Editor’s Note KEEP IT SIMPLE

The mining industry has a standard and accepted way of reporting reserves. First, the reserve category — proven, probable or possible — is given, then the tonnage and grade. But a new practice has sprung up that won’t do the industry a lick of good if it becomes a widespread practice. This new form of reporting reserves usually appears in press releases or annual reports in statements such as the following: “Your company can now say with confidence that we have a million ounces of gold in the ground at our Project X property.” Or “the mineral inventory at our Far, Far North property, we confidently can say, is two million tons grading 0.25 oz gold per ton.” Without some elaboration of the terms “gold in the ground” or “mineral inventory,” how can these numbers be understood in any meaningful context? I suspect the practice sprang from the desire of a few senior mining companies to communicate their reserve position to an unsophisticated audience. To most investors, the statement “proven and probable reserves stand at one million tons grading 0.18 oz gold per ton” may be just about meaningless. In the past, the companies would usually append an explanation to the effect that that reserve number means the mine in question has another four or five years of production ahead of it. To make the point even more vigorously, several companies have now turned to the practice of reporting the number of ounces in the ground. Coming from senior producing companies who usually state in what category of reserves the numbers belong, it is an acceptable practice (although I would prefer the proven and probable reserves be stated separately from the possible reserves).

But I would object to that type of reporting becoming an acceptable and widespread practice, especially among junior explorers. Without qualifying it, the number is so vague as to be meaningless. Say that I read about a company which has a “mineral inventory” of 1.5 millon tons grading 0.20 oz gold per ton or that it has 300,000 oz of gold “in the ground?” What does that mean? Have these reserves been blocked out on four sides or two sides? Or are they merely drill- indicated? And what about dilution factor and cutoff grade? And where is this gold in the ground? Is it in one continuous zone or is it scattered in smaller zones all over the property? I want to be able to assess whether this stuff is mineable.

Let’s face it. Setting out a tonnage and grade and stating the category of the reserve is only a first step. But at the early stage of a project, that’s all there is to go on. Don’t muddy the waters.