Resource Estimation 101: Understanding The Basics of Mineral Resource Estimation

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Resource estimation is a critical process in the mining industry, as it involves estimating the size, quality, and quantity of mineral resources in a given deposit.

Accurate resource estimates are essential for both the companies planning and executing mining operations and investors trying to accurately value the stocks of these mining companies.

An investor who doesn’t even know the basics of resource estimation is essentially flying blind when deciding to invest in the sector.

In this article, we’ve attempted to provide you with all the basic information you will need to begin understanding an analyzing the information given to you by mining companies.

The report provides an overview of the basics of mineral resource estimation, including key terms, methods, and how to judge if estimates provided by companies are both accurate and reliable.

Key Terms in Resource Estimation

Before diving into the methods and considerations for resource estimation, it’s important to understand some of the key terms used in this process:

  1. Mineral Resource: A concentration of naturally occurring solid, liquid, or gaseous material in or on the Earth’s crust, with economic value.
  2. Ore Deposit: A mineral deposit that can be economically mined at a profit.
  3. Grade: The quantity of mineral within a given volume or mass of rock.
  4. Tonnage: The amount of mineralized material within a given volume or mass of rock.
  5. Cut-off Grade: The minimum grade of mineral that can be economically mined.

Methods of Resource Estimation

There are several methods of resource estimation used in the mining industry, each with its own strengths and limitations. Here are three of the most common methods:

  1. Geological Mapping: This method involves mapping the geological characteristics of a deposit, such as its lithology, structure, and alteration. Based on these characteristics, geologists can estimate the location and size of mineralized zones.
  2. Geostatistics: Geostatistics involves using statistical methods to analyze geological data and create models of the distribution of mineralization within a deposit. This method takes into account the spatial relationships between different data points, and can be used to estimate the grade and tonnage of mineralization.
  3. Block Modeling: Block modeling involves dividing a deposit into a grid of blocks, and estimating the grade and tonnage of mineralization within each block. This method can take into account multiple data sources, such as drilling data and geological maps, and can be used to create 3D models of the deposit.

Considerations for Resource Estimation

While the methods used for resource estimation can vary, there are several key considerations that are important for accurate and reliable estimates:

  1. Sampling: Resource estimation is based on the analysis of samples taken from a deposit. It’s important to ensure that these samples are representative of the entire deposit, and that they are collected using appropriate methods and equipment.
  2. Data Quality: The accuracy and reliability of resource estimates depend on the quality of the data used in the estimation process. This includes drilling data, geological maps, and other sources of information about the deposit.
  3. Geological Understanding: A thorough understanding of the geological characteristics of a deposit is essential for accurate resource estimation. This includes knowledge of the deposit’s lithology, structure, and alteration, as well as an understanding of the processes that formed the deposit.
  4. Assumptions and Uncertainty: Resource estimation involves making assumptions about the distribution of mineralization within a deposit, as well as uncertainties in the data used to create the estimate. It’s important to document these assumptions and uncertainties, and to use appropriate statistical methods to account for them.

Types of Resource Reports

Resource reports are documents that provide a detailed description of the geological characteristics and mineral resources of a deposit. These reports are an important tool for informing investment decisions, securing project financing, and demonstrating compliance with regulatory requirements.

There are several different types of resource reports that may be prepared for a mining project, including:

  1. Exploration reports: Exploration reports provide an overview of the exploration activities conducted at a mining project, including drilling, sampling, and geological mapping. These reports may include information on the location and nature of mineralization, as well as estimates of mineral resources based on the available data.
  2. Preliminary economic assessment (PEA): A PEA is a preliminary evaluation of the economic viability of a mining project. This report may include estimates of mineral resources and reserves, as well as information on the anticipated mining and processing methods, capital and operating costs, and expected revenues and profits.
  3. Feasibility study: A feasibility study is a comprehensive analysis of the technical, economic, and environmental feasibility of a mining project. This report includes detailed information on the geological characteristics of the deposit, as well as estimates of mineral resources and reserves based on more extensive drilling and sampling programs. It also includes information on the proposed mining and processing methods, capital and operating costs, and anticipated production levels and revenues.
  4. Technical report: A technical report is a detailed description of the geological and technical aspects of a mining project. This report typically includes information on the location and nature of mineralization, the results of drilling and sampling programs, estimates of mineral resources and reserves, and a detailed analysis of the proposed mining and processing methods.
  5. Independent technical report: An independent technical report is a technical report prepared by a third-party consultant or expert. These reports are often required by regulatory agencies and financial institutions to ensure that the information presented in the report is unbiased and accurate.

