Mineral Resources vs Ore Reserves: Inferred to Proved, and what EV per ounce hides

A Mineral Resource is an estimate of mineralised material with reasonable prospects of eventually being mined; an Ore Reserve is the part of a resource shown by a mining study to be economically mineable once real-world costs and constraints are applied. Resources are split into Inferred, Indicated and Measured by confidence, and reserves into Probable and Proved, so a company's "ounces" can mean very different things.

From drill holes to a resource

Once an explorer has enough holes at close enough spacing, a geologist builds a 3D model of the mineralised zones and estimates grade into blocks between holes. The result, reported under the JORC Code, is a Mineral Resource Estimate (MRE) stated as tonnes, grade and contained metal at a stated cut-off grade. The JORC Code requires a resource to have reasonable prospects for eventual economic extraction, which in practice often means the resource is limited to material inside a conceptual open pit or above a cut-off suited to underground mining.

Example: 25 million tonnes at 1.3g/t gold is 32.5 million grams, or about 1.04 million ounces (Moz). For copper: 300 million tonnes at 0.45% Cu contains 1.35 million tonnes of copper.

The three resource categories

The JORC Code notes that it is reasonably expected that the majority of Inferred Resources could be upgraded to Indicated with continued exploration, but that is an expectation, not a guarantee. Infill drilling sometimes reveals that an Inferred zone is smaller, lower grade or less continuous than modelled.

From resource to reserve

Ore Reserves are derived from Indicated and Measured Resources by applying modifying factors: mining method and dilution, metallurgical recovery, costs, metal prices, infrastructure, environmental, social, legal and government approvals. Reserves require at least a pre-feasibility study. Two categories exist:

• Probable Ore Reserve: from Indicated (or sometimes Measured) Resources.
• Proved Ore Reserve: from Measured Resources, the highest confidence.

Reserves are usually smaller in ounces than the resource they come from, because some material is uneconomic, inaccessible or lost to dilution and recovery. Reserve grade can be lower than resource grade because of mining dilution, or higher if low-grade material drops out. Companies report resources either inclusive or exclusive of reserves; check which, or you may double count.

Exploration Targets are not resources

An Exploration Target is a range, such as "10-20Mt at 1.0-1.5g/t", describing the potential of an area. It is conceptual. The JORC Code requires it to be reported with a cautionary statement that the potential quantity and grade is conceptual in nature, that there has been insufficient exploration to estimate a Mineral Resource, and that it is uncertain whether further exploration will result in one. Never add Exploration Targets to resources.

EV per resource ounce

Investors often compare gold companies using enterprise value per resource ounce:

Example: a hypothetical explorer has a A$120 million market capitalisation, A$20 million of cash and no debt, giving an EV of A$100 million. With a 1.04Moz resource, EV/oz is about A$96. A peer on A$40/oz may look "cheaper". Often it is cheaper for a reason.

The traps in EV/oz

• Grade. An ounce at 0.6g/t needs more than twice the rock moved and processed of an ounce at 1.5g/t. Low-grade ounces are worth less.
• Category mix. 1Moz that is 80% Inferred is not comparable to 1Moz that is 70% Indicated and Measured.
• Cut-off grade. Lowering the cut-off adds tonnes and ounces at lower grade. Compare resources at their stated cut-offs, and look for grade-tonnage tables showing other cut-offs.
• Pit constraints. Is the resource limited to a pit shell at a realistic gold price, or does it include material that may never be mined?
• Metallurgy. Refractory or poorly recovering ounces are worth less than free-milling ounces.
• Location and infrastructure. Ounces near an existing mill are worth more than ounces 300km from power and water. Jurisdiction matters too.
• Ownership. Use attributable ounces. 1Moz in a 51% joint venture is 510,000oz to the company.
• Depth. Deep underground ounces need higher grades to make sense.
• Dilution ahead. An explorer with short cash runway may issue many more shares before production. See cash runway and capital raisings.

EV/oz is a quick way to start a comparison, never the end of one. For copper, the equivalent is EV per tonne of contained copper, with the same traps.

Reading a resource announcement

1. Find the summary table: tonnes, grade and metal by category.
2. Note the cut-off grade and the price assumptions behind any pit shell.
3. Check the category split, and the proportion of Inferred.
4. Compare with the previous resource: did ounces grow through more tonnes, higher grade, or a lower cut-off?
5. Read JORC Table 1 Section 3 for estimation method, top-cuts and density. See JORC Table 1 explained.

Production targets based partly on Inferred Resources must carry cautionary statements under ASX rules, because there is low confidence in that material. If a study leans heavily on Inferred ounces, read that caution closely.

How drill results feed in

Every resource begins with drill intercepts. Strong gram-metre hits at close spacing build confidence; isolated hits do not make a resource on their own. The drill results leaderboard shows recent intercepts, and the glossary defines the terms used here. This guide is general information only and is not a recommendation about any company.

The short version

• Resources (Inferred, Indicated, Measured) have reasonable prospects of extraction; reserves (Probable, Proved) are shown by a study to be economic.
• Inferred Resources cannot be converted to reserves.
• Contained ounces = tonnes × grade ÷ 31.1035.
• EV/oz is a starting point; grade, category, cut-off, metallurgy, location and ownership all change what an ounce is worth.
• Exploration Targets are conceptual ranges and are never part of a resource.