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Symonston ACT 2609
GPO Box 378,
Canberra ACT 2601
Australia
+61 2 6249 9111
www.ga.gov.au
ABN 80 091 799 039
Geoscience Australia advice to the Australian Competition &
Consumer Commission regarding certain geotechnical aspects
of the Australian Rail Track Corporation submission to the 2017
Hunter Valley Coal Network Access Undertaking
FOR OFFICIAL USE ONLY
Contents
1 The JORC Code in summary............................................................................................... 1
1.1 Introduction .................................................................................................................... 1
1.2 Purpose of the JORC Code ............................................................................................ 1
1.3 The principles of the JORC Code ................................................................................... 2
1.4 Use of the JORC Code................................................................................................... 2
1.5 Mineral Resources and Ore Reserves - definitions ......................................................... 3
1.5.1 Mineral Resources .................................................................................................... 3
1.5.2 Ore Reserves ............................................................................................................ 4
2 Determining Mineral Resources .......................................................................................... 6
2.1 Converting Mineral Resources to Ore Reserves............................................................. 7
2.2 Confidence ..................................................................................................................... 8
2.2.1 Comments on the ARTC Submission ........................................................................ 8
2.3 Coal Reserves – In situ, Recoverable and Marketable ................................................... 9
2.4 Moving Goalposts - Resource life and mineral supply .................................................. 10
2.5 Unmined Reserves at Mine Closure ............................................................................. 11
2.5.1 Comments on the ARTC Submission ...................................................................... 12
2.5.2 Powder River Case Study ....................................................................................... 16
3 Further Comments ............................................................................................................ 17
3.1 Weighted Remaining Mine Life ..................................................................................... 17
3.2 Implications for the Financial Markets .......................................................................... 17
3.3 The HRATF proposed methodologies .......................................................................... 18
4 Summary of Recommendations ........................................................................................ 19
FOR OFFICIAL USE ONLY
1 The JORC Code in summary
1.1 Introduction
The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore
Reserves (the JORC Code) was first used in Australia in 1989 with revised editions
published in 1992, 1996, 1999 and 2004. The current edition of the JORC Code was
published in 2012 and, after a transition period, came into mandatory operation from 1
December 2013.
In the 1970s, many in the minerals industry and in government recognised that more
consistent definitions of resources and reserves were needed for a wide range of reasons
including a better grasp of strategic mineral inventories and potential supply as well as for
rebuilding confidence in public reporting to investor markets following the “Poseidon” nickel
boom and bust in the late 1960s. In 1977, The Australian Government began using the
National Classification System for Identified Mineral Resources which was based on the
McKelvey scheme, jointly published by the United States Bureau of Mines and the United
States Geological Survey in 1976.
The Joint Ore Reserves Committee was established in 1971 and, after many years of
consultation and development, published the JORC Code in 1989 which was adopted into
the listing rules of the Australian Securities Exchange (ASX) and the New Zealand Stock
Exchange (NZX). The JORC Code is consistent with Australia’s National Classification
System and the McKelvey Scheme and has been used as a template for standard
international definitions for reporting mineral resources by the Committee for Mineral
Reserves International Reporting Standards (CRIRSCO) and for the United Nations
Framework Classification (UNFC) system, among others. In short, the JORC Code is
regarded as world’s best practise.
1.2 Purpose of the JORC Code
The JORC Code is a principles-based code based on the three key pillars of transparency,
materiality and competence. It is not prescriptive and it does not regulate the procedures
used to estimate and classify resources or reserves. It does not regulate any company’s
internal classification or reporting systems. The Code does, however, tell a company how to
report its resource estimates to the public.
Under the JORC Code, estimates are made by a Competent Person. A Competent Person
must be a member of the Australasian Institute of Mining and Metallurgy (AusIMM),
Australian Institute of Geoscience (AIG) or a Recognised Overseas Professional
Organisation (ROGO). There are no fixed prerequisite qualifications for Competency other
than a minimum of five years’ experience in the relevant commodity or geological style and
the requirement that the Competent Person must sign their name to the report and be able to
justify their decisions and demonstrate competency in front of his or her peers.
Breaches of the Code are not dealt with by the Joint Ore Reserves Committee. They are
dealt with by the ASX or NZX (the JORC Code forms part of the listing rules) and the code of
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ethics of the AIG, AusIMM or the ROGO. The JORC Code is binding on members of the
AusIMM and AIG.
1.3 The principles of the JORC Code
The over-arching requirements of the JORC Code, governing its operations and application
are:

Transparency. The reader of a Public Report must be provided with sufficient
information that is presented clearly and unambiguously. The reader must not be misled
by this information nor should there be any omission of material information that is
known to the Competent Person.

Materiality. The Public Report must contain all relevant information that investors and
their professional advisers would reasonably require, and reasonably expect to find, in a
report about Exploration Results, Mineral Resources or Ore Reserves, for the purpose of
making a reasoned and balanced judgement. Where relevant information is not included,
an explanation must be provided to justify its exclusion.

Competence. The Public Report must be based on work that is the responsibility of
suitably qualified and experienced persons who are subject to an enforceable
professional code of ethics (the Competent Person).
Transparency and Materiality are guiding principles of the Code, and the Competent Person
must provide explanatory commentary on the material assumptions underlying the
declaration of Exploration Results, Mineral Resources or Ore Reserves. The JORC Code
provides a “check list” in Table 1 which sets out the criteria to be reported on. The
Competent Person must not remain silent on any material aspect for which the presence or
absence of comment could affect the public perception or value of the mineral occurrence.
Thus the over-arching theme for reporting according to the JORC Code is “if not, why not?”
meaning that the Competent Person must address every criterion listed in Table 1 or provide
an explanation for the absence of comment.
1.4 Use of the JORC Code
The JORC Code forms part of the listing rules for the ASX and the NZX as well as the
National Stock Exchange of Australia. It is also referenced by the London Stock Exchange,
the Dubai Financial Market, the Stock Exchange of Hong Kong, the Singapore Catalist Board
and the European Securities and Markets Authority.
The JORC Code is compatible with other national codes such as the:

SAMREC CODE - South African Mineral Committee (South Africa)

REPORTING CODE - (UK / Western Europe)

CIM GUIDELINES (NI43-101) - Canadian Institute of Mining, Metallurgy and Petroleum
(Canada)

SME GUIDE - Society for Mining, Metallurgy and Exploration (USA)

CERTIFICATION CODE - (Chile)

SEC - Security and Exchange Commission (USA)
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The compatibility comes about because the JORC Code was the first reporting code
developed and other countries, with the notable exception of Russia and China, have
subsequently based their own codes on it. As previously mentioned, the JORC Code is also
compatible with the international CRIRSCO and UNFC systems for mineral resource and
reserve classification.
The Code is applicable to all solid minerals, including diamonds, other gemstones, industrial
minerals and coal, for which Public Reporting of Exploration Results, Mineral Resources and
Ore Reserves is required by the ASX and the NZX.
1.5 Mineral Resources and Ore Reserves - definitions
As can be noted from the full name of the JORC Code - The Australasian Code for Reporting
of Exploration Results, Mineral Resources and Ore Reserves - there are three main
components of the Code that a Competent Person can report against.
For the purposes of this summary, Exploration Results will not be discussed other than to
state that under the JORC Code they “…include data and information generated by mineral
exploration programmes that might be of use to investors but which do not form part of a
declaration of Mineral Resources or Ore Reserves.”
1.5.1 Mineral Resources
JORC Code Definition of Mineral Resource
A ‘Mineral Resource’ is a concentration or occurrence of solid material of economic interest in or on
the Earth’s crust in such form, grade (or quality), and quantity that there are reasonable prospects
for eventual economic extraction. The location, quantity, grade (or quality), continuity and other
geological characteristics of a Mineral Resource are known, estimated or interpreted from specific
geological evidence and knowledge, including sampling. Mineral Resources are sub-divided, in order
of increasing geological confidence, into Inferred, Indicated and Measured categories.
Mineral Resources are reported against three categories in order of geological certainty:
Inferred, Indicated and Measured:

An Inferred Mineral Resource is that part of a mineral resource for which tonnage,
grade/quality and mineral content can be estimated with a low level of confidence.

An Indicated Mineral Resource is that part of a mineral resource for which tonnage,
densities, shape, physical characteristics, grade/quality and mineral content can be
estimated with a reasonable level of confidence and will support mine planning and
evaluation of the economic viability of the deposit.

A Measured Mineral Resource is that part of a mineral resource for which tonnage,
densities, shape, physical characteristics, grade/quality and mineral content can be
estimated with a high level of confidence and will support detailed mine planning and the
final evaluation of the economic viability of the deposit.
Under the JORC Code, a Mineral Resource estimate for coal may also be reported as a Coal
Resource.
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Indicated and Measured Resources do not need to have undergone an economic study but
must be able to support mine planning. However, the term ‘reasonable prospects for
eventual economic extraction’ does imply, at the least, a preliminary assessment by the
Competent Person in respect of all matters likely to influence the prospect of eventual
economic extraction including the approximate mining parameters.
The timeframe in mind for eventual extraction varies by commodity and individual deposit.
Competent Persons reporting on bulk commodities such as coal, bauxite and iron ore might
regard “eventual” as meaning 50 years or more. Others reporting on more complex
metalliferous deposits may regard “eventual” time frames as anywhere from 10 to 25 years.
In each case, the considered timeframe should be disclosed by the Competent Person.
1.5.2 Ore Reserves
JORC Code Definition of Ore Reserve
An ‘Ore Reserve’ is the economically mineable part of a Measured and/or Indicated Mineral
Resource. It includes diluting materials and allowances for losses, which may occur when the
material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as
appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time
of reporting, extraction could reasonably be justified.
The reference point at which Reserves are defined, usually the point where the ore is delivered to
the processing plant, must be stated. It is important that, in all situations where the reference point
is different, such as for a saleable product, a clarifying statement is included to ensure that the
reader is fully informed as to what is being reported.
An Ore Reserve is the economically mineable part of a Measured or Indicated Mineral
Resource. It includes diluting materials and allowance for losses that may occur when the
material is mined. Ore Reserves are sub-divided in order of increasing confidence into
Probable Ore Reserves and Proved Ore Reserves:

A Probable Ore Reserve is the economically mineable part of an Indicated Mineral
Resource, and in some circumstances, a Measured Mineral Resource, and has a very
high level of confidence.

A Proved Ore Reserve is the economically mineable part of a Measured Mineral
Resource and has the highest level of confidence.
Under the JORC Code, an Ore Reserve estimate for coal may also be reported as a Coal
Reserve.
Appropriate economic and technical assessments (a prefeasibility study at a minimum) must
have been completed and the estimation must consider realistic assumptions about factors
such as mining, processing, metallurgical, economic, marketing, legal, environmental, social
and governmental restraints and be modified accordingly. Also, the study will have
determined a mine plan and schedule that is technically achievable and economically viable.
Thus, the economic and technical assessments used in estimating Ore Reserves
demonstrate that, at the time of reporting, extraction could be reasonably justified.
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The Ore Reserve is that part of the Mineral Resource that the Competent Person judges to
be economic to extract within a commercial timeframe (typically around five years outlook).
Importantly, this does not mean that all of the Ore Reserve will be extracted within that same
timeframe. For new mines, start up should be expected within five years of the Ore Reserve
estimation unless Modifying Factors change so much in the meantime that a new estimate is
required. Many deposits are so large that the estimated Ore Reserve and accompanying
mine plan are greater than five years of current or planned production. However, publicallyowned mining companies should regularly assess the Modifying Factors for changes and
provide updated reports to the financial markets.
1.5.2.1 Re-evaluating Ore Reserves
The JORC Code further expands that: ‘If re-evaluation indicates that the Ore Reserves are
no longer viable, the Ore Reserves must be reclassified as Mineral Resources or removed
from Mineral Resource/Ore Reserve statements’. Temporary changes in operating conditions
or economic factors are not meant to lead to reclassification if it may be reasonably expected
that those conditions or factors will revert to the original assumptions in the short-term. For
example, such situations might include unexpected commodity price fluctuations that the
company believes will be short-lived, a mine emergency of a non-permanent nature or
industrial action. In practise, mining companies typically wait a year or two before
reclassifying Ore Reserves to ensure that any change in circumstances (e.g., a lower
commodity price) is long term.
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2 Determining Mineral Resources
The process of determining a Mineral Resource involves subjectivity at many stages and
converting a Resource to an Ore Reserve introduces more of the same, hence under the
JORC Code they are termed “estimates”.
In 2014, the Coalfields Geology Council of New South Wales and the Queensland Resource
Council published the “Australian Guidelines for the Estimation and Classification of Coal
Resources”. This guide is endorsed by the JORC Code Committee as a complementary
document to be used in conjunction with the JORC Code. It provides best practice guidelines
for Competent Persons seeking to best assess the geological data and modelling, the
geostatistical analyses, the properties of the coal and the meaning of “reasonable prospects”
when determining a resource or reserve estimation.
Once sufficient exploration or orebody delineation has been completed, a company will
create a geological model of the ore deposit in order to determine an estimate of the Mineral
Resource. This is done using a range of data that includes, but is not limited to, stratigraphy,
lithology, geochemistry, geophysics, hydrogeochemistry, and structural measurements. The
quality of the data may be variable, for example old geochemical analyses will have lower
levels of accuracy than recent analyses derived from more advanced technology. The drill
spacing used to delineate the deposit will also inform the model as denser drilling leads to
more confidence in the geological model. Importantly, there is no prescribed drill spacing for
the different categories of Resource and Reserve in the JORC Code as geology is so
variable. For instance, the drill spacing needed for high-confidence modelling of a broad, flat,
homogenous bauxite deposit is quite different to that needed for a structurally-complex,
deep-seated polymetallic deposit (the latter would need much more closely spaced drilling).
It is the professional judgement of the Competent Person that is responsible for determining
the appropriate level of confidence to apply to the data. As an example, old drilling data
entered into a deposit model can be flagged by the Confident Person as being of lower
confidence than more recent data. All the different types of data feeding into the model of the
ore body can be treated this way. Thus, the geological model of the deposit can be built with
confidence levels assigned block by block.
At the end of the process, the Competent Person has a preliminary estimate of the Mineral
Resource to which he or she then applies a general economic assessment with the view to
“eventual economic extraction”. Finally, the Mineral Resource, classified into Inferred,
Indicated and Measured categories, can be reported to the investment markets using the
JORC Code. If the Mineral Resource is of sufficient confidence, i.e., Indicated or Measured,
the company can then proceed to mine planning.
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2.1 Converting Mineral Resources to Ore Reserves
The Mineral Resource estimate and supporting data are then forwarded to the Competent
Person for estimation of the Ore Reserve. Competent Persons for estimating Ore Reserves
have qualifications in mine engineering with a minimum of five years’ experience in mine
engineering, the mine method proposed and the commodity. The Competent Person will
assess the engineering report, milling and metallurgical results, mining and processing
losses and consider governmental, social and environmental regulations when estimating the
Ore Reserve and determining the mine plan. After all these Modifying Factors have been
applied to the Mineral Resource, the Competent Person can then sign off on their estimate of
the Ore Reserve and report it to investors using the JORC Code.
Under the JORC Code, an Indicated Resource has enough geological information to support
mine planning and can be converted to a Probable Resource, once Modifying Factors have
been applied (Figure 1). A Measured Resource has enough geological information to support
detailed mine planning and can be converted to a Proved Resource, although, sometimes, a
Competent Person may not have sufficient confidence in the Measured Resource and may
instead convert it to a Probable Reserve (Figure 1).
Exploration Results
Mineral Resources
Ore Reserves
Inferred
Increasing level
of geological
knowledge and
confidence
Indicated
Probable
Measured
Proved
Consideration of mining, processing, metallurgical, infrastructure,
economic, marketing, legal, environment, social and government factors
(the “Modifying Factors”).
Figure 1: General relationship between Exploration Results, Mineral Resources and Ore Reserves (from The
JORC Code 2012 Edition).
Typically, mining companies do not convert a Mineral Resource into an Ore Reserve all at
once. Instead, they contain expenditure by converting selected parts of the Mineral Resource
to Ore Reserves as part of the ongoing process of mining the deposit according to the mine
plan.
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2.2 Confidence
The JORC Code defines its resource and reserve categories according to increased levels of
geological and economic confidence, but does not quantify terms such as “low”, “reasonable”
and “high” levels of confidence. Instead, the Code relies on Competent Persons to provide
their own interpretation of what is meant by confidence and accuracy levels in the context of
their individual project. This recognises the inherent unique geology of each individual
deposit, the different constraints on mine development from place to place and the range of
data that may have been used to inform the estimate.
When discussing and reporting accuracy and confidence levels, the Competent Person aims
to provide a measure of expected accuracy over a particular period of time (assuming the
mine production schedule is followed correctly). For example, confidence in the estimate may
relate to periods of time that are monthly, quarterly, annual or life-of-mine.
The accuracy of the Ore Reserve is determined by reconciling the ore mined versus the mine
plan. Most companies reconcile regularly against the Reserve estimate and if it is off by more
than expected then the Modifying Factors are revisited. Geology, by its nature, is highly
variable and even the most densely drilled, homogenous deposit can have unexpected
characteristics that only become apparent once mining has started. Thus, the process of
estimating Ore Reserves at a working mine is one of continuous iteration.
In general, if all Modifying Factors have been correctly anticipated then the amount of ore
actually mined compared to the Ore Reserve estimation might be expected to be wrong by
15% over a three-month period but more accurate over a twelve-month period, say 10%
(under or over). These percentages are examples only as each deposit will have its own
level of accuracy depending on its unique characteristics, however, bulk commodities and
homogenous deposits can be expected to have narrower confidence ranges than nuggetty
gold or structurally complex deposits. Importantly, the “wrongness” of the Ore Reserve
estimate can be in either direction, thus one could equally argue for an addition to the
Reserve rather than a deduction when making decisions based on the Reserve estimate.
2.2.1 Comments on the ARTC Submission
In the Australian Rail Track Corporation’s (ARTC) submission, they present a diagram
(Figure 2) showing Marketable Proved Reserves with a confidence interval of +/-7.5% and
Marketable Probable Reserves with a confidence interval of +/-17.5% and argue that the
figure supplied by the Competent Person for Marketable Proved and Probable Reserves
should not be used but, instead, discounted by 7% and 17.5%, respectively. Firstly, these
confidence figures are not actually derived from a detailed study of the Hunter Valley coal
mines but have merely been proposed as reasonable by the Consulting Company.
Geoscience Australia, while not disputing the assertion of reasonableness, cautions that
these figures may, in fact, not be typical.
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Figure 2: Screenshot of the possible confidence ranges for Proved and Probable Reserves proposed by the
Consulting Company to the ARTC.
Secondly, the confidence interval is plus or minus, thus an addition to the Reserve is equally
warranted. While the ATRC’s position of conservatism regarding the Ore Reserves is
understandable given the company’s objectives, Geoscience Australia strongly recommends
that the JORC Code estimate provided by the Competent Person for each mine is used as
reported to the financial markets. To (publically) do otherwise is to imply that the ARTC has
more knowledge of orebodies and mining methods than the Competent Person, who
therefore must have misled the financial markets by overestimating the Ore Reserve.
2.3 Coal Reserves – In situ, Recoverable and Marketable
An in situ Coal Reserve is the coal that is in place in the ground, i.e., the coal in the seams or
sections of seams for which enough detailed is available to form a mine plan. How much of
an in situ Reserve is able to be mined is largely a function of technology and, hence, in situ
Coal Reserves should be quoted separately for open-pit and underground mines.
Current mining techniques do not enable every single part of an in situ Reserve to be
extracted, although open-cut mines with favourable geology and a superior mine plan can
come close with recovery factors of more than 90% being achievable. Underground coal
mines, however, may recover as little as 40% of the in situ Reserve but modern longwall
mining techniques have resulted in many underground coal mines having recovery rates of
greater than 70%. Thus, the recoverable Coal Reserve is the proportion of the in situ Ore
Reserve that is expected to be actually mined. This is also referred to as run-of-mine (ROM).
Once mined, some coal needs to be further beneficiated to meet market specifications. This
may involve washing, sizing and sorting into categories of varying quality and the product is
referred to as Marketable or saleable coal. The JORC Code requires that Marketable Coal
Reserves must be publicly reported in conjunction with, but not instead of, reports of Coal
Reserves. The basis of the predicted yield to achieve Marketable Coal Reserves must be
stated. Some coal is sold as ROM and, in these cases, the recoverable Reserve and the
Marketable Reserve are the same.
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2.4 Moving Goalposts - Resource life and mineral supply
“Resource Life”, “Reserve Life” or “Remaining Mine Life” are catchy terms sometimes used
to describe how many more years a particular mineral commodity or orebody can be mined
for until it runs out. The concept’s appeal is obvious but needs to be treated with caution.
Resource life is usually determined by taking some measure of a mineral resource and
dividing that estimate by some rate of production. The issue is deciding which measure of the
mineral resource and which rate of production should be used which, in turn, should be
informed by the purpose of the resource life calculation.
Geoscience Australia, for example, publishes each year the approximate resource life of
major commodities in Australia but emphasises that it is merely a snapshot in time that may
be useful for long-term strategic planning. For this broad outlook, it is appropriate to use the
most recent year’s economically demonstrated resources (the sum of Indicated and
Measured Resources plus Proved and Probable Reserves) divided by the most recent year’s
production and round it to the nearest five years.
This approach, while suitable for a broad national overview, does not reflect short-term
commercial outlooks or individual mine life. The Ore Reserve (only the Proved and Probable
categories of the JORC Code) would be more appropriate for this purpose but, in the case of
coal, deciding on the appropriate measure of mineral resource to use is complicated by the
existence of an in situ Ore Reserve, a recoverable Ore Reserve and, sometimes, a
Marketable Ore Reserve.
Similarly, the rate of production used to determine the resource life of individual mines can
be problematic. Should the most recent year’s production be used (even if it was atypical)?
Should an average of the last five years be used so as to smooth out irregularities? Should
the production rate be forward looking (use the mine plan)? Or should the person calculating
resource life conservatively anticipate market slowdowns and use a production rate based
only on the amount of ore for which the company already has offtake contracts in place?
Just as production rates can change year to year, the Ore Reserve is not static either. As
previously described, the Ore Reserve of an operating mine regularly changes as the
Competent Person periodically reconciles the amount of ore mined to the original estimate
and converts existing Mineral Resources to new Ore Reserves to replace the ore mined.
Typically, at the same time, the mining company is also upgrading Inferred Resources to
Indicated and Measured Resources. And so, there is a continuity of resources being
converted to reserves over many years. This means that a resource life of seven years,
calculated on the Ore Reserve, for example, can remain seven years for the next twenty
years.
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Mineral supply is another concept often confused with mineral resources. The Canadian
Government mineral economist Jan Zwartendyk (1976) presented the fable of confusing
resources with supply:
Q. What are our coal resources?
A. 1200 years’ worth.
Q. At forecast growing levels of consumption?
A. No, that would only be 250 years’ worth.
Q. Allowing for future technological improvements in mining?
A. No, that would be 350 years’ worth.
Q. Is that recoverable coal?
A. No, that would only be 190 years’ worth.
Q. Is much of that economically recoverable now?
A. No, only about 30 years’ worth.
Q. Can much of this be used for steel-making?
A. No, only about 10 years’ worth, but in view of the miners’ strike…
Mineral supply is the possible future rate of production. Mineral Resources and Ore
Reserves are not supply but provide opportunities for it. Thus, Resource Life, Reserve Life,
Remaining Mine Life or whichever term you prefer, can be likened to a set of moving
goalposts as neither the resource/reserve estimations nor the production rate are static over
time.
Geoscience Australia has no opinion on which Coal Reserve should be chosen (in situ, ROM
or Marketable) or which production rate should be selected for calculating remaining mine life
in the Hunter Valley other than to note that both figures should be fit for purpose. Certainly,
Marketable Ore Reserves as proposed in the 2017 Hunter Valley Coal Network Access
Undertaking (2017 HVAU) is reasonable but the ARTC’s concerns about using the 2016
production figures for the Hunter Valley are understandable as these may not best reflect
recent years’ production or future production.
2.5 Unmined Reserves at Mine Closure
Technically, once a mine is decommissioned the Reserves must be zeroed as they no longer
meet the economic criteria for being classified as such under the JORC Code. The mine
however may still have a Mineral Resource if the orebody is not mined out and the
Competent Person judges that economic circumstances over the long-term may warrant
further extraction. Most mines do not close according to a schedule set out decades in
advance so, in the years leading up to mine closure, it is not unusual for mines to still have
significant Ore Reserves that may be many years larger than the production rate.
Ideally, a mine should close because of depletion of the orebody in accordance with the mine
plan with the schedule and associated reduction in Reserves communicated to investors
many years in advance. However, mines most often close because they become
uneconomic for a host of reasons - mismanagement, mine accident or, very commonly, longterm commodity prices or production costs become unfavourable. Long-term outlooks on
commodity markets can be difficult to forecast correctly, leading to the well-known boom-
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and-bust cycles for which the mining industry is notorious. Struggling operations are usually
placed on “care-and-maintenance” for a period with a view to reopening when commodity
markets improve. And even when mines are finally decommissioned, it is not unusual for old
mines to be restarted years later under new owners.
2.5.1 Comments on the ARTC Submission
1
The paper by Creech (2014) used by the Consultant Company to the ARTC regarding the
average Reserves reporting by coal companies in the year prior to closure from 1975 to 2012
is problematic. Firstly, the author correctly states in the original paper that it can be very
difficult to distinguish between a mine that has closed due to reserve depletion and one that
has closed because it has become uneconomic as the two reasons are often inextricably
entwined. The caution needed in interpreting the data presented in the paper, while useful for
the purposes of providing general insight, does not appear to have been emphasised to the
ARTC.
Secondly, Creech (2014) appears to have made a significant error in the data presented. The
paper lists 39 coal mines that have closed primarily owing to reserve depletion. Table 3 of
Creech (2014) shows that 22 of those mines occur in NSW and 17 in Queensland (Figure 3).
The mines in NSW reported an average of 14 Mt of Ore Reserves left in the year before
closure and the mines in Queensland reported 15 Mt. It is mathematically impossible for the
total 39 mines to have an average of 32 Mt of reported Reserves in the year before closure
as presented in the original table (Figure 3).
Figure 3: Screenshot of Table 3 from Creech (2014).
Examining the data for individual mines presented in Table 1 of Creech (2014), Geoscience
Australia calculates that the 39 coal mines closed owing to Reserve depletion had an
average of 15 Mt reported in the year before closure (Table 1). Additionally, one of the mines
(Ulan with 206 Mt) is clearly an outlier and when this data point is removed, the average
amount of Reserves reported in the year before closure is only 8 Mt. Only five mines
reported Reserves of 30 Mt or greater in the year before closure with more than half the
mines reporting Reserves of less than 5 Mt or less. Creech (2014) readily acknowledges the
skewed data but the Consultants to the ARTC have not made this point.
1
Creech, M., 2014. Reserves, Reserves and not a Tonne to Mine – a Study of Reserves Reported Prior to Mine Closure. In:
Mineral Resource and Ore Reserve Estimation: The AusIMM Guide to Good Practice. Second Edition, Monograph 30, p627634.
GA Comments to the ACCC regarding the 2017 HVAU
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Table 1: Raw data from Creech (2014) listing the reserves reported in the year prior to closure for 39 coal mines
in NSW and Queensland that were identified as closing because of Reserve depletion.
1
2
3
4
5
6
7
8
9
10
New South Wales
Reserve reported
Mine
year prior to
closure (Mt)
Awaba
0.5
Ble Mountains
0.7
Bulli
30
Canyon
11
Cordeaux
4.5
Endeavour/Newvale2
0.5
Enhance Place
0
Grose Valley
1.5
Gennedah underground
5
Ivanhoe
0.5
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
John Darling
Kandos
Munmorah
Newstan
Preston
0
0.75
4.1
2
0.2
11
12
13
14
15
16
17
18
19
20
21
22
Stockrington
Teralba
Ulan open cut
Wallarah
Wallsend Borehole
Westend open cut
Yellowrock
TOTAL
# Data points
Average
NSW and QLD Total
# Data points
NSW and QLD
Average
11
2.8
206
6
31
0.3
1.3
319.7
22
14.5
451.7
30
16
17
#
Queensland
#
Mine
Bocum/Bowen
Box Flat
Dacon East
Garrick
Haenk (Rhonnda)
Jeebropilly
Moura open cut
New Hope (Rhonnda)
New Whitwood
Oakey Creek
underground
Oakleigh
Pipeline
Rylance
Southern
South Blackwater open
cut
Wattle Glen
Westfalen
TOTAL
# Data points
Average
Reserve reported
year prior to
closure (Mt)
45
20
7
0
7
0
3
50
132
8
16.5
15.1
For mines that have closed because they have become uneconomic, again the data
presented in Table 3 of Creech (2014; Figure 3) is difficult to reconcile with the individual
mine data presented in the same paper. Creech states that 34 coal mines have closed over
the reporting period because they became uneconomic (Figure 3). Geoscience Australia can
only find 33 mines listed in Creech’s individual mine data with “uneconomic” as the primary
reason for closure. The resulting average is 32 Mt of Ore Reserves reported in the year
before closure whereas Creech reports 40 Mt in Table 3 (Figure 3).
GA Comments to the ACCC regarding the 2017 HVAU
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FOR OFFICIAL USE ONLY
Table 2: Raw data from Creech (2014) listing the reserves reported in the year prior to closure for 33 coal mines
in NSW and Queensland that were identified as closing primarily because they became uneconomic.
#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
New South Wales
Reserve reported
Mine
year prior to
closure (Mt)
Aberdare North
2.5
Avon
5
Bellbird
35
Benwerrin
2
Brimstone
5
Coalcliff
6
11
Corrimal
Dartbrook underground
Eloura
Fernbrook
Lambton
Lemington underground
Liddell State
Mannering
Muswellbrook
underground
Nattai Bulli
Newvale 1
Northcliff
Oakdale
Pelton/Ellalong
Swamp Creek open cut
3
110
95
68
48
92
Ulan underground
76
Wallamaine
16
TOTAL
# Data points
Average
NSW and QLD Total
# Data points
NSW and QLD
Average
55
3
17
6.2
98
82
10
Queensland
#
1
2
3
4
5
6
7
8
9
10
Mine
Blackheath (Rhonnda)
Blair Athol open cut
Burgowan
Ebenezer
Gregory open cut
Leichhart
New Haenke
underground
New Oakleigh
Normanton
Swanbank
Reserve reported
year prior to
closure (Mt)
35
8
6
10
12
18
0
25
870.7
23
37.9
959.7
30
TOTAL
# Data points
Average
89
7
12.7
32.0
Table 3 of the original paper (Figure 3) appears to contain other errors and Geoscience Australia has
attempted to contact the AusIMM to gain clarity on the issue.
Creech (2014) also discusses the improvement over time in estimates of Ore Reserves
reported in the year before closure. He notes that for mines that closed owing to depletion,
from 1983-1993 the average remaining Ore Reserve was 15 Mt in the year before closure
but by 1996-2006 the average had shrunk to 6 Mt. For mines that closed because they
became uneconomic, the Ore Reserve reported in the year before closure averaged 34 Mt
from 1983-1993, reducing to 25 Mt from 1996-2006. Creech reflects on this significant
improvement as suggesting improvements in JORC Code reporting over time. In this is so,
then it is possible that further improvements will arise now that companies are using the 2012
GA Comments to the ACCC regarding the 2017 HVAU
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edition of the JORC Code with its even greater emphasis on transparency, materiality and
competence.
The ARTC also presents a table (Figure 4) in Appendix B of its submission showing its own
analysis of Marketable Reserves left in the ground from commencement of the 2011 HVAU.
Geoscience Australia is not familiar with the substance of the 2011 HVAU Marketable
Reserves but notes that in the ARTC table that the amount of Marketable Reserve left in the
ground after the cessation of mining is only 3%. However the ARTC has also included
Reserves left in the ground from mines that were never started (7%), which heavily skews
the data. Geoscience Australia does not consider that an end-of- life discount of 10% is
warranted when determining the weighted average of remaining mine life but recommends
that the figures supplied by the Competent Person be used. However, the ARTC’s
reservations about including planned mines in the Reserve totals might be considered
reasonable as recent history has shown that unexpected market volatility has impacted on
both domestic and international coal markets with many projects placed on hold.
Figure 4: Screenshot from Appendix B of the ARTC submission to the 2017 HVAU.
GA Comments to the ACCC regarding the 2017 HVAU
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FOR OFFICIAL USE ONLY
2.5.2 Powder River Case Study
The ARTC submission also includes a small case study on the Powder River Basin, a coal
district in the USA, as relevant to the Hunter Valley. Both are mature coal districts with the
advantage of consistent coal quality. The Powder River Basin supplies cheap, low-ash
thermal coal that, until recently, generated almost 20% of the USA’s electricity. In 2010,
when coal prices were high and commodity outlooks optimistic, the Powder River Basin
2
produced some 462 million short tons of coal fetching US$11-14 per short ton and plans
were floated for new export facilities in the Pacific Northwest. However domestic policies
favouring lower carbon emissions combined with the rise of cheap gas production in the
USA, saw many power companies in America switch from coal to gas. The shift in domestic
markets combined with the global downturn in commodity prices saw the domestic market for
coal shrink, the export proposals put on hold and Powder River coal as cheap as US$7 per
3
short ton . This was an unsustainable level for mine production and resulted in significant
cost cutting and reduced production.
The ARTC’s main argument is that the decline of coal production in the Powder River Basin
reflects both the macro environment described above combined with increased costs of
production as the reserves have declined. The latter may be a factor for some individual
mines, however, the macro conditions are the overwhelming cause for the Powder River
Basin’s recent woes. It is by no means clear that these, or similar, macro conditions apply to
the Hunter Valley which, unlike the Powder River Basin, produces both thermal and coking
coal for both domestic and export markets.
In addition, it appears that the ARTC’s pessimism about the future of the Powder River Basin
may be premature. Recently, there has been a resurgence amongst coal producers in the
4
Powder River Basin. The US Energy Information Administration (EIA) is forecasting coal will
make a comeback in 2017 as gas prices rise. Recent prices for Powder River Basin coal are
5
again around US$11 per short ton and the EIA is forecasting almost 9% growth in coal
production from the Western Region, which is dominated by the Powder River Basin.
While there are similarities between the coal fields of the Powder River and the Hunter
Valley, those similarities exist between most coal regions. Time has not advanced sufficiently
for the recent downturn in coal mining in the Powder River Basin to be described as “market
destruction”. It may be that history will show that coal mining in the Powder River Basin was
the temporary victim of an unusually severe “boom-and-bust” cycle that was exacerbated by
domestic policy and gas competition.
Geoscience Australia does not consider that the recent troubles affecting coal production in
the Powder River Basin justify an end-of-life discount to the Hunter Valley Coal Reserves.
2
3
4
5
https://www.eia.gov/beta/coal/data/browser
http://ieefa.org/texas-coal-fired-power-plants-close-powder-river-basin-mines-losing-largest-customers/
http://www.eia.gov/todayinenergy/detail.php?id=29872
https://www.eia.gov/coal/ see week ending 10 Feb 2017.
GA Comments to the ACCC regarding the 2017 HVAU
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FOR OFFICIAL USE ONLY
3 Further Comments
3.1 Weighted Remaining Mine Life
By definition, Ore Reserves reported in compliance with the JORC Code have all reasonable
Modifying Factors built in to the estimate. They are, in a sense, already “weighted”. To further
weight them by applying a 7.5% discount to the Marketable Proved Reserve, a 17.5%
discount to the Marketable Probable Reserve and 10% discount for potential reserves left in
the ground, is to imply that the ARTC knows more about orebodies, mining and processing
than the Competent Person.
Further, the ARTC has not presented any compelling argument for using anything other than
the figures supplied by the Competent Person for the Ore Reserve. The potential confidence
intervals proposed for Proved and Probable Reserves are not based on any detailed study of
the Hunter Valley but merely thought to be “reasonable”. They are also equally likely to be
positive meaning that it would be just as logical to increase the reserves as to decrease
them. The arguments for an end-of-mine-life discount are also problematic as they appear to
be based on erroneous data, skewed data and an unconvincing analogy with the Powder
River Basin.
Geoscience Australia has no recommendation on which Coal Reserve should be chosen (in
situ, ROM or Marketable) or which production rate should be selected for calculating
remaining mine life in the Hunter Valley other than to note that both figures should be fit for
purpose. Certainly, Marketable Ore Reserves as used in the 2011 HVAU and proposed in
the 2017 HVAU is entirely reasonable.
