EDITORIAL PAGE — Reserves and resources

Over the years, certain groups and individuals within Canada’s mining fraternity have advocated that steps be taken to set standards for reporting mineral resources and reserves.

The need for such standards is self-evident and we can certainly attest to the proliferation of terms that has evolved, particularly in this past decade, to describe and define mineral deposits as they progress from exploration through to exploitation.

Some of the more recent descriptives — such as “geological inventory” and “preliminary mineral resource” — are so vague that even those who use them would be hard-pressed to explain precisely what they mean. Other terms are clearly based more on wishful thinking than on any sort of classical scientific yardstick.

It also appears that the whole process of defining reserves and resources has become somewhat subjective and arbitrary, such that one man’s reserve can be another’s resource, or worse. It is not uncommon for investors to say they measure confidence in a particular deposit not merely on the “numbers,” but also on the credibility and reputation of the resource company and the technical firms behind the project.

If all this confusion causes headaches for investors, relief may be around the corner. Several years ago, the Mineral Economics Society of the Canadian Institute of Mining, Metallurgy and Petroleum began to untangle this thorny issue by forming a committee to develop standard definitions. The goal was to provide the best possible information to interested persons as to the quantity and quality of mineralization in a minable deposit, and “to assist toward a reasonable and balanced judgment of the economic worth of that deposit.”

Last year, after reviewing submissions from industry, as well as from the academic community and professional groups, the committee released its recommendations. As mining is a global industry, the proposed Canadian standards were compared with classification systems in other countries in an effort to achieve compatibility.

The committee welcomed written responses from industry on the recommendations and will soon report on these findings. It will be interesting to know whether the proposals meet with industry acceptance. We suspect they will, as they provide for a straightforward and simple system that appears to be compatible with international standards.

The proposals state that after the initial exploration information stage, a resource (estimated quantity and grade of mineralization) should be categorized as either inferred or indicated, depending on the amount and type of work that has been done.

For a resource to cross over into the reserve category, the mineralization must be sufficiently defined to form the basis of at least a preliminary mine production plan for an economically viable mining operation (at average metal prices forecast for the long term). A reserve is categorized as either probable or proven, again depending on the amount and type of work done. Assuming the proposed definitions are given the thumbs-up by industry, the next challenge will be ensuring that these reporting guidelines are widely implemented. And, human nature being what it is, this may require some prompting from Canada’s securities regulators.