Thread on error propagation and data massaging in the case of economic studies for resource projects. 1/11
Error propagation comes from the idea that every time we take a measurement there is an error associated with the measured number. 2/11
If we have a formula that describes a mathematical relationship between multiple measured quantities that describes a desired quantity we can calculate the expected error of the latter as a function of the errors assumed in each of the inputs. 3/11
Some error propagation calculation equations can be found here for normally distributed errors. Non-normally distributed data adds difficulties (e.g. nuggety gold deposits will not have normal grade distributions.) 4/11 http://ipl.physics.harvard.edu/wp-uploads/2013/03/PS3_Error_Propagation_sp13.pdf
An economic study for a resource project has innumerable inputs, including averages (e.g. grade, recovery) that have errors and which themselves are derived from measurements that have their own errors. 5/11
The errors from multiple inputs can technically cancel (e.g. if we overstate grade but understate recovery) but the total error can grow with inputs. 6/11
An economic assessment is a series of multiple calculations, and it isn't difficult to see how they can spiral out of control, which is one reason why you need to take 'headline numbers' in any PEA/PFS/FS with a grain of salt. 7/11
Enter the human motive element: the management team behind a company that owns a project wants positive results, and so does the author of the economic assessment who can get more consulting work from the company if the report is good (client is happy, can raise $$...etc) 8/11
Taking the same concept behind error propagation we can see how numbers can be massaged via rounding decisions or selective inclusion/exclusion of data (e.g. grade capping choices). 9/11
Bumping a few metrics in your favor can materially improve your results and alter the market's perception of the quality of your project; the foul play will not be detectable except to an astute observer who has access to raw project data. 10/11
That isn't to say that all economic assessments are flawed/useless. But they can be, and you should know the reasons for this prior to making an investment decision. 11/11
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