Inferred Mineral Resource

An Inferred Mineral Resource is the lowest-confidence category in the classification of a mineral deposit. Think of it as a geologist's educated guess—an initial estimate based on limited geological evidence and sampling. This information might come from a few drill holes, surface trenches, or geological mapping, but the data points are too sparse to confirm the deposit's size, shape, grade (the concentration of the mineral), or continuity. The official definitions, standardized by codes like the JORC Code in Australia or NI 43-101 in Canada, state that the continuity of the geology and grade can only be implied, not verified. For an investor, “inferred” is a major keyword. It signals high uncertainty and high risk, representing a potential prize that is still very much shrouded in geological mystery. It’s like finding an old treasure map where the 'X' marks the spot, but the map is smudged and has large areas drawn in with a pencil, labeled “Here be dragons… or maybe gold?”

Understanding Inferred Mineral Resources is crucial, especially when looking at junior mining companies, which often use these figures in their early announcements to generate excitement.

A resource is classified as “Inferred” because of the low level of geological confidence. The primary reason is the lack of sufficient data. Imagine trying to understand the size and shape of a chocolate chip cookie by poking it with a toothpick only three times. You might hit a few chocolate chips, but you would have very low confidence in estimating the total number of chips in the entire cookie. In mining, the “pokes” are drill holes. For an Inferred Resource:

• The drill holes are typically far apart.
• Geologists use this limited information to extrapolate over a large area.
• It is assumed, but not known, that the mineralization continues between these data points.

Because of this uncertainty, an Inferred Mineral Resource cannot be converted into a Mineral Reserve and cannot be the basis for a feasibility study or any final economic analysis. It's simply too speculative.

An Inferred Resource is a starting point, not a finish line. A large Inferred Resource can be tantalizing, suggesting a massive potential deposit. However, it's just a hint of what might be there. Many Inferred Resources fail to become economically viable mines. They might shrink dramatically or even disappear entirely as more drilling is done and the geological picture becomes clearer. For a value investor, an investment case built primarily on Inferred Resources is not an investment at all—it's pure speculation. The risk that the resource isn't actually there, or isn't economic to extract, is enormous.

As an investor, you should treat an Inferred Mineral Resource with extreme caution. It’s a sign of potential, but nothing more.

When a company's stock valuation seems to be based heavily on the size of its Inferred Resource, it should be a major red flag. Always dig deeper and ask critical questions:

• What percentage of the company's total resource is Inferred? A high percentage means high risk.
• What is the company's plan and budget to upgrade this resource? A serious company will have a clear, funded plan for more drilling.
• Is the market overvaluing this “potential” discovery? Hype can often inflate stock prices far beyond the realistic, risk-adjusted value of an Inferred Resource.

The real value is created when a company successfully “de-risks” a project by converting Inferred Resources into higher-confidence categories. The hierarchy is:

1. Inferred Mineral Resource: The lowest confidence (the educated guess).
2. Indicated Mineral Resource: Higher confidence. There's enough data from drilling and sampling to make a reasonable assumption about the deposit's geology and grade.
3. Measured Mineral Resource: The highest confidence. The deposit has been tested and sampled so thoroughly (e.g., with closely spaced drill holes) that its size, shape, and grade are well-established.

Only Indicated and Measured Resources can be used in advanced economic studies. Once factors like mining costs, processing, and metal prices are applied, parts of a Measured Resource may be converted to a Proved Mineral Reserve, and parts of an Indicated Resource may be converted to a Probable Mineral Reserve. These “Reserves” are the parts of the deposit that are confirmed to be economically mineable. For a value investor, watching a company methodically and cost-effectively upgrade its resources from Inferred to Measured, and then to Reserves, is a far more compelling story than a flashy headline about a giant, but purely inferred, discovery.