On Resource Estimates Gone Awry22 Feb 2018 15:36
(our management team deserves kudos for careful evaluations & conservative estimates...)
Recent news of Pretium Resources� (PVG.T, PVG.NYSE) 20% to 25% lower grade reconciliation at Brucejack underground gold project in northern British Columbia prompted us to figure out why investors in the mining sector are repeatedly faced with the nightmare of a problematic resource estimate.
The news dropped the share price by ~40% and excised ~C$950 million from its market capitalization. Unfortunately, this is not an isolated case. There is no shortage of examples of resource estimates falling short of expectations despite the fact that reserves had already been declared
The process of resource estimation, particularly in the case of Pretium�s VOK deposit that hosts extremely erratic and spotty gold mineralization, is complex to say the least. The resource model relies on the interpolation of grade and tonnage between drill holes that have the diameter of a good bottle of Malbec, or less, and realistically represent anywhere from one in a million (0.0001%) to one in tens of millions (0.00001%) of the actual tonnage.
http://www.kitco.com/commentaries/2018-02-21/The-Abstract-Art-of-Resource-Estimation-or-What-Went-Wrong-This-Time-Brent-Cook-Joe-Mazumdar.html