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To: tyc:> who wrote (63284)2/4/2009 10:41:40 AM
From: E. Charters2 Recommendations  Read Replies (1) | Respond to of 78419
 
"Am I right i thinking that the cutting of drilling assays is to eliminate the nugget influence from the drilling results ? "

No. It is a Noranda practice. You have to understand that Noranda ran one of the biggest gold companies in North America, but it was NOT a gold mining company. They were a copper mining company who recovered gold in their process from sulfide ore of the Abitibi. Which should be world famous for one thing. Sulfide mines that contain lots of told. The Horne was to put it mildly on of the world's best gold mine. It made far more per ounce than the Hollinger Mine which was the grade leader - for its size - in the world for quite a while. But Noranda knew nothing about running primary gold mines. They indirectly owned a few like Kerr Addison, but they did no technology transfer. No common staff.

And believe it or not, in assessing ore, the Dome people were led far astray by simple stuff like sampling towers. Sampling towers were the invention of a bunch of US custom milling people in the 1880's who wanted a reliable way to pay people on custom ores that they would trust, i.e. the client, but would allow them a healthy margin of gold in the mill after losses. That the client would never wise up to. Sampling towers are statisically weak. Only an expert mathematician and geologist could figure that out. Few did. Dome never got the joke and relied on them to assess the grade of the Musselwhite. (Pickle Lake) I believe I had a hand in being such a vocal critic of this process around Timmins to all and sundry from the local baker at to the recording officer that it may have sparked Dome to try again and re sample the Musselwhite with underground structurally oriented channeling. Shades of 1870! They just about doubled their grade. Finally the drill holes lined up. They even offered me a job working at the project underground, but conflicts of another kind got in the way.

Noranda knew so little about assessing the grade of a gold mine that they had to ask an assayer in Haileybury I knew to solve the "grade problem" of their Hemlo mine. They could not establish its averages because the could not repeat their assays, or match the grade in core reliably. It was too variable. Contrary to what you may have heard about Hemlo's famous continuity etc.. So the assayer took the core, and said he would reprocess, it possibly destructively to come up with a definitive answer they could hanf their hat on. Schiarelli had given them a drop dead date and $300 million of expenditures had to come up green or the project reverted. Sweat was in blood at head office. What the assayer did was take every foot of exploration core intersection that the geologist told him thought would make ore, ground it up, put it in a big cyanide bath and recovered the gold therein by Merril Crowe. I believe at Corey Miller's plant in Timmins. Once the gold was weighed and the tailings assays in, the simply divided by the weight of the core, and told them the answer. Their grade was 0.29 OPT. The fease was positive and the mine construction was started. He never told them until after he had done it, that was going to be his technique. But he did say that he would stake his professional reputation on it being right.

If I had been the geo on the project I would have done it another way. I would have saved the sludges. All of them. And lovingly stored them in tin pails with reference to core photographs in a book and assays. All on a spread sheet with assay tags #, structural 3d pix wire frame and hole numbers. Whence came the inevitable management frittering, you simple smile and say there is a fool proof way to get a 1/200% cross section sample of the orebody. Bear in mind a single drill hole, 50 feet centers crosses a 30 foot intersection to create 6250 tons of ore. The drill hole of BQ weighs 1.81 lbs per foot. So 54 lbs = 6250 tons. The cuttings weigh 114 lbs. over the same interval - 16,000 ore to one sample, but so much more reliable than the core that it's funny. That is why cuttings are ALWAYS more reliable than core for assessment of true grade. They are always close to what you mine. You will hear of people telling you, oh no, the cuttings concentrate gold, the smear it, etc.. now stop for a minute. How can this be? The cuttings take up more gold than they do rock? How could this happen? The rock stays behind but the heavier gold rises in the water flow back to the drill?. uh huh.. well it does NOT happen. If anything you lose gold. So why do you often, very often get a wider intersection of gold in the cuttings assays than in the core. People will point to the imprecision of the cuttings sample point. But they should think again. If it were true that cuttings allowed one to include barren rock then the grade of the "edges" of a sludge sample assay should be lower all the time. But if properly controlled, they are not. What happens is the cutting get wall rock gold that the core samples miss, by virtue of simply the law of averages. The annulus of a diamond drill hole core or the kerf in sawyer's terms, is 2 times the volume of the core, so it stands to reason it gets 2 times the gold and then some. Then a simple thing happens. Mixing. The gold that does exist in the cuttings is not randomly distributed around the core, anymore. It is also not subject to diamond core saw losses of being smashed out of "nickels" of core when splitting, or simply falling out of shears into the box or on the floor. Those nickels of core ( slices of core in thin sections) split at the direction of shear emplaced gold and thus the loss rate is higher. Given that a highly nickeled core is argillitic or carbonaceous and not terrifically gold bearing, there is usually some leeway here but it is a factor. All the gold gets into the cutting split in sludge sampling and is faithfully recorded over the whole core length. It is a much more reliable form of sampling. Now we must deal with the dreaded air core, or RC drill and why it always gets a lower sample than the diamond drill. Why does that happen? well it is a whole other question. It grinds the core right up and spits it back to surface by air pressure. It has terrific volume, but always underestimates the gold. I will leave it to you as to why.

