Issue link: http://resourceworld.uberflip.com/i/318453
42 www.resourceworld.com j u n e / j u l y 2 0 1 4 M ineral exploration is a capital inten- sive and time consuming business that involves the collective knowl- edge of professionals of different scientific disciplines. The search for economic min- eralization takes years and only a handful of juniors are lucky or savvy enough to delineate mineral resources. The 'no guts no glory' slogan might be true but one has to remember that the being brave part was done on money borrowed from investors on the promise of a hefty return. In plain words, a mineral resource is a natural concentration of minerals that have 'reasonable prospects for economic extraction'. Mineral reserves (proven and probable) are the economically mineable parts of a measured or indicated mineral resource. Expensive and complex engineering studies have to be undertaken in order to prove up a mineral resource and upgrade it to reserves status. Other than the geo- logical and mining factors, the Qualified Persons (QP) would also consider the met- allurgical, geotechnical, economic, legal, environmental, social license and politi- cal risk factors. The prefeasibility studies' accuracy is within 20% to 30% while for feasibility studies the accuracy is within 10% to 20%. In a mineral resource estimation the economic part of the mineral deposit is separated by waste rock through the cal- culation of a cut-off grade – everything below that grade is considered waste but would still have to be mined, removed and stockpiled which is always an expensive undertaking. One of the most important parameters when calculating the cut-off grade is the price of the commodity at mining time and the corollary currency exchange rate. Both commodity prices and the exchange rates are cyclical while the US dollar, most of the time, is counter- cyclical to commodity prices. If the property is not to be placed into production for another five to seven years, then the selection of a long term commod- ity price should be employed in estimating mineral resources. In this case a material deviation would be recorded in the com- pany's asset valuation as a result of the difference between present day commod- ity prices and long term prices. The use of present day commodity prices at the peak of the commodity cycle would overstate the long term value of the mineral resources and reserves; the corollary being that at the trough of the commodity prices cycle it would under- state the long term value of the junior's mineral assets. Investors should keep an eye on the commodity price assumption employed by juniors or miners and at the trough of Mineral resources and reserves for investors Understanding how mining companies value their resources can help to de-risk your investment selections by Dan Oancea PGeo MINING