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Inconsistent resource reporting in coal industry
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25th October 2013
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Technical and economic assessment group Venmyn Deloitte finds the reporting of coal resources in the minerals industry, particularly in the South African and Australian mineral industries, inconsistent.

Venmyn Deloitte says some coal com- panies report on gross tons in situ (GTIS) and some use total tons in situ (TTIS), while others use mineable tons in situ (MTIS), with some reporting on all of these values in the interest of clarity.

Venmyn Deloitte mineral project analyst Iaan Myburgh says GTIS measures the gross coal resource in situ tonnage and coal qua- lity at specified moisture content contained in the full coal seam above the minimum centimetre thickness cutoff, and relevant coal quality cutoff parameters, as defined by the competent person.

“At Venmyn Deloitte, we typically use a minimum 50 cm cutoff width for opencast operations and an 80 cm cutoff width for underground operations,” he says, adding that few companies will mine underground at less than 100 cm cutoff width.

TTIS is the total in situ coal resource, which measures tonnage and coal quality at specified moisture content contained in the full coal seam above the minimum centimetre thickness cutoff and quality cutoff parameters, as defined by the competent person. “It is important to note that the seam height does not include any external dilution or contamination material. The geological loss factors are applied to the tonnage in an in situ coal resource,” says Myburgh.

MTIS comprises the tonnage and coal quality at a specified moisture content contained in the coal seams or sections of the seams, which are proposed to be mined at the theoretical mining height using a specific mining method, excluding dilution and contamination material, after the relevant minimum and maximum mineable thickness cutoff and relevant coal quality cutoff parameters have been applied.

“The geological loss factor is applied to the mineable in situ coal resource tonnage,” says Myburgh, adding that mine- able in situ coal resources are classified as inferred, indicated, and measured mineable in situ coal resources.

South African Standards

“In South Africa, all coal resources and coal reserves are classified according to the South African Code for Reporting of Mineral Resources and the Mineral Reserves Code, and the SANS 10320:2004, both of which outline the standard method of the reporting of coal resources and coal reserves within the application of the various technical parameters and spec- ifically note how to determine GTIS, TTIS and MTIS,” according to Venmyn Deloitte.

However, the group has noticed that some countries, particularly those who report to the Australian code, only quote GTIS figures for all projects, with washability tests not always included in their reporting. “If washability tests are not a requirement, companies can choose not to use them,” says Myburgh.

The washability tests involve removing the mineral water from the coal using various washing processes so that the end product is nearly mineral free.

Australian Coal Codes

The Australasian Code for Reporting of Mineral Resources and Ore Reserves and the Australian guideline for the estimating and reporting of inventory coal, coal resources and coal reserves tend not to be as prescriptive as the South African equivalent. “The code does not require the reporting of all the quality parameters and, therefore, only states the minimum requirements,” says Myburgh.

However, the guideline states that coal resources should be estimated and reported for individual seams or seam groupings within a deposit. They should also be subdivided and reported on the basis of key variables, such as thickness, depth range, strip ratio, coal-quality parameters, geographic constraints and geological or technical considerations.

The key variables and assumptions for each deposit should be clearly stated to ensure the clarity and transparency of the report.

Coal-Measuring Tendencies

For Venmyn Deloitte’s valuation curve, the tendency has been to use GTIS, instead of TTIS or MTIS, to compare the values recorded by coal mining companies, based on the resources that they have, and to include Australian and other non-South African companies.

“Venmyn Deloitte decided to use GTIS, owing to the GTIS number being the most consistent number that companies quote, as some companies do not quote more than that,” says Myburgh, adding that, to be able to compare projects on a like-for-like basis, the company needs reliability in preparing the valuation curves accurately.

However, in the South African sce- nario, the use of different reporting standards for coal resources is particularly problematic, as GTIS and TTIS values can differ considerably, particularly in the Waterberg, in Limpopo, where coal is interlaminated with mudstones, which can result in a 25% difference between GTIS values and TTIS values.

“Since TTIS reports coal at a specific cutoff, lower-quality coal is excluded and, in the Waterberg, the amount of coal that does not meet the quality cutoff can be con- siderable,” he adds.

Venmyn Deloitte executive lead Catherine Telfer notes the importance of quoting only the coal resource tonnages in the resource statements for the Waterberg coalfield, as quoting zone tonnages, including interlaminated mudstones, may be misleading.

“It is the responsibility of the competent person to report the coal resource properly,” notes Myburgh.

Quoting zone tonnages, including interlaminated mudstones, may be misleading, since the sampling of these zones typically does not separate the coal from the interlaminated shale portions. These zones are modelled and the tonnages calculated, and the resource statements have quoted the tonnages pertaining to the whole zone, rather than only the coal portion.

“In such cases, Venmyn Deloitte believes that the tonnages presented do not properly inform investors of the actual recoverability/yield of the coal,” high- lights Myburgh.

Washability results on these coals are often as poor as 20%, owing to the large percentage of contained rock, and these tonnages are often used in the derivation of project values using nondiscounted cash flow methods.

Such methods are used for market comparative approaches, which valuate the tonnages for the ground-based transaction of a similar nature. “For example, if company A sells ten-million tons of coal resource for R100-million, each ton of coal resource will, therefore, be worth R10-million. If company B has 20-million tons of coal resource, they will be worth R200-million,” says Myburgh.

Venmyn Deloitte is aware that the coal industry in South Africa is attempting further standardisation on the reporting method of coal resources to solve this problem. This is being carried out through the rewriting of the South African National Standards, which is currently under way. “We estimate that the rewriting, which started in 2012, will be completed in 2014. This will be significant for the industry, as it will provide much more onerous requirements for compliant reporting,” says Myburgh.

Edited by: Megan Wait

 

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