So how many people do cuttings today? Not many at all. The geos just don't know enough. No experience. You would need about 30 years of exploration gold drilling and mining to see that. Few people have that.

Oh. nugget effect? Nugget effect drives grade up, not down. So cut backs are the opposite. What they try to do is reduce the effect of anomalously high samples that are 4th standard deviation. rare. Is this fair? Well no. Texts point out that it is NEVER justified to do cut backs until a reliable milling method of known recovery has worked the ore which has been shown to have a known dilution over the drilled area. Then factors can be developed. The Salmita and many other mines would NEVER have been mined with any sort of basic one ounce cut back rule. Only every tenth assay at the Salmita made ore. And it made ore at 10 to 30 times the average grade! So what do you do then? In fact it maybe more intelligent to just drill enough and do arithmetic averaging. It is instructive to read texts on kriging. Kriging degrades on sufficient sample density to arithmetic averaging. Note the word degrades. What does it do with insufficient sample density? Guess. No I don't mean you guess. Kriging guesses. What are guesses worth. Well that question is answered by the mathematical game of risk and uncertainty analyses. This tells you how large your holes must be for so many tons of an orebody so wide, and how large your assays have to be, for such and such a confidence. I would say offhand you can mine an orebody that is 8 feet wide, with drill holes 65 feet apart across the plunge, 130 feet apart down plunge, with N core, using 60 gram samples on the sludges and 90 gram samples on the core, fire assay with careful Ballings calcs on each assay until you know the metallurgy. 2.5 foot runs on core. Then you can go standard formula assay, probably four formulas for the orebody. High sulfide, lots of quartz, chlorite zones, high carb, etc.. I can assay ten feet apart on vein. Small volume chips not large, they are more accurate than large. If you do that you can get to 0.01 OPT of real smelter return on fine gold distributed ore. On nuggety stuff, from 15 to 30%. Most nugget effect is poor sample extraction, ratios and assaying.

"The often complex, erratic, and localized nature of gold is a common feature of many vein-style gold deposits. This style of mineralization is often referred to as being nuggety or possessing a high-nugget effect. As a result of these complexities resource estimation is difficult and in general, only Exploration Results can be provided or an Inferred Mineral Resource estimated from surface drilling data alone. Underground development, further drilling, and probably bulk sampling will be required to delineate Indicated and Measured Resources. Tonnages can generally be estimated from diamond drill and development information with a reasonable degree of confidence. Grade is much more difficult to define with confidence because it is commonly highly erratic and discontinuous in nature. The dependency of higher confidence Resource categories on development information may create a Catch 22 situation, with funding for such development often depending on the prior definition of at least Indicated Resources. There are no easy solutions to these challenges posed by high-nugget effect deposits, and it is important when classifying and reporting not to downplay the uncertainties often associated with Mineral Resource and Ore Reserve estimates for such deposits. However, in common with all deposit types, if the principles that underpin the estimation, classification, and reporting procedures are borne in mind and common sense applied, most issues can be satisfactorily resolved. This paper discusses the classification and reporting of Mineral Resources for high-nugget effect gold vein deposits within the framework of the JORC Code (JORC, 1999)."

