A mineral reserve refers to the known quantity of mineral in a specific area that can be extracted profitably. It is an estimate of the amount of a mineral that is economically and legally feasible to extract given current mining technology and regulations, and commodity prices.
Mineral reserves are subdivided based on their level of certainty into two main categories:
- Proved (or Proven) Reserves: These are the quantities of minerals that can be recovered with a high degree of certainty. They are well-delineated and thoroughly sampled and are considered economically viable under current or reasonably foreseeable conditions.
- Probable Reserves: These are less certain than proved reserves but are still deemed likely to be recoverable. They are often parts of a deposit that are not as well sampled or are at greater depths, or in geological settings where continuity is less certain.
It’s worth noting that the categorization of mineral reserves can be quite dynamic. For example, a change in economic conditions (such as a change in the market price of the mineral) can move a resource from the “unprofitable to extract” category to the “profitable to extract” category, effectively increasing the reserves. Similarly, advances in mining or extraction technology can also turn previously unprofitable resources into profitable reserves.
The term is commonly used in the mining and petroleum industries.
Example of a Mineral Reserve
Let’s take an example of a mining company, “ABC Gold Corp.”
ABC Gold Corp. operates a gold mine in Nevada. Through extensive geological exploration and testing, the company has estimated the amount of gold that exists within its mining property. The estimation includes proven and probable reserves.
- Proven Reserves: Let’s assume that ABC Gold Corp. has identified 100 tons of gold that exist in areas where they have conducted extensive drilling and sampling. The company has a high degree of confidence that this gold can be mined economically given current gold prices and their existing mining technology. These 100 tons constitute their proven reserves.
- Probable Reserves: In addition to the proven reserves, the company has identified another 50 tons of gold in areas that are less extensively sampled or are in geological settings that make the gold more difficult to extract. These 50 tons are less certain, but the company still believes they are likely to be economically extractable. These constitute their probable reserves.
So, ABC Gold Corp. would report that they have 100 tons of proven reserves and 50 tons of probable reserves.
It’s important to remember that these figures can change. For example, if the price of gold rises significantly, areas of the mine that were previously unprofitable to mine may become profitable, effectively increasing the company’s mineral reserves. Alternatively, if new drilling reveals more gold than expected, this could also increase the company’s reported reserves.