Mineral Resources & Reserves in Appraisal Valuation

An understanding of the geological nature of the mineral occurrence under examination is of primary importance to the appraisal of mineral properties. Ore, is defined as a mineral, or rock, that can be mined from the earth, be further processed and sold at a profit. Profit is a function of the grade and quantity of ore and the costs of mining, processing and selling the mineral product. These fundamental ideas hold true whether the mineral or rock in question is sand and gravel for construction purposes, base and precious metals or industrial or energy minerals.

Estimation of mineral reserves involves more than merely calculating a quantity of tons at some average grade or quality value. The calculations are important but the assumptions concerning expected geologic continuity, future mining costs, mineral product market conditions, and mineral product prices are even more important. The statement of in-situ mineral reserves should provide a good indication of what can actually be mined from the ground, in terms of tons and grade or quality, and sent to the processing facility. A mineral reserve statement that involves recovered reserves indicates not only how much can be mined but how much of the mined material is expected to be recovered by processing it for sale.

Because of inherent errors associated with measuring distances, volumes and weights, sample locations, sampling procedures and assays or other analyses the overall precision of a mineral reserve estimate may be limited to two significant figures. It is generally recognized that mineral reserve estimates, being a prediction of what is expected to occur in the future, are based on imperfect knowledge of the present, will be inaccurate to some degree. It is also recognized that different individuals analyzing the same data may arrive at somewhat differing interpretations and conclusions. The fact that a mineral reserve estimate may be proven to be inaccurate at a later date, when additional information is available or economic conditions have changed, does not necessarily mean that the estimate was made incompetently or fraudulently. Statements concerning mineral reserve estimates must have a reasonable basis and be made in good faith.

A mineral resource is defined as a concentration of naturally occurring solid, liquid or gaseous material in or on the Earth's crust in such form and amount that physical extraction or production of a commodity from the concentration is currently or potentially feasible. Location, grade, quality and quantity must be known or estimated from specific geological evidence. To reflect varying degrees of geological certainty, resources can be subdivided into measured, indicated and inferred categories.	A mineral reserve is that part of a mineral resource that meets minimum physical and chemical criteria related to specified mining and processing methods and can be reasonably assumed to be economically and legally mined or produced at the time of the determination. Feasibility of the specified mining and processing methods must be known or be reasonably assumed from tests and measurements. To reflect varying degrees of both geological and economic certainty, reserves can be subdivided into proven, probable and possible categories.
Measured. Quantity is estimated from dimensions revealed in outcrops, trenches, workings, road cuts and/or drill holes. Grade and/or quality are estimated from the results of detailed sampling and physical or chemical analysis of the samples. The sites for inspection, sampling and measurement are spaced so closely and the geological character is so well defined that size, shape, depth and mineral content of the resource are well established.	Proven. Quantity is estimated from dimensions revealed in outcrops, trenches, workings, road cuts and/or drill holes. Grade and/or quality are estimated from the results of detailed sampling and physical or chemical analysis of the samples. The sites for inspection, sampling and measurement are spaced so closely and both the geological and economic character is so well defined that size, shape, depth and mineral content of the reserve are well established.
Indicated. Quantity and grade and quality are estimated from information similar to that used for measured resources, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for measured resources, is high enough to assume geological continuity between points of observation.	Probable. Quantity and grade and quality are estimated from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for measured resources, is high enough to assume both geological and economic continuity between points of observation.
Inferred. Estimates are based on geological evidence and assumed continuity in which there is less confidence than for measured or indicated resources. Inferred resources may or may not be supported by samples or measurements but the inference must be supported by reasonable geoscientific data.	Possible. Estimates are based on geological evidence and assumed economic continuity in which there is less confidence than for proven or probable reserves. Possible reserves may or may not be supported by samples or measurements but the inference must be supported by reasonable geoscientific and economic data.

1) The term reserves need not signify that extraction and processing facilities are in place and operational.
2) The term economic implies that profitable extraction or production under defined investment assumptions has been established or analytically demonstrated. The assumptions made must be reasonable including assumptions concerning the prices and costs that will prevail during the life of the operation.
3) The term legally does not imply that all permits needed for extraction and processing have been obtained or that other legal issues have been completely resolved. However, for a reserve to exist, there should not be any significant uncertainty concerning issuance of these permits or resolution of legal issues.
4) It should be noted that the United States Securities and Exchange Commission does not recognize the use of the terms resource nor possible reserves for disclosure by public companies.

Discuss your mineral property appraisal, mining business valuation, or other mineral industry related concerns with Mineral Business Appraisal:
Michael R. Cartwright michael@minval.com
Five Claret Court, Reno, NV 89512-4744
Tel/Fax: 775-322-9028