Something needs to be done to a resource to reclassify it as a reserve and that “something” is a preliminary feasibility study which estimates, among other things, the amount of recovery and dilution to be expected. This is a critical distinction that is important to grasp. If your brother-in-law asks you to invest in his project boasting of millions of tonnes of reserves ask to read the feasibility study. Many projects have foundered on the rigours of the feasibility study because for the first time all the elements of the project are brought together and a cost is applied to them. When the company executives read the feasibility study of their project you can often hear them say, “Hmm... forgot about that.” It is human nature to forget stuff and so engineering companies are hired to do the feasibility study so that if something is forgotten they can be sued making the project economic after all. Think of it like insurance. On the next page are some definitions from the Canadian Institute of Mining and Metallurgy.

In case there is confusion, it must be stated that there are a number of resource and reserve definitions – all developed by competent mining associations and governing bodies. However, over time the definitions have all become more or less the same and those quoted above are universally recognized and accepted. So if you hear of SME or JORC definitions in contradistinction to the CIM definition, ignore the three and four letter acronyms and treat them as being essentially the same.

Unfortunately, having defined the terms does not end the problems associated with understanding the terminology. As can be seen from the definitions there are enough “wiggle” words to allow a range of interpretation of the words used on the company prospectus. For example, what does “high degree of confidence mean”? If you are looking for development money almost any deposit grade and tonnage estimate can have a high degree of confidence. So you still have to be careful with the terms. If your brother-in-law says he has a large, proven reserve and is very confident of the economics of the project ask him how much of his house is mortgaged to invest in the proposed mine. This is a very good clue to his definition of “high degree of confidence”. A more practical approach to establishing confidence in resource and reserve numbers is being taken by the securities commissions and their decision to insist on a “Qualified Persons” report. This stipulates that an independent, trained and technically competent third party will review the estimate for reasonableness and accuracy and be willing to be publicly associated with the published numbers. It is not foolproof in terms of avoiding nasty shareholder surprises but it does generally work. Besides it produces a lot of employment for dumb engineers and bearded, flannel-clad ones. Whenever there is a need to sign your name to something which could cause future shock and embarrassment there is a reflexive tightening of the sphincters which is only relieved by being very focussed and a bit conservative on the estimating procedure. It must be born in mind that some people have such loose sphincters that even this procedure will not stop them from “over achieving” on their estimates - but they also smoke cigars so can often be smelled a mile away.

Anyway... remember that resources, reserves, ore, deposit and other such words have accepted definitions to prevent public companies from abusing the terms and misleading investors. This is a good thing but investors must still exercise caution when reading press releases and question whether the terms are being used appropriately. If you don’t believe me take a look at the number of companies that have had to revoke prior press releases (and web site material) in order to get back onside with the securities commissions.

Now on to a more interesting topic .... metallurgy. Very cool stuff really.