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How to Read a Mineral Reserve or Resource Statement

Resource and reserve statements illustrate the minerals of interest within an orebody, and the quantities in which they are present. Geological and statistical data are used to estimate the amounts of these minerals. The terms resources and reserves refer to two main classifications used when measuring the quantities of minerals. The difference between these two classifications is as follows:

  • For a mine to declare a mineral resource they would need to drill samples of the orebody and take these for analysis in a laboratory. The mine would then need to come up with a plan to extract the mineral of interest, and then a resource could be declared. International industry guidelines for the analysis of the orebody would need to be followed.

  • For a mine to declare a reserve, they would take the analysis previously done when declaring a resource, and overlay this analysis with a financial analysis. The financial analysis would determine whether or not the resources identified would be able to be mined economically.

The guidelines to be followed in order to measure an orebody are governed by internationally accepted industry codes, e.g. SAMREC (South Africa), JORC (Australia), and NI43-101 (Canada).

Mineral resources can further be subdivided based on the level of confidence that is able to be placed on the geological studies performed:

  • Inferred Resources (low confidence): these are portions of the orebody where sparse drilling has taken place, or where there may be a high level of non-uniformity within the orebody which may cause actual quantities of ore extracted to differ materially from the estimated quantities;

  • Indicated Resources (reasonable confidence): these are portions of the orebody that have undergone more detailed (closely-spaced) drilling, and where the characteristics of the orebody make the estimates more reliable;

  • Measured Resources (high confidence): the portions of the orebody where the highest certainty can be placed on the estimated mineralization.

An example of a resource statement is shown below:

The following columns can be seen:

  • Ore tons: This is the amount of rock in a surveyed area that contains a mineral of interest (in this case gold). Any rock that does not contain any gold would be referred to as being “waste rock” and would be excluded from the resource statement;

  • Grade: this refers to the proportion of the mineral-containing rock that is the actual mineral of interest. In the case of the “measured” category of Pit A, a grade of 1.15g/t means that for every ton of gold-containing rock, there would be 1.15g of actual gold present. Now, this doesn’t mean to say that the mine would actually be able to recover the full 1.15g of gold. The amount of gold that the mine could recover would be based on the efficiency of the mine’s processing plant. Mines would typically state their recovery rates in their financial models as a percentage. So for example, if the mine in question had a recovery rate of 95%, then on average, the mine’s processing plant would be able to extract 95% of the 1.15g of gold (equating to 1.09g of gold), leaving 0.06g of gold behind;

  • The remaining rock left behind after the gold had been extracted would be referred to as being the “tailings”. After the initial 1.09g of gold had been extracted from the 1.15g, 0.06g of gold would be left behind in the tailings. These tailings could either be processed again in order to try to extract more gold, or disposed of in a tailings dump. It is important to note that the mine would be responsible for the rehabilitation of the mining site once the orebody was depleted. This would include the handling of tailings in an environmentally responsible manner.

  • Gold: this refers to the total gold contained in the orebody that has been classified into each category. This result can be calculated by multiplying the ore tons by the grade (for example, looking at the "measured" category of Pit A):

(664,940t) x (1.15g/t) = 764,681g

So we would have a total of 764,681 grams of gold in the “measured” category. We can convert these grams to ounces using the fact that there are approximately 31.1034768 grams in an ounce. This yields:

(764,681g)/(31.1034738) = 24,585.07oz or 24.59koz of gold.

If the processing plant had a 95% recovery, the mine would be able to extract

(24.59koz) x (0.95) = 23.26koz of gold from the measured category.

  • Total Resources: here the total amount of ore and gold would just be aggregated across all of the different mining areas. The grades would be a weighted average across all individual mining areas (Pits A, B, C and D).

Mineral reserves can also be subdivided based on the level of confidence of the geological studies performed:

  • Probable Reserves (reasonable confidence): once ore from the indicated and measured resources are overlaid with a financial model, the ore here that could be extracted economically would move into the “probable reserves” category;

  • Proven Reserves (high confidence): portions of the orebody from the measured category that could be extracted economically would move into the “proven reserves” category.

An example of a reserve statement is shown below:

The interpretation of each of the table headings is identical to those in the resource statement. Banks typically base their debt-capacity calculations on reserves and place little or no reliance on resources. Basically banks would only include mineral reserves in their financial models.

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