A Mineral Resource Estimate is a professional calculation of the amount of rock and minerals in the ground that have the potential for economic extraction. Think of it as a mining company's treasure map, drawn up by geologists based on samples, drill holes, and sophisticated modeling. It provides an educated guess about the quantity (tonnage) and quality (grade) of a mineral deposit before the heavy machinery even shows up. However, it's crucial to remember the word “estimate.” These are not guaranteed figures; they represent a potential prize, not a prize in hand. For investors, understanding these estimates is fundamental to valuing a mining company, as they form the very foundation of its potential future wealth.
Not all estimates are created equal. Geologists classify resources into three categories, each with a different level of geological confidence. Moving up the ladder from Inferred to Measured means less guesswork and more certainty.
This is the most speculative category. An Inferred Resource is based on limited information and sampling, such as widely spaced drill holes or geological mapping. The geologist has inferred the existence and grade of the mineralisation based on the available evidence, but the continuity of the deposit is far from certain. You can think of this as hearing a rumour about buried treasure. It might be there, and it might be big, but you wouldn't bet your life savings on it. A company cannot base a Feasibility Study or production decision on Inferred Resources alone.
This is a major step up in confidence. An Indicated Resource is calculated from more extensive and reliable data. The drill holes are closer together, and the geologist has a good understanding of the deposit's shape, size, and characteristics. There's enough confidence in an Indicated Resource to support detailed mine planning and a Pre-Feasibility Study (PFS) to evaluate its economic potential. This is like having a partial treasure map with several key locations confirmed—you're much more certain the treasure exists and have a good idea of its size.
This is the gold standard of resource estimation. A Measured Resource has the highest level of geological confidence. The deposit has been explored in great detail, with closely spaced drilling and sampling that confirms its size, shape, grade, and continuity with a high degree of accuracy. The information is so solid that these resources can often be converted into Mineral Reserves after applying economic and technical modifying factors. This is the equivalent of having a detailed map, a key, and a shovel right over the 'X' that marks the spot.
A giant resource estimate is exciting, but it doesn't pay the bills. The ultimate goal is to prove that the resource can be mined profitably.
This is perhaps the most critical distinction for any mining investor.
To graduate from a “Resource” to a “Reserve,” the deposit must pass rigorous studies (like a Feasibility Study) that consider metal prices, mining costs, processing technology, environmental regulations, and permits. A reserve is what a company can realistically expect to mine and sell, making it the bedrock of a mine's financial projections and valuation. Inferred Resources can never be converted into Reserves.
For a value investor, a Mineral Resource Estimate is a trove of data, but it requires careful interpretation. Don't just look at the headline number; dig into the details.
Publicly listed mining companies must report their resources according to strict codes to protect investors. These include the JORC Code in Australia, NI 43-101 in Canada, and the SEC's S-K 1300 in the United States. When you see a resource announcement, look for:
Before getting carried away by a massive resource figure, ask yourself: