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How to Understand A Mining Company’s Assets

Mine With the recent events involving mining companies Blumont Group (SGX: A33) and LionGold Corp (SGX: A78), it might be time to take a closer look at how to look at the assets of a mining company. In this article, we’ll take a look at the types of assets that a mining company owns, and examine the difference between a mineral resource and a mineral reserve.

There are 5 main groups that an investor should be aware of:

1)     Inferred Mineral Resource (Least Valuable)

2)     Indicated Mineral Resource

3)     Measured Mineral Resource

4)     Probable Mineral Reserve

5)     Proven Mineral Reserve ( Most Valuable)

To simplify the definition, resource is the estimated amount of material in the Earth’s crust that has reasonable prospects for economic extraction while reserve is the part of the resource that can be confidently mined economically as verified by a feasibility study.

An inferred mineral resource tends to be the starting classification that a company will published. It is considered a mineral resource that is projected based on geological evidence and a limited sampling. As the resource is still inferred, and therefore not verified, only a small portion of it will be mineable. After more exploration and testing, the inferred resource will be able to move on to the next level of classification, “Indicated Mineral Resource”. Only through further testing can the resource be classified as a “Measured Mineral Resource”, and ready for an evaluation of the economic viability of the deposit.

Once a feasibility study is done on the indicated or measured resource and accounted for material dilution and wastage during mining, the materials will be categorised as reserves. From the process, you can see why most of the time, only a small part of the resources can be converted successful to cash for the shareholders.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.