Understanding Mineral Reserves and Resources: A Practical Guide for Mining Investors

When evaluating junior mining stocks, most investors focus on share price and management team. Yet the most critical question often gets overlooked: what exactly does this company actually have in the ground? The answer lies in understanding two closely related but fundamentally different concepts—mineral resources and mineral reserves—each carrying distinct implications for investment risk and potential returns.

Why the Distinction Matters

These terms sound similar but operate on different scales. A mineral resource represents all mineralization identified at a site, while a mineral reserve consists only of the economically extractable portion. Think of it this way: a resource is the total treasure map shows; a reserve is only the treasure worth digging up at current prices and technology levels.

This difference is crucial because it directly impacts project viability. A company might report impressive resource figures, but if only a fraction qualifies as economically viable reserves, the investment thesis changes dramatically.

The Three Confidence Levels of Mineral Resources

The mining industry classifies resources by confidence level, reflecting how much exploration work has been completed:

Inferred Resources: The Earliest Stage

This represents a company’s first serious attempt to quantify what’s underground. Usually only surface sampling or a few drill holes have been conducted. Confidence is low—the company knows something is there, but barely. These figures get reported separately because they’re based on minimal data. Under National Instrument 43-101 standards, inferred resources can appear in preliminary assessments only, not in feasibility studies. For investors, this is high-risk territory. The deposit might look spectacular on paper, but limited fieldwork means real surprise could go either way.

Indicated Resources: More Definition Emerges

Once drilling programs expand significantly, the company gains better understanding of deposit geometry, depth, strike length, and mineral grades. More drilling reveals what minerals are actually present and in what concentrations. This confidence level allows inclusion in prefeasibility and feasibility studies. Investors can now begin to assess longer-term site potential and understand the possible scale of a future operation. These studies might even suggest profitability ranges.

Measured Resources: The Detailed Picture

This represents the company’s most rigorous and reliable dataset. It fills late-stage technical reports and serves as the foundation for feasibility studies. Measured resources indicate whether mining a particular deposit makes economic sense. As development progresses, measured resources convert into proven and probable mineral reserves.

Converting Resources into Reserves: Economic Reality Check

Here’s where the story shifts. Not all mineral resources become mineral reserves. A reserve is defined by economic extractability—the ore quantity that will actually reach processing or sale. This filter removes several categories: deposits too distant from the main body to extract profitably, ore grades too low to cover extraction costs, and areas where environmental or technical challenges make mining uneconomical.

Mineral reserves appear in a company’s reporting during the development stage, when management assembles feasibility studies and plans the transition from exploration to production.

Two Classes of Mineral Reserves

Probable Reserves: Conditional Viability

These derive from indicated resources but apply real-world modifying factors. Metallurgical analysis suggests what percentage of minerals can actually be extracted through current processing techniques. Environmental regulations, commodity prices, and engineering constraints all adjust the calculation downward. Probable reserves require realistic economic and engineering studies in prefeasibility or feasibility documentation. They begin demonstrating the cash generation potential and estimate how long mine life might extend and when initial capital recovers.

Proven Reserves: Maximum Confidence

Built from measured resources with economic, geologic, environmental, and technical factors applied, proven reserves represent the highest confidence category. They reflect where mining operations are planned and typically use current commodity prices. Investors should view proven reserves as management’s final estimate of economically mineable minerals.

The Investment Implications

For investors, this classification system reveals risk tiers. Inferred resources carry the most speculation risk. A company with only inferred resources hasn’t done enough homework—you’re betting on their exploration program succeeding. Measured resources and proven reserves signal a company has invested heavily in definition and feasibility, substantially reducing execution risk.

The path from inferred resources to proven mineral reserves takes years and millions in capital. Understanding where a company sits on this spectrum—whether it’s in pure exploration mode or ready for development—fundamentally shapes investment risk-reward calculations.

Next time you review a junior miner, trace its resource and reserve progression. That trajectory tells you far more than press releases ever will.