S. C. Dominy, S. C. DOMINY, M. A. NOPPE, and A. E. ANNELS
Errors and Uncertainty in Mineral Resource and Ore Reserve Estimation: The Importance of Getting it Right

"The Occurrence of High-grade Gold Pockets in Quartz Reefs at the Gwynfynydd Mine, Wales, United Kingdom: A Geological Explanation for the Nugget Effect
IAN M. PLATTEN

GGI Consulting, Hertfordshire, England, United Kingdom

SIMON C. DOMINY

Economic Geology Research Unit, School of Earth Sciences James Cook University, Townsville, Queensland, Australia

Gold-bearing quartz reefs commonly show extremely erratic and unpredictable grade variation, although gross geological continuity may be good. This type of variation is often described as being nuggety or having a high nugget effect and can be measured quantitatively using the semi-variogram. Understanding of geological features such as reef texture and structure will provide improved models for the interpretation of assay data, drill core descriptions, etc. In this paper, a case study from the quartz-hosted gold occurrences in the Gwynfynydd mine, United Kingdom, is described. The work provides a starting point for models of lateral variation and demonstrates the types of structural and textural features that may be sought to give clues to the prediction of gold distribution in similar deposits.

Gold deposition at Gwynfynydd is primarily associated with the reef footwall. The host veins form a discrete group of structures that may have been emplaced early in the sequence of quartz veins forming the reef. This potentially exposes them to a maximum number of dissection events during repeat dilations of the lode. Gold was deposited in the local porosity at extreme concentrations, equivalent to kg/t grades, when the host fissure had become filled with a porous framework of crystalline quartz and sulfides. Distribution of porosity varied laterally along the vein as the result of the formation of clump-like growths of minerals from the vein walls. The growth style is relevant to the distribution of gold although it may not be relevant to the occurrence of gold in a particular vein. The preservation of pores with some connectivity late in the vein fill sequence may be important in permitting continued but slow fluid flows. This facilitates effective fluid reaction with wall rock-derived methane, thus changing the relative rates of gold and quartz deposition in favor of gold.

The textural studies explain the first-order control of nugget distribution at Gwynfynydd but do not allow for prediction and optimization of the resource estimation process. This is principally because of the very low geological continuity and poor predictability of the high-grade pockets. Nonetheless, the work does provide a clear geological explanation for the erratic nature of the gold. It indicates textures and structures that can be used to determine geological continuity of the gold-bearing elements within the gross reef envelope.
"

"Sample Size and Meaningful Gold Analysis

This note gives some numerical scenarios to illustrate the severity of nugget effects. Please refer to the two graphs in the Field Geologists Manual, 2nd Edition 1982, p97-98. These are reproduced from the USGS Professional Paper 625-C by Clifton et al, 1969, "Sample size and meaningful gold analysis".

1. Assume -80# samples (-177 microns).

Clifton et als' sampling statistics considered a binomial distribution for particulate gold. To achieve ±50% precision 95% of the time (ie 20 particles of flake gold of -80 mesh required) on a 50g sample taken for analysis (eg by fire assay), the results will only be reliable at and above 3 ppm (3000 ppb). So much for this method of sampling and analysis!

One can only get away with this, and have reproducible results, if the gold flakes within the -80# sediment are very much finer than 80#, as they mostly are. For example if the gold was only 30 micron sized (80# is 177 microns), then 50 g would be a reliable analytical sample at and above 16 ppb (graph page 98).

If visible gold can be panned, however, by definition nugget effects can be guaranteed some of the time, as such gold is relatively coarse.

Crustal abundance for gold is approximately 2 ppb. A 50g sample running 2 ppb (±50%) consistently, implies that the gold is as 8 micron spheres, or 15 micron flakes (graph, p98). This may be a barren, background result, indicating 20 grains of this size, or >20 grains of a smaller size — none of which is pannable or visible. But suppose that within this spectrum of grain sizes we have one flake of coarser, 125 micron gold per kilogram which would report as perhaps 5 flakes of "VFG" in a typical pan concentrate. This might be sourced from a small, distal auriferous quartz vein.

