Mineral Resource

A Mineral Resource is a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade (or quality), and quantity that there are reasonable prospects for eventual economic extraction. Think of it as the mining world's best estimate of what might be there. This estimate is not a wild guess; it's based on geological evidence and sampling, but it's crucial for investors to remember that it is still an estimate. The term is a cornerstone of public reporting for mining companies, governed by strict regulatory codes like Canada’s `NI 43-101` and Australia’s `JORC Code`. These codes ensure that companies don't just pluck numbers out of thin air. A `Qualified Person` (or Competent Person) must sign off on the estimate, lending it credibility. However, a resource is not a bankable asset until further work proves it can be mined profitably. For an investor, understanding the different levels of confidence within a Mineral Resource is the first step in separating a potential goldmine from a costly hole in the ground.

Not all resources are created equal. They are classified into three ascending categories based on the level of geological knowledge and confidence. Moving up this ladder significantly de-risks a project.

This is the lowest level of confidence. An Inferred Resource is an estimate based on limited geological evidence, sampling, and assumptions. Think of it as the “educated guess” stage. A geologist might see promising signs and reasonably infer a mineral body, but there isn't enough drilling or data to be certain about its size or continuity. For investors, companies with only Inferred Resources are highly speculative. There's a chance the minerals aren't actually there in the quantities hoped for, making these the riskiest type of resource to bet on.

This is a major step up in confidence from the Inferred category. An Indicated Mineral Resource is calculated with a much greater degree of certainty. The locations of drill holes and other samples are close enough to allow for a reasonable assumption of geological and grade continuity. At this stage, the company has a much clearer blueprint of the deposit's shape, size, and quality. An investor can have more faith in these numbers, and they are solid enough to support mine planning and a preliminary assessment of a project's economic viability.

This is the highest level of confidence. For a Measured Mineral Resource, the geology is well-established, and the deposit has been explored and sampled in great detail (e.g., through very dense drilling). The tonnage, grade, density, and physical characteristics of the mineral are known with such a high degree of confidence that the estimate is unlikely to change significantly with more work. This is as close to a sure thing as you can get in the estimation game.

Here lies one of the most important distinctions in mining investment: the difference between a Mineral Resource and a `Mineral Reserve`. A resource is an estimate of what's in the ground with reasonable prospects for economic extraction. A reserve, on the other hand, is the specific part of an Indicated and Measured Mineral Resource that is actually economically mineable. To make this leap, a company must complete a comprehensive study, such as a `Preliminary Feasibility Study` or a final `Feasibility Study`. These studies apply what are known as “Modifying Factors” to the resource estimate. These factors include:

• Mining and processing methods
• Metallurgical recovery rates
• Capital and operating costs
• Marketing and commodity prices
• Legal, environmental, and social considerations

A giant, high-grade Measured Resource is worthless if it's under a national park, in a war-torn country, or so deep that the cost of extraction exceeds the value of the mineral. Only after all these factors are applied and the project is proven to be profitable can a resource be converted into a Mineral Reserve.

For the value investor, a company's resource statement is a treasure map that must be read with a critical eye.

Always check that the resource estimate is compliant with a recognized code (like NI 43-101 or JORC) and signed by a Qualified Person. This is your first line of defense against promotion and hype. A `Preliminary Economic Assessment` (PEA) is often the first public report on a project's potential, but be cautious—it can be based on lower-confidence Inferred Resources and is, as the name says, preliminary.

A value investor should treat the different resource categories with varying degrees of skepticism.

• Inferred: View these numbers with extreme caution. They represent potential, not a tangible asset. In a valuation, they should be discounted heavily, if not ignored entirely.
• Indicated: These are more reliable and can be given more weight in your analysis, but they still carry uncertainty.
• Measured: These are the most reliable resource figures and can be considered a solid foundation for a potential mining operation.

Never confuse the two. A company trumpeting a massive resource without any reserves is a speculation, not a robust investment. The real value is unlocked when a company proves it can profitably extract the minerals. Always look for a clear path to converting high-quality resources into bankable reserves. A company with smaller, proven reserves is often a far safer and more valuable investment than one with a colossal but unproven resource.