How Do I Read Mining Company Reports?

Reading jargon-deluged mining and exploration reports can leave even the pros bewildered. In addition to making sense of mining results and calculations, initial market reaction needs to be sifted. Response can sometimes bury accuracy in favour of emotions, despite stringent rules on reporting mining results. So how does the ordinary investor crack the mining report Rosetta Stone? Divide and conquer.

Let's break up the mining report terrain into manageable (general) categories: exploration, discovery, appraisal and resources. Groupings simplify things, but remember that there are marked differences between commodities. Gold deposit discoveries are unpredictably based on appraisals, while coal deposits are more or less stable.

Tapping for Gold: Exploration

Before hauling an army of miners to dig in the middle of nowhere, mining companies send out vanguards or surveyors. Their goal is to put the "X" on the map, whether for further testing or outright drilling. Surveyors study the site’s topography by methods such as magnetics and geochemical analysis. In short, surveys save time and company money.

Let's take a theoretical gold exploration company called Miners R Us, which is surveying a remote Australian region called Backwater Rural. On site one afternoon, surveyor Enterprising records an auspicious sound on his metal detector. Enterprising reports the discovery to his boss Going For Gold. Being the opposite of gullible, GFG does not break out the champagne just yet, but sends more people to the site and runs multiple tests, the 20th in a series. At the end of the long day, nobody can 'see' the actual gold deposit, so GFG concludes that 'further investigation' is necessary.

Obfuscation-loving Miners R Us then issues the following press release:

"In Backwater Rural, Northern Australia, Miners R Us recently concluded an electromagnetic geophysical survey of an area of aberrant geochemical results for multifarious gold and alloyed elements. The ground survey accentuated the periodic eventuality of bedrock conductance. Pending the acquisition of an appropriate drill rig, the bedrock conductance will be drill-tested to ascertain the conductors’ potential relationship with gold-bearing mineral ores."

Translation: Not El Dorado, but looks promising.

Eureka: Discovery and Appraisal

In the gold or mineral rush, whichever company gets something of value to show for their efforts wins. Neophyte Miners R Us, if it hits a mother lode of quality gold deposits, can look forward to its name in lights next to giants like Rio Tinto.

But back to reality. Miners R Us comes to the discovery phase. Based on surveyor Enterprising’s initial detection, giant cranes, drill rigs, and helicopters descend on Backwater Rural. Drilling begins, followed by more drilling (usually wide-spaced and at narrow depth to conserve money). Cumulo-nimbus clouds suddenly envelop the site, heightening the suspense.

Since Miners R Us is cutting costs, the same clowns who wrote the press release are employed to report about the drilling results. Along with the write-up, these people then draft confusing maps in 2D with the goal of helping 3D-thinking shareholders picture the results. The maps are of the longitudinal, cross-section and plan view types.

Maps turned into words are worse, but this can give you an idea: Think of mines as anthills. Longitudinal maps show the frontal view of an anthill or your house. There’s the door, windows, and your living room, but you cannot see how deep it goes into the earth or what the floor plan looks like. The cross sectional view is the side view, and slices the frontal view of your anthill/house perpendicularly. Plan view is 'floor plan' view, looking from over the anthill/house.

Resources and Reserves

After discovery and evaluation, Miners R Us now needs to prove to the world that it has hit on valuable ore reserves of economically significant quantity. Miners R Us accomplishes this by more thorough drilling (and issuing more reports). The mineral soup thickens, as the reports have to follow rigorous guidelines set by the Mineral Resources and Ore Reserves in the Joint Ore Reserves Committee code.

In other words, the road from 'inferred' gold to 'proved' gold is a long one. The process involves, among other things, high market gold prices, satisfactory environmental conditions and more drilling.

Now What, Mr. Investor?

You need a technical dictionary to understand reports, mining maps are confusing, and no two ore deposits are identical. As outlined above, putting mining reports under the microscope should help ease the navigation, but don’t stop there. Not to overwhelm you, but mining covers multiple disciplines (geology, engineering, metallurgy, economics, etc.). Get a good grasp of the foundations, and take in as much of the specifics as you can. Stay ahead of the curve by becoming a well-informed investor.