SRK Update Australian

February
2002

Edition 1

SRK newsletter - February 2002

A step-by-step approach
to Due Diligence 1

SRK Update
Since 1998, Centaur Nickel Pty Ltd has been exploiting dry The clients had expressed the wish that the work be carried

laterite nickel-cobalt deposits at Cawse, located approximately out in a step-by-step approach and that after each step a clear

70 km north-east of Kalgoorlie. Cawse was the first plant to decision point would be reached. This worked out well and

successfully use a new High Pressure Acid Leach process to decisions for additional detailed work were taken very cost-

treat the ores in an autoclave. The process has since, with effectively. During the course of the project it became clear

variations, also been installed at Bulong and Murrin Murrin. that considerable expenditure had been avoided in this way.

The laterite nickel and cobalt deposits are situated within a

SRK was requested to carry out a Due Diligence on behalf of a clay profile in a thick weathering profile overlying the ultra-

consortium of Australian, European and US organisations. The mafic Walter Williams Formation. Mineralisation is continuous

project was completed in record time during a period when air along strike for a distance of more than 50 km. Cawse Central

travel in Australia was greatly restricted after the sudden contained the rich Bunyip Dam and Pegasus deposits which

demise of Ansett. Andrew Vigar from Brisbane was Project now have been virtually mined out. The stratigraphy is

Manager of a small multi-disciplinary team from the Brisbane, defined by a series of regolith zones that are laterally

Perth and Sydney offices. Mike Warren from the Sydney office consistent and occur draped like an undulating ‘blanket’ over

looked after mining and the financial model, Louis Voortman the underlying formations. The topography varies from

from the Perth office assessed the in-situ and upgrade undulating laterite ridges to flat-lying alluvial sediments cut by

resource potential. John Reid and Keith Leather, both associate local palaeo-channels.

nickel specialist metallurgists, investigated the metallurgical

plant, the nickel refinery and looked at the scope for further

increasing the plant capacity.

 Long Term partnership
with Cawse Nickel
“… the study significantly increased our understanding of the upgrade
characteristics of dry laterite Ni-Co resources”

SRK has also provided a detailed

financial risk assessment
SRK newsletter - Frbruary 2002

The Cawse plant consists of a scrubbing section to produce the predictions and test the sensitivity of the operation to future
upgraded feedstock for the autoclave unit, a portion of the metal price and ore feed grade.
plant that produces an intermediary product and an efficient
nickel refinery. Nearby resources are currently being The SRK team drew up a list of critical issues that included
developed to deliver additional feed to the plant. To assess the realistic resource grades, plant upgrade capacity, plant
potential for additional in-situ and upgrade resources, SRK expansion potential and related capital costs, and provided a
used standard 3-dimensional as well as 2-dimensional realistic judgment on the sensitivity of the project to future
resource models. The latter models automatically take the metal prices. The SRK study showed the sensitivity of the
undulating behaviour of the ore-bearing regolith zones into project to a combination of plant grade and metal price, and
account. In addition to the classic due diligence approach to the clients were in a position to make a pragmatic decision on
arrive at a opinion on the current operation, SRK used a future potential within a very tight timeframe.
2 detailed financial model to generate a series of cash flow
SRK Update

Mapping Faults using the Structural Toolkit.

