The CIM Commodity Price Guidance document has been updated for the first time since 2009 at the request of the Canadian Securities Administrators (CSA), which partnered with CIM in a joint committee to work on issues concerning National Instrument 43-101 (NI 43-101) in 2002, the year after the regulators’ instrument came into effect.
CIM released the updated CIM Commodity Price Guidance for NI 43-101 compliant technical reporting in November. The revision addresses six questions that had been posed by CSA regarding issues such as how to select the method for calculating commodity prices used in Mineral Resource and Reserve estimates, how to determine cut-off grades and what type of expertise and support is needed for this, as well as the best way to classify different mineral resource categories in one mineral resource. It also provides guidance on the components needed for a preliminary feasibility study and a new version of the CIM Standards and Definitions for Mineral Resources and Mineral Reserves, as well as guidance on the “reasonable prospects of eventual economic extraction” clause in NI 43-101.
“The section on commodity prices is the most important,” said John Postle, co-chair of the Commodity Price Sub-Committee of the CIM Best Practices Committee, which was responsible for the revisions. “There are several price-selection methods they can use. Some of these are not readily acceptable to regulators. The Qualified Person has to select a method and discuss why they chose it.”
To help a Qualified Person do this, the revised guidance document includes a list of the methods used for calculating commodity price estimates. Recognizing there is no one-size-fits-all method given the wide array of variability at a given project, the CIM guidance document also provides analysis of each method to help the Qualified Person preparing the report choose the most appropriate and supportable method for the particular mineral project.
Grey areas in commodity price estimate methods are also discussed in the revision. For example, while high and low metal price sensitivities is a common industry practice in economic analyses, CIM’s Commodity Price Sub-Committee has observed that many companies only disclose the high sensitivities. This, according to the updated guidance, could be misleading.
The committee also reviewed the practice of reporting a table of Mineral Resource or Reserve cut-off grades without choosing one estimate. In this case, there is no question: the updated guidance document clearly states that this practice is misleading. It goes one step further and notes that in fact CSA considers a technical report that does not choose one estimate to be non-compliant with NI 43-101. As with commodity prices, explaining the rationale behind the chosen approach is key.
“Transparency is important. In some of the technical reports that I’ve read, how they calculate the cut-off rate is not written out plainly,” said Postle. “In certain cases where you have very early stage exploration, you want to get a rough idea so people use a cut-off rate that is used by the industry for that type of deposit without going into it in a lot of detail. For early-stage projects most people find that reasonably acceptable but not after you get further on. If you compare your deposit to several other deposits in a similar location, at least you’ve explained what you’ve done.”
Postle added that choosing cut-off grades can, in fact, be very complex and recommends anyone preparing a technical report also refer to the CIM Best Practice Guidelines and CIM Standards and Definitions.
On the other hand, when it comes to feasibility studies, the revised document concedes that the CIM Standards and Definitions document lacks detailed descriptions of the components of a preliminary feasibility study. “Many people had suggested to us that the references for feasibility studies we used were old and arcane, so we put in as a reference for that the Canadian Mineral Processors’ NI 43-101 Best Practice Guidelines for Mineral Processors, that discusses in great detail various types of feasibility studies,” said Postle, who teaches a CIM course on Mineral Project Reporting Under NI 43-101.
“That’s a fairly large change,” he said.