Probable Mineral Reserves

Probable Mineral Reserves are the economically mineable parts of a mineral deposit where confidence is not quite rock-solid but is still high enough to make a very good case for extraction. Think of it this way: if Proven Mineral Reserves are the gold you’re holding in your hand, Probable Mineral Reserves are the gold you’re confident is in a specific, well-defined spot underground, based on solid geological evidence and initial engineering studies. The estimation of these reserves involves a pre-feasibility study or a feasibility study, which considers all the “modifying factors” – things like mining methods, processing costs, metal prices, environmental regulations, and legal permits. While there's a greater degree of uncertainty compared to Proven Reserves, the technical and economic studies show that extracting the mineral is justified at the time of the determination. It's a calculated bet, but one backed by significant data.

For an investor in the mining sector, understanding the difference between Proven and Probable reserves is like knowing the difference between a signed contract and a handshake agreement. Both are valuable, but one carries significantly more certainty.

• Proven Mineral Reserves: This is the highest category of confidence. The geology, grade, and quantity of the mineral are known with a high degree of certainty from detailed exploration, sampling, and modeling. The risk of the deposit not being as described is very low. It's the “sure thing” in the mining world.
• Probable Mineral Reserves: This category implies a lower level of confidence. The geological information might be based on wider-spaced drilling, or the interpretation might be more complex. While the deposit is still considered economically viable, there's a slightly higher risk that the final amount of recoverable metal or the cost to extract it could differ from the estimate.

Essentially, the total amount of a company's economically viable reserves is calculated as: Proven Reserves + Probable Reserves.

As a value investing enthusiast, you're always looking for quality assets at a reasonable price. In mining, the quality and certainty of a company's reserves are paramount to its intrinsic value. The distinction between Proven and Probable is where you can find both risk and opportunity.

Probable Reserves, by definition, carry more uncertainty. A value investor must account for this by demanding a larger margin of safety. The “probable” nature means there's a higher chance that things don't pan out exactly as planned. Geopolitical instability, unexpected geological formations, or a sharp drop in commodity prices could render these reserves uneconomic. When you analyze a mining company, you should discount the value of its Probable Reserves more heavily than its Proven Reserves to protect your downside.

The uncertainty in Probable Reserves can also create opportunity. The market often penalizes companies with a high proportion of Probable-to-Proven reserves. However, a key part of the mining lifecycle is the conversion of Probable Reserves into Proven Reserves through further drilling and study. A sharp investor might find a bargain in a company where:

• The management team has a stellar track record of converting Probable to Proven reserves.
• The geology of the deposit strongly suggests a high likelihood of successful conversion.
• The market is overly pessimistic, pricing the Probable Reserves as if they were merely speculative Mineral Resources.

If you believe a company can successfully de-risk its assets and upgrade its reserves, you may be buying future growth and certainty at a discount today. The successful conversion often acts as a powerful catalyst for the stock price.

These terms aren't just corporate jargon; they are strictly defined by international regulatory bodies to protect investors. When you read a company's report, you can trust that these classifications have a standardized meaning.

• The Codes: Most major mining companies report under codes like Canada's NI 43-101 or Australia's JORC Code. These frameworks are harmonized by a global body called the Committee for Mineral Reserves International Reporting Standards (CRIRSCO).
• The Gatekeeper: All reserve and resource statements must be prepared by or under the supervision of a “Competent Person” (or “Qualified Person” in Canada). This is a certified geology or mining professional who takes personal responsibility for the accuracy of the estimates, adding a crucial layer of accountability.