The word “exploited” does not have a negative or pejorative connotation anywhere on this website. It does not refer to older kids manipulating little kids to get their money. The author knows all about such exploitation and that is not what is referred to here. What we are describing is digging into the earth to find cool stuff for which people will pay lots of money. This is exploitation and it is good. It doesn’t matter if you have friends with expensive, leather interior, four wheel drive vehicles who consider this to be bad. Their vehicle proves them wrong and that is all there is to that.

If the minerals exist in quantities large enough to be considered worthy of a second look then we refer to this as a “resource”. But public companies cannot talk about resources until they have developed a model and used appropriate geostatistics to qualify the model and the grade and tonnage estimate calculated from it. That is why these terms were discussed above. You have to admit there is a certain logic to this website. 

A resource can be big or small. That is not the issue. What is important is that it might contain enough minerals at a high enough grade to become economically mineable. This can be packaged in such a way that it is attractive to investors – especially naïve ones. We’ll get into the pitfalls of investing in projects that brag about their resources in a moment. First, note that there are two aspects to a resource that are very important to their owners, stock exchanges and potential investors – the size (tonnes, cubic meters etc.) and the quality (grade, carats, BTU’s etc.). An assessment of both aspects is necessary to differentiate a bunch of interesting rocks from a resource. This is very important point number one – a resource must be defined by it’s size and grade. If a prospector or hairy, flannel clad one comes to you and says, “I think I have found a huge deposit of gold!”, you must act excited with him and gently pry out the important details of how big and how rich. There are lots of entertaining stories of people who have lost a great deal of money because they didn’t get to these important details quickly enough. 

Naturally some resources are better defined than others and so the deep thinkers have conveniently divided the definition of resource into three categories; inferred, indicated and measured. If someone has a measured resource of 250 million tonnes with two percent copper and is offering you shares at 40 cents you have a right to wet your pants. However, if you mortgage your house to buy those same stocks for an inferred resource of the same size and grade your wife has a right to divorce you. There is a world of difference between the two resources. Almost everyone has a huge inferred resource of millions of tonnes of whatever commodity is currently hot at a grade that would make King Solomon blanche. If you don’t believe this then put an advertisement in the paper saying you are a naïve investor with $150 million dollars to put into speculative exploration properties and see how many responses you get. However, a measured resource, by definition, means that the orebody has been sufficiently drilled and assayed to confidently calculate the tonnes and average grade of the deposit. Normally, a resource will be defined by a combination of the three categories. For example, a resource could be categorized as;

• 5 million tonnes of measured resources at an average grade of 8 grams per tonne of gold plus;
• 8 million tonnes of indicated resources at an average grade of 9 grams per tonne of gold plus
• 250 million tonnes of inferred resources at an average grade of 34 grams per tonne of gold. 

This may not be a realistic example but it does illustrate an important point – drilling almost always reduces the value of a deposit. This is not because people are inherently evil and out to defraud investors. Rather it is just human nature to see things in brighter colours than is justified and particularly so if those brighter colours will put more money in your pocket. It is important to remember this when you are reading the exploration results from your brother-in-law’s mining company. The company is not really lying to you but human nature is such that project owners, like new parents, are the last to recognize how butt-ugly their babies are.

The table below gives resource definitions for the three categories described above. In order to publicly quote resources companies who trade on Canadian stock exchanges must hire someone known as a Qualified Person who has particular qualifications to make the estimate of resources and swear to give up their first born if the estimate is not accurate. By the way, the Reserve categories complementary to the Resource categories is also shown. They have different definitions however. 

Before getting to reserves there is a need to understand the terms “dilution” and “recovery” which is conveniently the next topic.