Each type of resource report serves a different purpose and requires varying levels of detail and analysis. Mining companies and investors should carefully consider their goals and the regulatory requirements for their jurisdiction when deciding which type of report is most appropriate for their project.

Resource Classification and Confidence Levels

Resource classifications are used to describe the level of confidence in the estimates of mineral resources and reserves. The most commonly used classifications are inferred, indicated, and measured, which are based on the level of geological understanding and the amount of data available.

  1. Inferred resources: Inferred resources are estimates of mineralization that are based on limited geological information and a limited amount of drilling or sampling data. The confidence level in these estimates is low, as the quality and quantity of data available is not sufficient to fully understand the nature and distribution of the mineralization. Inferred resources are typically used to identify areas of interest for further exploration and are not considered economically viable for extraction.
  2. Indicated resources: Indicated resources are estimates of mineralization that are based on more extensive geological information and a more extensive amount of drilling or sampling data than inferred resources. The confidence level in these estimates is higher than inferred resources, as the data used to create them is more reliable and representative of the deposit. Indicated resources are typically used to inform mine planning and development decisions and are considered economically viable for extraction.
  3. Measured resources: Measured resources are the most reliable estimates of mineralization, as they are based on a high level of geological understanding and a large amount of drilling or sampling data. The confidence level in these estimates is very high, as the data used to create them is comprehensive and representative of the deposit. Measured resources are typically used to support mine planning and development decisions and are considered economically viable for extraction.

It is important to note that resource classifications are based on estimates and not exact measurements. The level of confidence in these estimates is influenced by several factors, including the quality and quantity of data available, the geological complexity of the deposit, and the methods used to create the estimate. Mining professionals should carefully consider these factors when interpreting resource estimates and determining the level of risk associated with a particular mining project.

In addition to the main resource classifications, there are several other categories used to describe mineral resources and reserves, including probable and proven reserves. Probable reserves are estimates of mineralization that are based on a higher level of confidence than indicated resources, and proven reserves are estimates of mineralization that are based on the highest level of confidence and have been fully tested and validated through drilling and sampling. These categories are typically used to inform financial reporting and investment decisions.

FAQs

Q: What is the difference between a mineral resource and a mineral reserve?

A: A mineral resource is a concentration of naturally occurring solid, liquid, or gaseous material in or on the Earth’s crust, with economic value. A mineral reserve is a mineral resource that has been demonstrated to be economically and technically feasible for extraction.

Q: Why is resource estimation important in the mining industry?

A: Accurate resource estimation is essential for planning and executing mining operations. It informs decisions about the location of mining infrastructure, the selection of mining equipment, and the economic viability of a mining project.

Q: What are some of the challenges associated with resource estimation?

A: Resource estimation can be a complex and challenging process, as it involves making assumptions about the distribution of mineralization within a deposit and accounting for uncertainties in the data used to create the estimate. Additionally, resource estimation can be influenced by factors such as drilling density, geological complexity, and sampling bias.

Conclusion

Resource estimation is a critical process in the mining industry, as it provides the foundation for planning and executing mining operations. Accurate and reliable estimates require a thorough understanding of the geological characteristics of a deposit, as well as appropriate sampling and data analysis techniques.

This is only part 1 of a larger guide on how to judge the quality of a company’s resources. Stay tuned for part 2 where we will dive deeper into the different types of resource reports and help you understand what a PEA is and how to read it.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

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