Referring to the graph on p97, this flake would weigh approximately 3.5 micrograms. On a unit basis, this equals 0.0035 micrograms per kilogram, or 3.5 parts per billion. Added to the 2 ppb median, the result should be 5.5 ppb. However, a 50g sub-sample taken for aqua regia digest would include this 125 micron flake one time in twenty, reporting "72 ppb" as a strong spot anomaly.

Follow up of such spot anomalies consumes time and money.

NB. One should look at spatially clustered gold anomalous areas rather than following up isolated extreme highs, provided sampling density is adequate. The anomalous site should also make geological sense — does it drain structures or formations/intrusions of potential interest? (check float lithologies in field log).

Reanalysis of 50g of the same sample would produce a value of only 2 ppb, which should alert one to the problem. Sieving to -200# or even -150# would have eliminated the random flake and given a reproducible 2 ppb result. In the 50g of -200# (75 microns) case, results above approximately 250 ppb would always be reliable (graph, p98). The same aqua regia digest could also be used to determine arsenic, bismuth and chalcophile elements.

BCL (or BLEG) sampling attempts to solve this problem by taking a large, more representative sample, say 2 kg, for analysis. Such a sample can be treated with an alkaline cyanide leach (the principle of CIP and CIL extraction) at room temperature, whereas fire assay or hot aqua regia digest on such a large sample would be difficult. In the above example, the one 3.5 microgram flake in a 2 kg sample would add 1.75 ppb to the median value.

Assume 2 kg of -40# BLEG.

In practice there are many variations, taking sample weights from several hundred grams to up to 10 kg, with sieve sizes ranging from fine to quite coarse, of the order of 10 or even 5 mesh. Some practitioners add Magnafloc to coagulate suspended clays, while analytical variations include using a static leach, where the sample is not agitated continuously. This would promote considerable scope for analytical error.

Methods of concentration of gold from the cyanide solution for final presentation to flameless AAS or ICP or ICP-MS include precipitation with zinc dust, coprecititation with tellurium on reduction, adsorbtion onto activated charcoal, or solvent extraction. Silver, palladium and copper can be determined from the same cyanide leach, although in my experience correlation of copper with conventional acid leach copper is not good.

Assuming 2 kg of -40# sample, a 4 ppb result would be reliable (± 50%) if all the gold within the -40# (-475 microns) fraction was present as 20 grains of 65 micron gold, or over 20 grains of finer gold. ( see graph in Field Geologists Manual, p 98). 200# is 75 microns = 0.075mm.

But, if we had two flakes of 0.22mm gold within this 2 kg sample, reference to graph p 97 shows this would add 16 ppb to the sample to make it 4 + 16 = 20 ppb instead of 4 ppb.

The answer is to eliminate random, coarser gold by fine sieving but still taking a reasonable bulk for BCL analysis. There is, however, a practical trade off in how long it takes to sieve a lot of fine sample, particularly from coarse soils or sediments, or high energy streams."

"Abstract:

High-nugget effect gold-quartz reefs are one of the most challenging styles of mineralization to evaluate and exploit. The estimation of mineral resources, and subsequent ore reserves, forms a critical base for exploitation. The understanding and application of grade and geological continuity issues during estimation is of importance. Most reporting codes make specific references to grade and geological continuity issues. Within the high nugget environment, confidence in the tonnage estimate is variable depending upon geological continuity, though it is usually higher than the confidence in the grade estimate. Estimation of grade is problematic as a result of the erratic and low continuity of gold values and gold-bearing domains. Detailed geological interpretation supported by 3D modelling to produce either 'conceptual' or 'visual' continuity models is critical. The inherent risk associated with the estimation of mineral resources and ore reserves and subsequent classification can be reduced by a strong understanding of geological and grade continuity.The level of investment required to acquire this information is generally substantial, and will almost certainly involve underground development supported by close-spaced diamond drilling and bulk sampling/trial mining."

Grade and geological continuity in high-nugget effect gold–quartz reefs: implications for resource estimation and reporting

Authors: Dominy, S.C.; Platten, I.M.; Raine, M.D.

Source: Applied Earth Science : IMM Transactions section B, Volume 112, Number 3, December 2003 , pp. 239-259(21)

*****************************************



To: tyc:> who wrote (63284)2/4/2009 5:08:19 PM
From: E. Charters  Respond to of 78419
 
"how much nuggeting is there in reality ?"

