Interperting drill resultsRalph Kettell April 30, 2009 One of the biggest challenges facing an investor is trying to understand the news and/or financial results that companies publish periodically in the form of news releases. Investors and analysts attempt to interpret (read guess) how this news will affect the share price, short and/or long term. In the mining and mineral exploration business the most often published and one of the most significant types of news releases are drill results. They are the lifeblood of the business. Fund raising efforts literally can soar or die based on the success or failure of the drill bit to find the “good stuff”. However, how is a layman supposed to interpret the results, especially given the fact that the companies are severely restricted on what they can say in the news releases until after an engineering study has been completed and published? This is not necessarily a bad thing given the historical propensity for people in the mining business to exaggerate a bit at times. Several weeks ago I read a news release from a gold mining company that sounded extraordinary. I did a quick mental calculation and came up with an incredible result. Normally this means that I have made a decimal point error in my calculations, which is very likely given the atrophy that has set in to my brain since the advent of pocket calculators. So I sat down at my computer and opened up the current version of my pocket calculator, aka an excel spreadsheet, and started entering the parameters. When I completed the first version of the calculation, I discovered much to my surprise that the mental calculations were right on. It truly is an amazing hole. At the end of the article, I will describe the mathematics of how to calculate the mineral resource potential of a drill hole. As a result, I went and looked at the company’s share price history, read some more info on the company, and perused their website. Then I did the one thing that investors should always do, but rarely end up doing; i.e. pick up the telephone to talk to management about the company. I spoke to the president at length and ask him numerous questions. He suggested that I should also speak to their geologist, which I did. The geo was very informative about the history, technical aspects and progress of the company and it’s properties. As a result of this due diligence process, I concluded that the stock was undervalued and I should buy some. As odd as it may seem, the company stock went down when the news was released. This is not unusual and can happen for several reasons many of which rarely make sense at first glance. Sometimes they never make sense! I believe that in this case the stock dropped because the grade of the gold mineralization, while good, was lower than what the market expected from earlier drill holes. So rather than looking at the potential scale of this mineralized intersection, investors were focusing solely on the grade. Given the fact that many people don’t understand the math involved, they often misconstrue the value of drill data. Obviously all others factors being held equal a drop in grade is not a good thing. However a hole with an enormous intersection of mineralized material of a lower grade can be very significant, and often times far more valuable than a bonanza grade hole but with narrow widths. In this case the drill result that caught my eye was in a March 16, 2009 press release by Clifton Star Resources (CFO ; TSX/V) titled “Clifton Star Resources' Donchester Property Intersects 169.0m of 2.12 g/t Au in North Zone”. This is a huge intersection and when I ran my first level calculation, the result was an inference of nearly one million ounces from this single drill hole. I called up the President and CEO of Clifton Star, Harry Miller and asked him if they had an idea of the true width of the vein intersected by this drill hole. He told me they felt it was about 80%. So I re-ran the numbers with an 80% true width and came up with an inferred resource of 497,000 ounces based on this drill hole alone. From the previous 43-101s done by the company there is a resource of approximately 1,170,000 oz. of gold. If my analysis is correct (which I am certain it is close), this hole alone adds another 497,000 oz to their resource or an additional 43%. It also indicates a previously undiscovered “blow out” zone which could contain far more than the above mentioned 497,000 oz. On the day the news was released, the stock opened at $1.90 and had traded down to $1.65 when I saw the press release and did my calculations. By any metric the stock should have been trading 43% higher based on the news, which would be $2.86 relative to the previous days close. Instead the stock was trading at 17.5% discount to the previous day. I figured this was a bargain and began to buy. The stock is currently trading around $2.80 and so is not the screaming bargain that it was at under $2, but I believe that the company will continue to prove up more gold. Given the company’s results to date and the amount of capital being expended drilling the property those ounces should continue to increase. I do not want to get into an extended discussion of the prospects of the company as this article is primarily intended to educate investors on some points of analyzing drill data. However, this project seems to me to have great potential to become a lot bigger (in terms of ounces in the ground) than it is currently and also to eventually return to production. Clifton’s website is https://www.cliftonstarresources.com/ , and it has a good deal of information on the property and their results to date. In summary, however, I am calculating (with this drill hole included) that the company currently has approximately 0.07 ounces of gold per issued common share. At a share price of around $2.80, Clifton Star is being valued at roughly $39Cdn per ounce in the ground. Another company in the area, granted one that is further advanced towards production is getting $195Cdn per resource ounce of gold in the ground. I see no reason that more work advancing the project, which is currently being done, will not eventually yield a stock price of 3 to 4 times what Clifton Star is currently trading for. For those brave souls and the more mathematically inclined of the readers, the following is a discussion of how the author arrived at some of the conclusions presented above. TECHNICAL DATA When analyzing the data from a single drill hole, there is a