Detailed regional structural interpretations are commonly used the interpreting geologist, to encourage them to incorporate the
for identifying possible exploration targets. Globally, SRK is data capture phase as part of his/her process of developing the
recognised for their expertise in taking available remotely interpretation. Certainly this leads to a process of onscreen
sensed data sets and developing structural interpretations that interpretation, but with the graphic capability of today’s PC’s,
not only give an overview of the regional basement lithology, this is often the preferred method.
but also the timing of the regional structural events that explain
the deformation history. This is achieved by capturing detailed Solving the double handling was achieved by designing a
information about identified faults, documenting their initiation graphical interface within the GIS, that gives the geologist a
age, and reactivation history. series of push button controls that enter relevant values into
the attribute table of the selected fault. If more than one fault
Geographic Information Systems provide the means to query object is selected then each fault entry is updated with the
such a regional data set, querying either the spatial objects, same value. Entered data values that describe the initiation age
tabular attributes or even both within the same query. This or interpreted reactivation of the fault result in changes to the
identifies a significant difference between a graphical map and graphical fault object, changing the faults colour and line style
a GIS data set. The power of these queries however, is based on values defined by the software user. This immediate
dependent on the structure of the attribute tables, and the graphical representation of the entered attribute data provides
consistency of the data that populates them. In a large regional a visual means of verifying the interpretation that also helps the
interpretation there could be 30,000 interpreted faults. Double geologist consider the spatial relationships within their
handling this amount of data between the interpreting scientist developing interpretation.
and a draftsperson is not a suitable solution.
Another key feature of the Structural Toolkit is that fault
SRK sort to solve this problem, to ensure that the data products symbols, for example the ticks used to represent a thrust or
being developed by SRK were accurate and consistent. The normal fault, are represented with crisp line styles. This has
developed solution, in the form of a Mapinfo software two significant benefits for the interpretation. Firstly, the time
extension, is called the Structural Toolkit. The toolkit is built on saved by not having to generate copious amounts of graphical
a standardised fault attribute table, with a specified range of objects, which often reside in a separate layer from the faults
values for each column, but also the flexibility to include a themselves. Secondly, the benefit of the long-term life of the
project-varying list of significant age events. The structure of data set, as attribute information is updated using the
this attribute table captures the following details: data source, Structural Toolkit, graphical changes occur automatically, and
fault dip characteristics, basement involvement, initiation age, changes to a fault’s shape do not require any additional
and reactivation history. changes to a spurious symbols layer.

However, the structure of the attribute table does not explain If you would like more details about the Structural Toolkit for
how to prevent double handling in the data capture process. To Mapinfo, please contact Paul Gardner (GIS Consultant) in the
solve this problem it was necessary to make the GIS simpler for Perth office, email: pgardner@srk.com.au.
Course and Products for 2002
Applied Mining Geostatistics for Geologists decision-making, and links the course material to
the day-to-day operations of the site. The course
and Mining Engineers is highly relevant, “concepts easily transportable
SRK is continuing to run this popular and essential course to mine and regional scale work - hope I can
during 2002. Planning for courses in Kalgoorlie (May) and Perth remember it all though” commented one course
(September) are well underway, and a number of single-client participant. Designed to be run at your site, the
in-house courses are already planned. The course covers the

Cam McCuaig
course includes a review of your data and
basic concepts of the application of best practice estimation to development of field exercises at the your site, be
your resource, and concentrates on ensuring fundamental that mine-based or an exploration-based program.
mistakes are avoided. The course covers all the principal
modern techniques, including kriging in its various forms, MIK, For further information contact
Uniform Conditioning and simulations. However the course Cam McCuaig at cmccuaig@srk.com.au.
focuses on making sure the basics are understood and the right
methods chosen. Software training (integrated with
geostatistics training) and support for the advanced
Products
geostatistical package Isatis are also offered as part of our The Eastern Goldfields maps now covers 30 map sheets between Laverton in the
training package, and this has now been successfully run for a north and Erayinia in the east, and between Norseman and Menzies in the west.
number of minesites. These maps are available as ArcView and MapInfo files in digital format, and all
include details of the structural evolution not found on any other series of
Register your interest with Michael Humphreys at Yilgarn maps.
mhumphreys@srk.com.au.
Archaean Provinces provide a huge proportion of the gold produced in the world.
SRK has a consistent database of geological map information, linked to a variety
Structural Geology in Mining and Exploration

SRK newsletter - February 2002

of textual databases, of all the major Archaean Provinces worldwide. Know as
This course has been run three times already this year, and the Global Archaean Synthesis, this product is available for purchase in a
remains the benchmark course for in-house company training number of country or region modules, or a complete global product. The
for mining and exploration geology. Ranging from refresher databases provide essential base-layers in GIS format as a starting point for any
material from your University days through to advanced serious evaluation or exploration of Archaean terranes.
techniques, the course focuses on the mining and exploration
process through working direct hands-on exercises. The course For information on prices and geographic coverage, contact
demonstrates the importance of geological mapping in Deborah Lord at dlord@srk.com.au.

