Understanding Reserves and Resources

As mentioned previously in this article, a resource is a body of mineralization in the earth, whereas a reserve is that part of the resource which is economically minable. It is not rare to find that no part of the deposit is economically minable. The two should not be confused but, much too often, they are. Investors, writers, analysts and promoters that do not have the knowledge, or are frugal with the truth, can describe a mineral deposit as a reserve even though its minability has not been shown. This generally leads to values which are unrealistic 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 complete 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 has to include the results of metallurgical tests demonstrating how much metal can be recovered from the rock.

What is more, the lender will insist that the study be done by a recognized independent Consulting firm, not by the company itself, and may seek other opinions before lending the money.

Investors should be sure they understand if a company is reporting reserves or resources, and should also know how true 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.