As a classically-trained economic geologist, I was introduced
to the definition of “Ore” and “Ore
Deposit” during the first minute of my first course in graduate
school at the University of New Mexico.
In the early afternoon of a late summer
day in 1975, Dr. Wolfgang Elston walked into my Economic
Geology 401 class, introduced himself, and asked us to open the chosen
textbook, Ore Deposits by Park and MacDiramid,
second edition, to page one and read the following: “Ores are rocks
and minerals that can be recovered at a profit.”
At a profit.
So now let’s expand the basic
concept and definition to an “Ore Deposit: A mass of rock or mineral
that can be developed, mined, processed, and delivered to the marketplace or
technology at a profit.”
At a profit.
These two simple definitions have been
the fundamental concept anchoring my continuing education and experience
since I first set boot in the field as an explorer and prospector in the
summer of 1976. The idea is so ingrained in my brain that I need reminding
that the overwhelming majority of investors in the mining and exploration
sector have absolutely no clue what an Ore Deposit actually is.
Another reminder of this serious lack of
insight and understanding occurred a few weeks ago. In a public conversation,
I heard meaningless statements such as: “(Unnamed company) has proven
up a 1.5 million ounce resource”; “millions of ounces
of gold have been taken out of the district and (unnamed company) is about
ready to mine it again.”
What was that again?
Resources…proven…about ready to mine??
Ai, Chihuahua! I was flabbergasted by these wildly
promotional statements and will explain below.
There is a
consistent, well defined, and absolutely critical difference between Mineral
Resources and Mineral Reserves as defined by various securities,
regulatory, and taxation agencies in the English speaking world. Since we, as
junior resource speculators, deal mainly with Toronto Stock Exchange
companies, I will discuss the Canadian Institute of Mining, Metallurgy, and
Petroleum (CIM) classification system under National 43-101 regulations.
As you probably have already realized,
this key difference between Resources and Reserves is summed up
in three simple words: “At a Profit.”
From the CIM Standards on Mineral
Resources and Reserves (2000):
A Mineral Resource is a
concentration or occurrence of natural, solid, inorganic, or fossilized
organic material in or on the Earth’s crust in such form and quantity
and of such a grade or quality that it has reasonable prospects for
economic extraction. The location, quantity, grade, geological
characteristics, and continuity of a Mineral Resource are known,
estimated, or interpreted from specific geological evidence and knowledge.
Mineral Resources are sub-divided, in order of increasing geological
confidence, into Inferred, Indicated, and Measured categories.
Note that the confidence level in Inferred Mineral Resources is
insufficient to allow the application of technical and economic parameters or
to enable an evaluation of economic viability worthy of public disclosure.
A Mineral Reserve is the economically
mineable part of a Measured or Indicated Mineral Resource demonstrated by
at least a Preliminary Feasibility Study. This Study must include
adequate information on mining, processing, metallurgical, economic, and
other relevant factors that demonstrate, at the time of reporting, that economic
extraction can be justified. A Mineral Reserve includes diluting
materials and allowances for losses that may occur when the material is
Mineral Reserves are sub-divided in order of increasing
confidence into Probable Mineral Reserves and Proven Mineral
Reserves. Mineral Reserves are those parts of Mineral Resources which,
after the application of all mining factors, are the basis of an economically
viable project after taking account of all relevant processing,
metallurgical, economic, marketing, legal, environment, socio-economic and
The relationship between Mineral
Resources and Mineral Reserves is shown graphically below:
The critical concept here goes straight
back to our definition of “Ore”. A Mineral Reserve can
alternatively be called an Ore Reserve and defined as: A quantified
mass of rock or mineral that can be developed, mined, processed, and
delivered to the marketplace or technology at a profit.
I repeat: At a profit.
Unfortunately many TSX company officers
and directors, promoters, investor relations personnel, newsletter and
website writers, analysts, financiers, and, sadly, even some that have the
necessary education and experience to be designated Professional Geologists,
Professional Engineers, Certified Professional Geologists, or other title
that earns them Qualified Person status, do not understand the difference.
Or perhaps they do not care. Could it be
that some deliberately and dishonestly use these classifications as if they
are interchangeable at trade shows, in interviews, public presentations, and
discussions with potential investors or subscribers?
As Mark Twain said over 140 years ago,
“A mine is a hole in the ground with a liar standing beside it.”
When evaluating a company for
investment, the lay investor should understand and realize that a Mineral
Resource is simply a mineralized mass of rock that has highly elevated
content compared to background abundance in a particular mineral commodity.
There is often little or no economic input into this classification.
A distinction must also be made between
Historic Resources and 43-101 qualified Resources. A Historic Resource is a
mineralized mass of rock that was defined by exploration and development work
prior to adoption of 43-101 regulations on February 1, 2001. This older data
must be validated by confirmatory and often duplicative exploration and
development work under the supervision of a Qualified Person before it can be
incorporated into a 43-101 Technical Resource Estimate.
We find in past producing mines that unmined rock that was once classified as a Proven and
Probable Mineral or Ore Reserve by operators prior to 2001 is now classified
as a Historic Resource pending confirmatory exploration and development work.
Once that work is completed and grade-thickness products are corroborated, it
may be defined as a 43-101 Resource. However, a positive Preliminary
Feasibility Study is still required to move it back into a Mineral Reserve
Mining, metallurgy, processing, economic,
marketing, legal, environment, socio-economic, and government factors change
drastically over time. What was Ore yesterday is not always Ore today and
may or may not be Ore tomorrow.
A 43-101 Mineral Resource that
consists of all material or a large majority of material in the Inferred
particularly suspect to the informed investor. Mineralized rock in this
category of Resource has a low confidence level and will require additional
phases of exploration and development work and many more millions of equity
funded dollars before it could possibly be classified as a Mineral Reserve.
My experience is that many Inferred
Resource project estimates delivered by hired gun consulting geological
engineers in 43-101 Technical Reports have little chance of ever being
upgraded to Measured and Indicated Resources let alone an economically
feasible Proven and Probable Mineral Reserve.
Don’t forget that most junior
resource companies are simply “mining the stock market”. Few have
potentially viable Resources let alone economic Reserves. Most
don’t want to be miners. Of those that aspire to this difficult goal,
perhaps 1 in
15 will ever develop a project with Mineral Reserves, and more than half of
those will fail for one reason or another. Assuming those numbers are more or
less correct, about 100 of the 1373 Venture Exchange exploration and mining
juniors will define a Reserve and less than half of those, perhaps 30 or 40
at most, will develop a profitable mine for their shareholders or, more likely,
the bigger company that takes them over will develop said mine.
Let the buyer beware.
Remember the definition of “Ore”:
At a profit.
let’s go make some.
The Mercenary Geologist
The Mercenary Geologist Michael S.
“Mickey” Fulp is a Certified
Professional Geologist with a B.Sc. Earth Sciences with honor from the
University of Tulsa, and M.Sc. Geology from the University of New Mexico.
Mickey has 30 years experience as an exploration geologist searching for
economic deposits of base and precious metals, industrial minerals, coal,
uranium, and water in North and South America and China.
Mickey has worked for junior explorers, major mining companies, private
companies, and investors as a consulting economic geologist for the past 22
years, specializing in geological mapping and property evaluation. In
addition to Mickey’s professional credentials and experience, he is
high-altitude proficient and is bilingual in English and Spanish. From 2003
to 2006, Mickey made four outcrop ore discoveries in Peru, Nevada, Chile, and
Mickey is well known throughout the mining and exploration community for his
ongoing work as an analyst for public and private companies, investment
funds, newsletter and website writers, private investors, and brokers.