Choosing an appropriate estimation block size diminishes resource risk

General If it is established that a 20m x 20m x 6m panel can be well

estimated from the given grid, we still need to provide
3
SRK has learned that one of the most important resource risk
factors is estimating blocks, that relative to the drilling grid, are estimates for selective mining unit (SMU) sized blocks since
too small. This is usually the result of trying to directly estimate this is the volume on which decisions of whether the material is

SRK Update
blocks that are of a similar volume to the selective mining unit to be processed as ore or waste will be made.
(SMU). By estimating blocks that are too small, we risk
conditionally biasing the estimates which could lead to the To achieve this it is recommended that a non-linear estimator
underestimation of high grades and also result in marginal ore be used. It is common knowledge that all linear estimators such
being classified as waste. In particular, the true variability of as inverse distance weighting, ordinary kriging etc. introduce
small blocks, which is a key parameter for selectivity, could be smoothing to a model, which is fine for global estimation but
distorted (over-smoothed). In effect, kriging of small blocks from unwanted for local estimation. Basically, with a non-linear
sparse data will always over-estimate the recoverable tonnage estimator such as Uniform Conditioning, ordinary kriging is
for a cut-off below the mean and underestimate this tonnage for used to estimate the parent panel, which in our example is the
a cut-off higher than the mean. The method will also always 20m x 20mx 6m block. There are several non-linear estimators
under-estimate the recovered mean grade, whatever the cut-off which should first be tested for suitability to a given
grade. mineralisation style.

A more appropriate method is to estimate blocks of at least half The methodology described above has been successfully
the drilling grid and to determine the grade-tonnage curves for employed by SRK at a number of sites and mineralisation styles
the mining units within these panels using the appropriate and results in better exploitation of the resource as
geostatistical methods. misclassification of ore as waste, and vice versa, is largely avoided.

SRK’s Approach
Assume that the nominal spacing of the drillhole intercepts
along the orebody is of the order of 40m x 40m. This raises the
issue of how large an estimation block needs to be to achieve
confident estimates from this grid. A general rule of thumb is
that the estimation block needs to be at least half the size of the
drilling grid along the x and y-axes, however this can be
established from the variogram model and the drilling geometry.

At this stage the third dimension of the estimation block, which

should be a function of the mining selectivity (and equipment
selection), has not yet been considered. Whether it is decided to
mine, for instance, a 4m or 6m bench will have a significant
effect on selectivity decisions and should be tested. This can be
achieved by generating change-of-support models for different
bench heights. Having assessed which bench height lends itself
to the best selectivity, we can then carry out tests to establish Diagram showing the relationship between the drill spacing, small
the dimensions of a “well estimated” block for optimal blocks and estimation panels. In this case, the small blocks are
estimation and exploitation of the resource. 5m x 5m on a drill spacing of 100m - the panels are 50m x 50m.
 Children’s education needs took Mike and family to Sydney in 1987,

Spotlight on where he worked in head office roles of mining companies including

Elders Resources and Exxon Coal and Minerals, and these roles
included components of due diligence on acquisition targets. Mike
completed a part time MBA at Macquarie University during this time,
which assisted in his move into investment banking. While working
Mike Warren for investment banks, Mike was involved in due diligence for world
Mike Warren heads up the due diligence practise within SRK Australasia, which class mines including Lihir, Argyle, Bengalla and Alumbrera, as well as
services mining companies and the major banks to the mining industry. Mike is mines and projects in gold, nickel, copper and coal, including the
well qualified to handle this type of work as he recently worked for several financing of the Nimary gold mine in WA
banks for nearly five years, providing very similar advice from within the Global for Eagle Mining and the Coppabella PCI
Project Finance teams of BZW Australia (Barclays Bank) and WestLB (a German coal mine in Queensland.
bank fairly new to Australia).
Mike assisted SRK in 2000 by leading a
Mike is a mining engineer who has worked in underground and open cut mines team on a coal mine due diligence in
and has over 20 years of industry experience. He has been involved in many China and subsequently joined SRK to

Mike Warren
aspects of mining, including technical, supervisory, financial and head office head up the due diligence business
roles. Beginning with 8 years at Broken Hill with CRA, Mike went into the coal sector in Australia. In the last two years
mining industry where the “toys were bigger”. Mike worked for Goonyella Coal or so Mike has consulted on or lead
Mine in the Bowen Basin of Queensland for 5 years, initially for Utah teams in due diligence for;
Development Company who were later taken over by BHP.
• Yanzhou Coal, Jining III Coal Mine, China
for Rothschild.
• Mt Cuthbert Copper SXEW mine in Queensland for Summo Minerals Inc.

