

BGF may start with an 0.4mtpa plant commissioning it in DQ05, and later double it to 0.8mtpa by its 3rd year. BGF has stated that it expects to have an underground mine with a life of 21 years at Ballarat East starting at 100,000ozpa and ramping up over 3 years to 200,000ozpa.

In complete contrast to Bendigo and Ballarat and their respective market caps of A$297m and A$189m as shown in Table 1, Victoria’s producing mine at Stawell which was recently floated out of the MPI break-up / LionOre takeover as Leviathan (LVR) has a market cap of only A$77m. Admittedly BDG had net cash of A$105m (31 Dec 04) from which it expects to spend a chunk on its plant, however, LVR already has a plant, an extensive production history, developed workings and stopes, net cash (31 Dec 04) of A$30.5m and its annual production and cash costs appear to be comparable.

So the key difference as shown in Table 1 (note : exploration potential resources include resources which in turn include reserves) appears to be inferred and exploration potential resources.

Table 1. Victoria’s Gold Producers, Upcoming Producers and Some Explorers

Leviathan appears to be limiting its market cap by not defining exploration potential resources on the potential unmined areas of its goldfield that lie within its tenements.

A number of other smaller exploration companies are also beating a path towards gold production such as Goldstar (GDR), Alliance (AGS) and perhaps Alexander Resources (AXD), and there appears to be a rich prize if they can achieve sizeable resources too, since the actual definition of inferred (and exploration potential) resources appears to be open to interpretation as shown by the estimates made by Bendigo and Ballarat, unless JORC manages to clarify the issue.

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, holds interests in some of the stocks mentioned in this article. The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents.