Reading NI 43-101 reports: Data verification

Typically in a NI 43-101 technical report, the author will re-assay the drill core to verify the integrity of the assay results.  This is to help spot Bre-X style frauds where somebody may be ‘salting’ a crushed sample with gold.

Here’s the crazy thing:

  1. Some people still commit blatant fraud… even though they will eventually be caught.
  2. Often in technical reports, there are issues with data verification and the author doesn’t care.

Bear Lake Gold

From the technical report filed on SEDAR on Aug 18 2008 (page 36):

The sample details and both the author independent samples and the Maximus samples are shown in Table 7.
Correlation between the two sets of samples is reasonable but it should be noted that the Polymet Labs samples
are consistently lower averaging roughly 25%. While the sample population is far too small to draw any
conclusions, caution should be used until confidence in the Polymet Labs laboratory is established.

Ok, so the data verification checks were off by 25%.  But apparently this is no cause for concern because “caution should be used until confidence in the Polymet Labs laboratory is established”.

I picked this example because I know how this story played out.  Bear Lake discovered that its geologist was committing fraud as he was faking numbers when entering data into the assay database.  This news release explains the results of Bear Lake’s investigation.  I’m not quite sure why the geologist did what he did as he will probably never work in the field ever again.  But stuff like this can happen.

I’d also point out that Bear Lake’s investigation also discovered some typos and math errors in its press releases, unrelated to the fraud.  Little typos are not unusual in press releases and in technical reports.

Pretium Resources (“Pretivm”, PVG.TO)

From the technical report filed on SEDAR on Sep 18 2012, there is this graph on page 72:

P&E is a consulting company that writes technical reports.  The technical report was written by Snowden and it quotes P&E’s work.  From the graph above, you can clearly see a huge discrepancy in assay results.

To be fair, there are factors that can cause a sample to be off.

  1. A sample could be mislabeled by the lab or exploration company.
  2. There may be unintentional human error in data entry (either by the assay lab or the exploration company).
  3. If the assay lab technician does not clean the equipment carefully, residue from one sample can affect the assay results of the next sample.
  4. Many assay labs are overworked.  This can lead to errors in all of the above.
  5. Assays aren’t entirely accurate.
  6. Different assay methods can yield different results.
  7. Gold can be unevenly distributed within a drill core.

I do not believe that the potential excuses above apply when so many assays do not match up by such a huge margin. If you read the rest of the technical report, you will see that Mr. Martinez Vargas of Snowden did his own data verification.  Unfortunately, he only tested samples where gold graded less than 1g/t.  This is pretty useless in my opinion as doing so will not find any problems.  With gold levels so low, your checks will never match up well perfectly as assays aren’t very accurate at such low levels.  You also won’t catch the common type of fraud as fraudsters will inflate assay results… you need to be checking some high-grade samples.  In general, the lack of concern over P&E’s data verification is mind boggling.

I am not smart enough to figure out what is going on, but clearly this company will go into the “too hard” pile.  Stuff like this is one of the many reasons why I am incredibly paranoid and scared of stocks in this sector.

Links

VIC writeup on Pretium – I wish the author of this bullish writeup the best of luck.

*Disclosure: I do not have any position in Bear Lake or Pretium.  Nor do I intend on initiating any positions in these stocks in the future.

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3 thoughts on “Reading NI 43-101 reports: Data verification

  1. Pingback: Pretium Resources (PVG.TO) – Massive red flags | Glenn Chan's Random Notes on Investing

  2. Pingback: Pretium’s Resource Estimate filed Feb 3 2014 | Glenn Chan's Random Notes on Investing

  3. Pingback: Mine economics explained | Glenn Chan's Random Notes on Investing

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