*Only used in the Pre-Economic Assessment (PEA)

Proven Reserves are actually there, Probable Reserves are most likely there given the calculations and data, while Inferred Resources  are there in an ideal world.  If you find more resources than the inferred estimate, the stock price can rise but keep in mind that technical reports must be validated by the qualified person before they can become actual “Mineral Reserves.”   

The success of the mining project depends on the assets that are in the ground and how capable management is to assemble a process to make its extraction cost effective.  After, there is a feasibility study to discuss the capital costs involved in the development of the project into a mine.

Drilling

Companies will usually have a colourful map of their property with a legend showing their drill holes, often represented by  red dots.  The good ones with the most probability for gold are called “targets.”  They also draw horizontal and vertical lines through the holes. When they drill, they often drill on an angle.  Drill holes, although they seem quite simple in theory, are actually very pricy and can cost about $100,000 to drill one hole of core.  So, you have to be very precise where you choose to drill, or you could spend millions of dollars for nothing.

Metallurgy Report   

This section often gets overlooked, but it is very important.  You can have the best gold reserves in the world, but if you can’t separate the gold effectively from the rest of the surrounding rock, then the project may no longer be feasible.  

For clarification, rocks are made up of minerals, which are inorganic, naturally occurring solid substances. In mining, ore refers to minerals (such as metals) that are economically valuable and can be extracted profitably. The ‘gangue’ minerals are everything else.  They are essentially economically worthless minerals that surround the ore.

Once chemicals have been used to separate the gold from the other minerals, there is often heavy metal waste.  Also, some naturally occurring toxic elements exist with the gold in the earth’s crust, such as arsenic.

Fortunately, new technologies are being developed because mining is crucial for the inputs to create all that we love: including cell phones, cars, planes buildings etc.  There is a very cool science called 2bioremediation,  “that uses bacteria to remove the noxious ions from the environment.”  If you’re environmentally conscious, I encourage you to look into it.  

For gold recoveries, consensus prefers a rate of recovery of 75% or better.

Resource Estimation

Calculating the Production Rate for your Discovery

The economic feasibility of the project depends on the Production Rate of the project.  

Some Notable Benchmarks:

1. Drill Results: a grade of +2.00 g/t over at least 1 metre in diameter. There is some method to the madness of drilling.  Usually, the geologist plots drill holes to identify the structure of the deposit.  There will be an average grade over a series of metres and this should also be 2.00g/t.

1. Depth: An open-pit resource should ideally be located 200 metres or less and an underground mine should be no deeper than 500 metres.  There are some successful mines that are deeper, but they require additional construction and this will reduce the cost effectiveness of the operation.

1. At least 500,000 ounces of recoverable gold (Au) over the life of the project. The reports usually break down the tonnes (t) and the grams per tonne (g/t).  You might have to calculate the ounces (oz) yourself.  This is how you do that:

The Formula is:

Tonnes (Mt) X Grade (grams/tonne) / Conversion factor to Troy Ounces  31.1035  = Ounces (Moz)

1. Ideally, the mine life should be at least be 5 years at a minimum.