Depends.

I guess we will find out.

So now you know why they do bulk samples in Timmins.

Scared.

"still believe that our conservative government has ignored a great opportunity to stimulate our economy by re-establishing depletion allowances and also the tax free period for mining startups. Any comment from conservative EC ?"

(spits on the floor). You said a mouthful there pardner! And how about a whole heaping bunch of investors marching on Ottawa burning tax and spend Iggy in effigy (anything else would be too good for him) ... and demanding just that! Why not? So why don't they do it? Because the bastiids went broke spending the last 100 billion we done give 'em.

You all know what you say to a bad boy who spends all his allowance in one day on ice cream, sodie pop and candy? Well you take him out to the woodshed and whoop him good. No TV for a week and stay in every nite. And no allowance either.

Now supposed he tells you that you are stuck with him for good, he is going to invite his friends over evry night and if you don't like it, he is going to burn your house down unless you give him more for him and some for all the kids next door too. And to top it off tells you he has taken up puffing funny tobacco and you gotta pay for that and what the neighbourhood kidz want too! He then starts to dictate to you that can't drink champagne anymore or play cards on saturday nite and that he can get double allowance?

He is your kid, you deal with it.

P.S. Quebec has amongst the lowest total tax burdens around. At the end of the day factoring in flow thru and other stuff you pay about 34%. This is how it shakes out.



EC<:-}



To: tyc:> who wrote (63284)2/4/2009 7:04:55 PM
From: E. Charters  Read Replies (2) | Respond to of 78419
 
Here is, below this preamble, a table of how taxation actually works out in Quebec.

It is an example of why they call it "mine friendly". Note that the company actually pays miniscule provincial corporate taxes, but a fair mining tax, with very little in the first years because of write downs, which are very generous, but straight line. There could be improvements without the government "losing money", as offsetting factors because of increased vats and salary taxes with more mines would be good, to put it simply.

That is to improve flow through federally and make it so that investment losses could be subtracted from taxes, and losses in capital deducted from gains as they occur.

And to make it more palatable for the average investor to invest in flow thru, make PP's more reachable by the average bucket shop guy. Bring the net worth requirement for accredited or sophisticated investors down to 400K cash and property, discluding principle residence, which opens it up to smallish business people, and companies with say $1.0 million net worth . (It is 5 million in Ontario.) Small, ok, but the people are not automatically idiots because they want to hand a mining company or any other company $10K to $50K with a half warrant. Play it right in most markets and it's a very good deal to take PP's.

They should lower the minimum amount of PP's to 25K min for these people. Flow through should be allowed 25% tax break, not credit so the gov does not have to come up with cashola to give back. Carry forwards and carry backs made 15 years each way for flow through deductions. If you are launching companies and making jobs then the ability to take your income down to say a 10% tax rate should be allowed. They should change RRSPS's so that flow through or capital gain aspect of them is preserved when they take it back out, and also the difference calculated on the difference between the real buy price (minus tax deductions and grants) and the real selling price minus costs. This would mean the flow through tax deduction if you put it into an RRSP (which again should be enlarged to 50K per year) would be 225%. At a marginal tax rate of say 30%, the cost of the shares is minus 67.5% They really would pay 37.5 cents on the dollar for their shares. They can just about do this in Canada now for 20K or more on RESP and RRSP's with flow through at slightly higher tax rates, say 34%.

This might sound outrageous to some politicians, who are revenue hungry, and eye their fave programs winking out like xmas tree lights as the tax deducts flow in on returns everywhere, but think on this. The company normally gets the money and spends it as a 100% expense against future income. If they all make mines it all gets deducted anyway. When they buy goods and services with the money, some $1.7 billion in 2007 in Canada, there is VAT on that and considerable income and corporate tax generated. Perhaps 30% or more. Now the people who did this risked a loss of income in a major way. They are gambling on making anything at all.

