Commodity prices can make or break the viability of a mine project. In order to ensure the greatest accuracy for studies determining whether or not to proceed with construction of a mine, the CIM Mineral Resources and Mineral Reserves (MRMR) Committee published an update to its 2015 Commodity Pricing document on Aug. 28.
When creating an economic assessment or a feasibility study for a mining project or expansion project, one or several commodity price scenarios are usually provided. The question on how to properly decide which prices to include in the report, especially when a commodity could be reaching the end of the rise or fall of its cycle, is critical for providing the most realistic scenarios for the company and for investors.
The original guidance was published in November 2009 as a result of a memorandum of understanding between CIM and the CSA, a standards organization that develops standards in over 50 different areas, whereby the CSA can request CIM’s opinion on best practices for the mining industry. The document was published as answers to questions raised by the CSA and was updated in 2015 at the CSA’s request. The decision to update the document again was this time taken by the MRMR Committee in order to remove some of the text considered out of date.
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Some of the changes made in the recent update include streamlining definitions of several metal pricing assumption methods, such as consensus prices (prices collected by industry peers and analysts) and contract pricing (which reflects a company’s individual position over the term of a contract). Specifically, the updated text removes mention of each of these methods’ disadvantages, such as the risk of a consensus price being consistently wrong for reasons outside of the qualified person’s control and the competitive disadvantage of contract pricing requiring companies’ long-term contract prices to be disclosed.
The 2020 document also cuts references to standards provided by American agencies – such as the U.S. Securities and Exchange Commission’s standard for commodity pricing and the American Association of Cost Engineers’ definitions and guidance for capital cost estimation – and makes specific mention that “long term historical prices could be used for estimates of mineral resources.”
The 2020 CIM Guidance on Commodity Pricing can be read online for free.
