Mines have a habit of lasting longer

Understanding a key value driver for any mining investment

Mining & Minerals 101

Lutz Sprengel RCF
Lutz Sprengel

December 17, 2019

Mining Company Value

Ore reserve and production rate together determine mine life, which is a key driver of company value.

Background

A mine’s initial Ore Reserve is estimated by experienced Geologists and represents that part of a measured and indicated resource that is economically mineable at some point in the future.

The economic value of a mining company primarily hinges on how long it can maintain and/or grow production which is a function of Ore Reserves and production rate. Ore Reserves can change over time based on many factors (including forecast commodity prices, operating costs, and exploration success) but just how representative is the initial Ore Reserve estimate for a project’s future, and it is just the tip of the iceberg?

Insight

Analysis of 167 gold mines that commenced operations from the year 2000, and maintained production for at least 3 years, shows that 44% processed more ore during operations than was declared in the initial Ore Reserve estimate (Growth Factor > 1).  Importantly, the average Ore Reserve growth was 1.35 due to the positively skewed distribution of values (see Figure 1) and over 15% of mines realised more than double their initial Ore Reserve (Reserve Growth Factor of 2).

Action

  • 1.3xOre reserve upsidetypically available for gold mines

RCF has built a dedicated team of in-house technical experts who use proprietary analysis techniques to better understand technical upside in resource projects to enhance value over time.

Sources: SNL: Metals and Mining data, JORC Code (2012) available http://www.jorc.org/docs/JORC_code_2012.pdf

Ore Reserve Growth Factor

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Information shown for Gold is used for informational and demonstrative purposes only. Each commodity will be subject to its own facts and circumstances which may make it more or less likely to align with the example provided. This information should not be deemed to be a recommendation of any specific commodity, company or security. The statistical information provided herein has been supplied for “informational purposes” only and is not intended to be and does not constitute investment advice. This analysis was compiled from sources that RCF believes to be reliable. Neither RCF nor any independent third party has independently audited or verified this information. RCF disclaims any and all liability relating to such information, and no representation or warranty is made, expressed or implied, as to the accuracy or completeness of the information provided in this presentation.
All information in this insight is as of December 17, 2019, unless otherwise noted, and is based on information available at a certain point in time. All information should be assumed as subject to change; updated information will not be provided.
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