You decide to invest in mining. You get the literature from the mining company. You get a report signed by a competent person saying that the ore is there and can be turned into profit. But you remain confused about the differences between an inferred mineral resource, an indicated mineral resource, measured resources, probable, proved, proven, and mined resources.
It is a verbal jungle out there, but the words mean a lot, and, in particular, they significantly affect the share price. There is some help at hand in the new Reporting Code 2008 Exposure Draft from the Pan-European Reserves + Resources Reporting Committee (PERC).
This draft updates the current code which sets minimum standards, recommendations and guidelines for public reporting of mineral exploration results, mineral resources and mineral reserves in the United Kingdom, Ireland, and Europe.
There is a similar code in Canada, NI 43-101, that is widely used world-wide.
These are highly technical documents. There are hundreds of articles by high-paid lawyers in learned journals explaining the subtleties of these codes. It is hard work to read them, understand them, appreciate them, and more, use them in making mining-related investment decisions.
Consider for example a stock offering from a company that claims to have a huge heap leach pad still chock-full of copper. The reason it is full of copper is that it is an old pad, created long before modern leaching, bioleaching, or selective lixiviant control techniques were invented. Those old-timers simply left most of the copper behind in the rocks.
Now this is clearly a waste pile in common terminology. This is also, at first glance, and in common terminology a potential gold/copper mine.
But is it an inferred resource or is it a proved resource? In common-sense terminology, it all depends on how much data there is about the remaining copper concentration in the heap. The mine’s competent person, of whom you have never heard, signs a report saying that in her opinion this is a probable resource likely to yield copper enough to make commensurate profits.
What price to pay for shares in the company proposing to collect natural heap leach pad leachate, send it to a recovery plant and take out the resulting copper? And maybe also gold, but that is not yet indicated as measured.
To make it more confusing the company boasts loudly about their application to the local regulators to spray more water and a patented additive on the top of the heap leach pad. This they, and their competent person, say will increase the indicated resources by two-hundred percent. Should you pay a premium for the company’s shares?
It would take a course on heap leach pads, lixiviants, biotechnology, and a clear reading of the relevant codes to decide if the competent person is competent, if the mine’s claims are reasonable, and if lots of money can be made or will be lost.
Let me only warn you that I have read many NI 43-101s and often have not been impressed by the competence thereof. The worst offender I have come across was a retired geologist who for years signed off reports about a mine in a far-away country and never once left his local state. That company is now in litigation to nobody’s surprise.
Furthermore a heap leach pad is not a geological entity. Few if any geologists know much about the complex partially saturated flow of bioleaching chemicals and bacteria in a man-made heterogeneous entity. You do not need a geologist; you need a biochemist, a PhD in fluid flow, a random-particle statistician all in one room to make head or tail of this heap leach pad. Maybe also add a clairvoyant mining economist.
Point is be careful about reworking those old dumps. There is lots of potential profit in them. But do not be misled by statements in even the most official-looking documents. Even those that come from PERC.