Understanding Mining Reserves and Resources

As noted elsewhere in this book, a resource is a body of mineralization in the ground, where as a reserve is that part of the resource which is economically minable. It is not unusual to find that no part of the deposit is economically minable. The two should not be confused but, too frequently, they are. Investors, writers, analysts and promoters that lack knowledge, or are frugal with the truth, may describe a mineral deposit as a reserve even though its minability has not been demonstrated. This often leads to unrealistic values being placed on projects, on the companies that own them, and on the shares of those companies in the market.

Economic planning for a mine can only be based on minable reserves. Banks will only lend money to develop mineral properties to companies that have completed a full feasibility study of their project, based on proved and probable reserves. The study has to include a mine plan or pit design outlining exactly what fraction of the body can be mined, and also must include the results of metallurgical tests showing how much metal can be recovered from the rock.

Moreover, the lender will insist that the study be done by a recognized independent consulting firm, not by the company itself, and may seek other options before lending the money.

Investors should he sure they understand whether a company is reporting reserves or resources, and should also know how certain an estimate has been made — whether the reserve is proven, probable or possible, and a resource measured, indicated or inferred.

Once reserve and resource estimates have been made, comparisons with operating mines are often instructive. Reserve figures for mines are often published in reference works like the Canadian and American Mines Handbooks, and can also be found in the annual reports of operating companies.