However, the ARTC’s concerns about using the 2016 production figures for the Hunter Valley
for calculating remaining mine life are understandable as these may not best reflect recent
years’ production or future production. In addition, the ARTC’s reservations about including
planned mines in the Reserve totals are also reasonable as recent history has shown that
unexpected market volatility has impacted on both domestic and international coal markets
with many existing projects scaled back, placed on care-and-maintenance or even closed,
and many new projects placed on hold.
3.2 Implications for the Financial Markets
If it is thought reasonable to apply a discount to the Ore Reserve estimation, it leads to the
very serious accusation that the Competent Person must have misled the company, the
financial markets and the public by signing off on an estimation that was too high. Further, if
it were publically known that the Australian Competition & Consumer Commission (ACCC)
had endorsed a discount to Ore Reserves, it would lead to other enterprises applying this
methodology to mining projects outside of the Hunter Valley. This would lead to widespread
loss of confidence in the professional abilities of Competent Persons across the nation and
loss of faith in the JORC Code as the best way to inform investors using the highest levels of
transparency, materiality and expert knowledge available.
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In Australia, Competent Persons are the experts in estimating Ore Reserves and subsequent
mine life. They are answerable to their peers and in practice this means that Competent
Persons within large companies regularly examine and challenge each other’s reports.
Smaller companies often use contract companies for Ore Reserve estimations and other
contract companies are not shy about challenging these estimates with a view to winning
work away from their competitors. There is no reason to not regard the published estimates
by each mining company in the Hunter Valley as being anything other than a robust
assessment of Ore Reserves made to the best of each Competent Person’s expert ability.
Considering the implications for the financial markets in Australia and New Zealand, and also
internationally, Geoscience Australia recommends that Ore Reserves reported in compliance
with the JORC Code be used without alteration
3.3 The HRATF proposed methodologies
Geoscience Australia offers the following comments on the five recommendations listed by
the ARTC in Appendix B as the “HRATF Proposal”. According the ARTC, The Hunter Rail
Access Task Force (HRATF) made the following recommendations regarding the remaining
mine life of the Hunter Valley:
Recommendation 1: All marketable reserves are included at 100% certainty;
Geoscience agrees that the Marketable Coal Reserve as estimated by the Competent
Person and reported according to the JORC Code should be used without adjustments (see
Sections 2.2 and 2.5 of this report). We further recommend that it would be sensible to
periodically review these reserves.
Recommendation 2: All marketable reserves are produced to zero;
Geoscience agrees that the Marketable Coal Reserve as estimated by the Competent
Person and reported according to the JORC Code should be used without adjustments (see
Section 2.5 of this report).
Recommendation 3: All licences are assumed extended;
Geoscience Australia has no opinion on this matter.
Recommendation 4: Prospective Reserves are included provided they are deemed, by
the Producers, to have a reasonable chance of development;
Given the uncertainties regarding the coal outlook, Geoscience Australia suggests that the
ACCC gives some consideration to the ARTC’s position that only those prospective
resources that are deemed by both the producer and the ARTC as being certain of
production in the near future be included in the 2017 HVAU, with periodic review.
Recommendation 5: These reserves are numerated by 2016 production.
Geoscience Australia recommends that the production figure used for calculating remaining
Reserve life should be fit for purpose. If 2016 production figures are shown to be atypical
compared to long-term production figures, or anticipated future production, then another
approach should be considered.
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The ARTC, however, is erroneous in its reasoning that if production levels are below contract
it implies uneconomic production and therefore the reserves are also uneconomic and
therefore not reserves. This is because Ore Reserve estimations are not dynamic; they tend
to lag immediate market conditions. A Competent Person, when determining reserves,
typically has a commercial timeframe of around five years in mind. If coal prices dip, the
Competent Person will wait and see if the dip is temporary. It is only when it becomes clear
that the commercial outlook has fundamentally changed that the Modifying Factors will be
adjusted and a new Reserve estimated.
4 Summary of Recommendations
Geoscience Australia makes the following recommendations to the ACCC regarding the
2017 HVAU:
1. That the 2017 HAVU use the Marketable Coal Reserve as estimated by the
Competent Person and reported in compliance with the JORC Code without
discounts or other alterations. Specifically:

There should be no discount to the Competent Person’s estimation of
Marketable Proved or Probable Coal Reserves.

There should be no end-of-mine-life discount.
2. Both the Coal Reserve and the production rate chosen to calculate the remaining
mine life of the Hunter Valley coalfields should be fit for purpose. If the 2016
production rate is judged to be atypical of past and projected production, another rate
should be used.
3. Given the uncertainties regarding the outlook for coal, Geoscience Australia suggests
that the ACCC gives some consideration to the ARTC’s position that only those
prospective resources that are deemed by both the producer and the ARTC as being
certain of production in the near future be included in the 2017 HVAU
4. We further suggest that it would be sensible to periodically review the Ore Reserves
and remaining mine life of the Hunter Valley coal operations, updating for changes in
Reserves and the closure and opening of mines.
GA Comments to the ACCC regarding the 2017 HVAU
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