limited amount of information that can be ascertained about a resource. If the hole intersects for example, 3 oz per ton of gold over 10 feet, it is very impressive but doesn’t give any idea of the amount of total resource of gold present in the system. Why because the drill cut through the vein and we don’t know the angle of the dip of the vein, which along with the angle of the hole, and the width of the intersection, we can calculate the true width of the vein. Moreover, we have no clue of the horizontal or vertical extent of the vein system. The vein could run for a mile or more horizontally and thousands of feet in depth or the driller could have gotten very lucky and hit a small isolated pod of mineralization. In any case, this one drill intersection, while exciting, does little to give an idea of the size of the deposit. For this reason companies have to drill many, many holes to start to get an idea of the size of the resource. After extensive geologic mapping has been done to determine the fault zones in the area and the rock types, the geologists site drill holes based on their interpretation of how the mineralizing events and the pre and post-mineralization faulting and movement occurred. If the geologist is good at his interpretation as well as being lucky, some of his holes will intersect mineralization. After having these results in hand the geologist will use them to fine-tune his or her geologic model and site new holes adjacent to the original successful holes searching for more mineralization. The intent of this exercise is to be able to map out zones of mineralization which will eventually become ore reserves that can be mined. The more holes which intersect the mineralization, the clearer the picture becomes to the geologists and engineers analyzing the deposit to determine its size, shape, mineralization type, and mine-ability. In the case of the hole from Clifton Stars News release, we still only have one drill hole to go on, in the immediate vicinity. What is different about this drill hole that permits us to know more information about the deposit than the single high grade intercept discussed above? It is the enormous length of the hole which gives us a better idea of scale. It does not tell us the ultimate scale by any means, but it does give us an initial glimpse into the potential size of the deposit. I need to go into a discussion of geometry and the math and assumptions behind these calculations to show why I believe this deposit can potentially be enormous. Let me go into the basic assumptions behind the calculations. If we intersect 100 feet of mineralization in a drill hole, we can assume that the mineralization extends in each direction by a similar amount. Thus a 100 foot intersection indicates a box or cube of mineralization (at the first level approximation as shown in Figure 1) or 100feet x 100feet x 100feet = 1,000,000 cubic feet of mineralized material. We can assume a rock density of somewhere around 10 cubic feet per ton, which means that our 1,000,000 cubic feet of material weighs approximately 100,000 tons. If the hole had intersected 5 grams of gold per ton (~ 0.16 ounces per ton), the resource potential of the mineralized intersection would be 16,000 ounces of gold Now having seen this simplistic estimate what are some of the pitfalls of this calculation and what improvements can be made? One potential pitfall which is quite rare but actually more likely than it may at first seem, is that the drill hole ran down the vein. In this case the actual width of the vein is quite narrow and the mineralized material much less than our simple calculation would show. This would mean that we were way over estimating the amount of mineralized material. In the case of core drilling this is less likely, because measurement of intersection angles in the core will show if in fact the drill was chasing down a vein. Some improvements that can be made to this calculation are primarily the following. First if the geologists have other drill holes in the vicinity and thus have an understanding how the mineralization is laying, they can estimate the true width of the hole. This means that they can approximate the actual length of the intersection of the material perpendicular to the bed of the mineralization. This reduces the size of the cube to a more realistic dimension. Secondly if sufficient testing has been done on the recovered core the rock density will be known to within some range of values and this can be used in the calculation rather than the initial guess value of 10 cubic feet per ton. To summarize the math involved: 1) Start out with the length of the intersection of the mineralization. 2) Determine/guess the percentage of the intersection which is the true width. 3) Cube the true width of the intersection to calculate the estimated mineralized volume. 4) Determine/guess the rock density (normally 10 to 15 cu ft per ton). 5) Multiply the mineralized volume by the rock density to compute estimated tonnage. 6) Finally multiply the tonnage by the grade to determine the estimated resource. Some useful numbers for performing these calculations : 1 meter = 3.283 feet 1 foot = 0.305 meters 1 troy ounce = 31.1 grams 1 gram = 0.032 troy ounces 1 cu yd = 27 cu ft 1 cu m = 35.4 cu ft 1 mton (tonne) = 1.1 short tons So how does this relate to the drill hole from Clifton Star’s March 16th news release. 1) The hole was 169 meters or 554 feet of 2.12 grams per tonne or 0.062 ounces per ton of gold. 2) Clifton Star told me that the true width was approximately 80%, and so I used 80% of 554 feet or 444 feet as the edge dimension of my box. 3) Cubing 444 feet results in 87,473,000 cubic feet of material. 4) Clifton Star told me that the density is roughly 12 cubic feet per tonne. 5) This calculates to 7,289,000 tonnes of material. 6) Finally resulting in 497,000 ounces of gold at the 2.12 grams per tonne grade. If anyone is interested, I have created an excel spreadsheet which performs these calculations. I will send it to anyone that requests it at my email address below. It allows a potential investor to play some what if games with any drill hole results. As with any computer calculation, this one comes with the usual disclaimer, garbage in will always result in garbage out. It can be one of many tools in an investors due diligence arsenal and should not be relied upon as infallible. Ralph Kettell, II, P.E. Nevada Fluorspar, Inc. P.O. Box 806 Burtonsville, MD 20866 nvfspar@gmail.com