For that largesse they are forced to pay tax as if the bought the stock for nothing, and the capital gain portion is called 50% of the selling price of the flow through stock. This means that they pay at a 30% marginal rate, 15% of the total sale price in taxes. How much would the government lose if they enlarged flow through slightly? (it is 120% now, and we can RRSP and RESP the proceeds too.) Well if the stocks all went down zero, the investor would hang on to the loss of 37% in this example. Perhaps a bit more if he did not RRSP it. If the stock goes up 25%, then he pays 30% times 50% of 25%, which is his gain. So he pays 3% of the sale price as tax.

The alternative if he does not invest is to pay 30%, in our scenario, of his net taxable income to the government. If he paid it all into flow thru stock, he takes a terrible risk that he does not recover more than say 25% of it in a bear market. And I think we know they come around now and then.

So where does the money go? Does the government have a right to ask for revenue neutral tax incentives? How much will they give up to stimulate the economy in a real way... jobs, foreign exchange, growth, foreign investment dollars. What does this creat? Well lets say we spend 2 billion a year for the next ten years on finding mines in Canada. Lets' say we also allow CDN companies to get tax breaks on overseas investments. Lets say we let in US investors for PP's in an unlimited sense. That would expand our mine investment capital by about 5 times at least.

So now we give US investors flow through and tax breaks on CDN properties. And to top it off since they pay capital gains tax back home we cut their cap gain in our country down to 1/4 of what we normally charge. What will this do? We have to have a way of calculating the mine creation and tax revenue increase to allow government to make offsetting calcuations. Hard to do? I don't think its that hard. We can say that for every so many dollars and so many properties there are so many mines found. Take Teck, Noranda, Cominco, Sherritt Gordon, etc and a few quality juniors and take a look to see what tax revenue they paid in hidden taxes on exploration expense. And historically we can easily calculate the mines they made. Forward projections are good to go with as technology and metal prices improve. Only regs get tougher really.

My bet is goods and services alone were major, say 10% hidden even with GST allowance. Salaries have to come to 50% of the whole so, at least 9% more there. Corporate taxes on good supplied has to add another 25% of the remainder of the pie, so another total 10%. We have 29% they get back on the expenditures. Now it cost them 70& of the flow through spent which is hidden let's say an average of 50% with taxes.

So the government largess is 35% of total expenditures over what they would have collected.

How many mines, come back in from that $20 billion which is a "real $7 billion loss" over ten years to the government? Let's say they find one 10 million ton sulfide mine, one diamond mine, and 5 gold mines. Small change, right? Gold mines now are $2 billion or they don't go. Diamonds about $10 b ditto sulfide. So $40 billion in revenues, or just about what Canada's economy was in 1960 in those dollars.

Workers are now miniscule, diamonds and sulfide lets say 2000 jobs, and gold mines about 2000. 4,000 workers. 400 million in salaries per year. Capex on 20 billion in return over 10 years is a write off of $2 billion. What does the government 'make' on this -- never mind cost-benefit. Just dollars to dollars.

1. jobs income taxes $100 mill per year - $1 billion total
2. capex corporate from good ands service 20% tax on tax corporate income etc -- $400 million
3. corporate and mining taxes over ten years on $40 billion. -- $14 billion.

Now they spent how much with all those "lost dollars" in flow through tax deductions?

$7 billion in 10 years hypothetically.

How much did they make in this totally fair scenario? $15.4 billion? Totally fair estimates.

We have built more mines than that in ten years and they made more money for government. The taxes hidden and real worker income and g and s corporate for all cash flows were more than that. Now the question is should governments be making money with our money? Do they need to make a profit on it? No. They could give it ALL back to the investor - cash negative! and still be ahead. All they have to get back is what they would have collected. And who says they should collect that anyway. Anybody whose taxes out there are too low? They have a new form out of Ottawa, the simplified T-10. It has two lines on it. Ignatief designed it. First line says "How much did you make this year?" Second line "Send it in"

We did not count industry growth spin offs to communities, hidden benefits and reduced EI, increase EI and pension fund payments, investment etc.. health, welfare, technology growth.. it goes on. Build a small mine more than 1000 people benefit. The ratios can go to 25 to one person employed at the plant. Look at Sudbury Ontario. Mining town. 100,000 people. Timmins. Mining town. 50,000 people. Toronto. Mining town. 4.5 million people. Don't laugh. It is the leading mine financing center in the world. Bar none.