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Autonomous geologists, hired to analyze mining data, have tons of leeway
When Barkerville Gold Mines Ltd. told investors a few weeks ago that its British Columbia-based project held the potential to cough up 90 million ounces of gold, the first reaction from industry insiders was disbelief. After all, the legendary Timmins gold camp has produced about 70 million ounces, and fewer than 100 million ounces are produced globally each year.
Their second reaction was more of a question: Who the heck calculated those numbers?
It turned out they were derived by Peter George, a veteran geologist at Geoex Ltd. The British Columbia Securities Commission (BCSC) has since intervened with many concerns about his work on Barkerville’s Cow Mountain project, and the company remains a penny stock as investors have little confidence in its stated resources. The stock spiked from 81¢ to as high as $1.67 after the report came out, but has since dropped to 77¢.
Aside from providing yet another reminder about the perils of investing in junior miners – especially when metal prices are floundering – Barkerville has turned the spotlight on the independent geologists who are hired by miners to analyze drilling results and confirm the metal content of their deposits. These individuals, called Qualified Persons or QPs, have little to no contact with investors, but have an enormous impact on whether mining projects get developed and how they are perceived in the market. They also have a lot of leeway in how they interpret data, which can sometimes lead to projections that are far too enthusiastic or – less often – too cautious.
The QP is a key cog in National Instrument 43-101, the series of mining disclosure rules that were introduced in Canada after the Bre-X scandal. The idea behind 43-101 was to improve investor confidence by forcing mining companies to meet very specific guidelines when reporting reserves and resources.
The QP provides independent verification of a company’s data. A miner cannot report a 43-101-compliant resource estimate for a deposit until a QP has pored over and vouched for the drill results. The resulting technical report is one of the most crucial documents a junior mining company produces, because it has that independent seal of approval. There is no reason for QPs to be anything but honest, since they receive only a fee however the report turns out.
“When they were putting together 43-101, they looked at the experience in Australia and other places and realized that the insertion of the Qualified Person was the linchpin to this whole thing,” said Greg Ho Yuen, a partner in Fasken Martineau’s global mining group.
QPs are regulated and have to abide by a general set of rules, just like in accounting, law or any other profession. And, just as in other professions, they often have to exercise their personal judgment. No two mining properties are exactly the same, and some QPs are simply more aggressive than others. Two QPs could come up with different interpretations of the same data without doing anything blatantly wrong.
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