Looking • Stawell Gold Mine in Victoria for Mining Project Investors.

• Ernest Henry Copper/Gold mine in Queensland for Aquila Resources
and ABN AMRO.
• The independent report on 18 bauxite mines in China for the listing of
SRK newsletter - February 2002

forward in 2002
Aluminium Corporation of China Limited (Chalco) on the New York and
Hong Kong stock exchanges.
• A review and valuation (with Ernst & Young ) of the My Leyshon assets
for Normandy.
• Consulted on WMC Gold reserves for Gold Fields.
• A review of the Cawse nickel mine for Rothschild and potential
SRK Consulting’s strategic focus for 2002 will continue to be on
purchasers.
providing highly professional advice and products to mining operations,
mineral and oil exploration companies both in Australia and overseas.
Contact Mike at Level 9, 1 York Street, Sydney NSW 2000.
Our strengths in the specialised large scale mining methods of the
Ph: +612 9250 0130 Fax: +612 9250 0131 e-mail: mwarren@srk.com
future, and the complex geotechnical and engineering challenges that
these present, are continuing to grow, and will lead the growth that we
are predicting into 2002. SRK provides critical input into almost all

4
underground mining projects in Australia, and these are maintaining a
strong focus on mining development projects in 2002.

As the mining industry consolidates, the size, production rate, and

New contracts
efficiency of most operations will be put under further scrutiny. SRK is
SRK Update

well placed to provide both resource geology and engineering expertise Expanded Environmental Services
into those operations, to help companies make the best planning Working towards providing our clients with a wider spectrum of
decisions possible based on the best technical and economic outcomes. services, SRK has formed an alliance with Martinick McNulty
Along with the mining and engineering aspects, SRK’s resources and based in Perth. Martinick McNulty, established in 1979 has been
geology groups are working with a number of companies to optimise active in providing baseline studies, environmental monitoring
resource development projects. This includes applying best-practice and EIS/EIA studies. This will supplement the geochemistry and
structural geology to advanced resource estimation procedures. This mine closure services already provided by our GeoEnvironmental
approach delivers much improved domain definition, based on practical engineering group in Brisbane. The alliance with Martinique
mining considerations such as the mining method, controlling McNulty will also increase the scope of SRK’s environmental
structures, and alteration pattern. services on the western seaboard.

In our exploration division, our focus for 2002 will be on advanced Another Successful Mine Closure
modelling of ore bodies, based on ensuring 3D data are captured and John Chapman of our Brisbane office recently completed a review
displayed in the most appropriate format to the problem at hand. New of the 2001 monitoring data for the closed Flambeau Mine located
methods of treating data are being developed, to add to the range of in Wisconsin (USA), a Kennecott operation. At the Flambeau Mine
possibilities already provided by the major software packages. The core SRK assisted the operator in the development of a limestone
SRK strengths in structural geology, geological interpretation and ore amendment control program to neutralise acidic waste rock prior
body geometry are still being applied to generate regional and local to backfilling the waste rock open pit. The monitoring results
geological models for exploration. Increasingly, the new methodologies have shown that complete neutralisation of the backfill pore
of risk management and exploration accountability are being worked water has been achieved and dissolved metal concentrations are
into these products, to ensure exploration initiatives meet the increased within the limits estimated for the equilibrated groundwater.
accountability demanded by senior managers.

SRK’s major initiative into oil and gas exploration will become an even
larger part of the SRK business focus in 2002, with the division
generating major projects and successes in 2001, and with strong
demand for these products looking set to continue into 2002. The
initiatives of the SEEBASE technology developed for oil basins can also
Stop Press
To keep our clients informed of recent activities in China, the next
be applied to projects in mineral sands, water and particularly red-bed SRK Sundowner will focus on mining in the People's Republic of
copper and SEDEX mineral environments. China. Several high-level guest speakers have been contacted,
among them the Consul-General in Perth. The event will take place
SRK is also developing a new set of advanced courses for 2002. These at the end of March & invitations will be sent out shortly.
include new ways of interpreting aeromagnetic data (with ENCOM
Technologies), an updated and revised structural geology course, and a
new course in Geostatistics.

Peter Williams
Managing Director
25 Richardson Street, West Perth, WA, 6005
Ph: +61 8 9322 2993 Fax: +61 8 9322 2994