Mineral Resource Estimate

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.

• A Mineral Resource is an inventory of what's potentially in the ground.
• A Mineral Reserve (also known as an Ore Reserve) is the portion of a Measured or Indicated Resource that has been proven to be economically, technically, and legally mineable.

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:

• The Confidence Category: A million ounces of Measured gold is vastly more valuable and less risky than a million ounces of Inferred gold.
• The Cut-off Grade: This is the minimum mineral grade required for a piece of rock to be included in the estimate. A very low cut-off grade can artificially inflate the resource size with material that may never be profitable to mine.
• The Author: The report must be signed off by a Qualified Person (QP) or Competent Person (CP)—an accredited geologist or engineer who stakes their professional reputation on the estimate's accuracy.

Before getting carried away by a massive resource figure, ask yourself:

• Has any of this resource been converted into a Mineral Reserve? If not, why?
• What are the report's assumptions for metal prices and operating costs? Are they realistic in today's market?
• Is the deposit located in a politically stable jurisdiction with a clear path to permitting?
• How much capital will be required to build a mine and turn this resource into cash flow?
• How does this estimate compare to previous ones for the same project? Growth in high-confidence categories is a great sign.