Mineral Resources

A mineral resource is a concentration of a mineral in the ground. Unlike mineral reserves, resources are not necessarily economically mineable. The classes of mineral resource used in accounts, in decreasing order of confidence, are:

  • measured resources
  • indicated mineral resources
  • inferred mineral resources.

These are similar distinctions to those between the three classes three classes of crude oil reserves.

Because much of the value of a company in any extractive industry usually lies in the value of the assets it has to extract mineral resources are critical for valuation. Gold buried in the ground, and needing some money spend on digging it out and refining it, is still gold. The underlying concept is essentially that of net realisable value, which should also be close to the market value of the assets. This is why miners are frequently valued on a price to book value basis.

One thing to bear in mind is that what is buried in the ground is a hard commodity, and as such its value may be very volatile, as well as quite uncertain in the cases of indicated and inferred mineral resources!

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