How geologists destroy shareholder value

Geologists are responsible for developing the primary assets (resources and reserve) of mining and exploration companies. So, if the fundamental resource is not accurate or if the resource during mining stage is not adequately managed, asset value is damaged and therefore the value a shareholder has in the resource or mine. That value can often not be recovered without spending a whole lot of money, which essentially becomes cash down the toilet. Let me give a couple of brief anonymous examples from a study done by a BHP resource geologist, Chris De-Vitry. These examples illustrate how bad geological practice destroys shareholder value.


Calcium carbonate, as with many other industrial minerals, is sold at different prices depending on the product quality. The analysis equipment on the mine broke down and new equipment with new standards gave consistently different analyses. The previously used standard was not certified and resulted in customers receiving better material than they paid for. So they were selling their client Casio watches but delivering Rolexes… A general bias was also intrinsically built into the resource estimation due to the erroneous analyses. A simple round robin standard verification would have helped. This may not seem like a costly error but it resulted in lower grade ore being discarded, instead of being blended with the high grade material and delivered to the client, still within specification. Essentially this resulted in a loss of overall tonnage of available resource and further increased cost by artificially increasing the stripping ratio.

On a different project, surveyors surveyed about 6,000 drill hole collar locations when they were drill (10 years ago). The geologist identified the holes with an alphanumeric prefix identifying the area where the hole was drilled to the nearest 25 m. An audit of the prefix vs hole location highlighted several errors. The old survey records had also in the mean time been lost. A lack of confidence in drill hole location caused the company to re-drill parts of the deposit, costing millions in dollars and many months in time.

Finally, arsenic on a open pit copper mine was a major ore contaminant and effected plant recovery adversely. Historically, sampling of core and face samples were optimized for the low variability and the high variability nugget effect of arsenic in the ore was neglected and poorly represented in the resource model. No specific mining plan was therefore implemented for this issue. As a result ore with a high arsenic variability was sent to the plant which often resulted in the plant running sub-optimally, with copper recovery dropping a couple of percent. A small percentage drop in recovery has a significant effect on realized profit. This example illustrates how poor geological practice affects the entire mining value chain.

All these examples represent obvious errors which could easily have been dealt with at a low cost. With geology, the devil is in the detail. So, in the project you are involved in, are you possibly destroying shareholder value? Consider your logging practice, sampling procedures, QA/QC, resource estimation methods. Are you missing something? Are you applying best practice? Are you thinking of the mining value chain further down, even if you are only in exploration phase now? There is an abundance of literary material available on what constitutes good geological practice. There really is no excuse.

The study referenced here was presented to the Australasian Institute of Mining and Metallurgy and is available from there archives. It’s title is: “A geologist’s guide to destroying shareholder value and a business improvement model to insure against it”. It gives a host of other examples and some brief points on prevention. The image is of Freeport-McMoran’s Grasberg mine in Indonesia (from their website).


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