The phrase that every serious analysis repeats

Mineral resources that have not been converted into reserves have not yet demonstrated economic viability. This distinction appears in virtually every serious technical report because it prevents the overestimation of value and decision-making based on unproven premises. When the statement “inferred resources are not probable reserves” is made explicit, the reader understands that the asset still requires detailed evaluation before considering investment or financing. The practice of including this caveat protects both the buyer, who avoids viability surprises, and the seller, who maintains credibility by presenting data aligned with reporting codes.

Why inferred resources have the lowest level of geological confidence#

An inferred resource corresponds to the estimate of mineral quantity based on dispersed spatial samples, without the application of a robust geological model that allows for reliable interpolation between data points. In this category, drill hole density, lithological continuity, and cut-off parameters are insufficient to generate a model that supports precise tonnage or grade predictions. Consequently, the uncertainty associated with the volume and quality of the ore remains high, positioning the inferred resource as the category of lowest confidence within the hierarchy established by international codes.

The low confidence classification translates into additional verification requirements before any development decision. While measured and indicated resources can be supported by sufficient sampling density and technical parameter validation, an inferred resource depends on assumptions that have not yet been tested in the field or in the laboratory. This database difference explains why an inferred resource can never be directly used to support a mining plan without conducting additional studies that elevate confidence to higher levels.

What a pre-feasibility or feasibility study must prove to become a reserve#

A pre-feasibility study (PFS) or feasibility study (FS) must integrate technical, economic, and regulatory information that confirms the capacity to extract the mineral profitably and sustainably. Primarily, the study requires a detailed mine model, including the mining sequence, recovery rate, and infrastructure sizing, in order to generate projected cash flows. Subsequently, the economic evaluation must contemplate operating costs, expected sales price, exchange rate, and sensitivity scenario, demonstrating that the project generates a positive return under the most plausible conditions.

Beyond engineering and economic aspects, the study must meet environmental licensing, safety, and water resource access requirements, providing evidence that the necessary permits can be obtained within the development horizon. The combination of these elements—mining model, profitability demonstration, and regulatory viability—fulfills the reserve criteria established by the codes, allowing the resource to be reclassified from a resource to a probable or proven reserve.

Why a Scoping Study or a PEA does not support a reserve declaration#

A Scoping Study or a Preliminary Economic Assessment (PEA) aims to offer a preliminary view of economic viability using simplified premises and low-resolution data. These studies typically rely on resource estimates that have not yet been converted into reserves, adopting generic cost parameters and non-detailed mine models. For this reason, they do not meet the requirement of demonstrating technical and economic viability needed for reserve classification.

Illustrative hypothesis: imagine an investor evaluating an asset exclusively based on a PEA that presents an inferred resource of 2 million tonnes at 1.2% copper. The PEA indicates a positive NPV, but does not include a detailed risk study nor validation of mining costs. The investor decides to allocate capital without requiring a pre-feasibility study. Subsequently, upon advancing to the engineering phase, they discover that the deposit continuity is fragmented, mining costs are 30% higher than estimated, and environmental permits face significant objections. The project, which initially seemed viable, proves to be economically unfeasible, generating financial losses and delays. The example demonstrates that relying exclusively on a Scoping Study or PEA can lead to poorly grounded investment decisions.

How this caveat protects the buyer, not just the seller#

The explicit inclusion of the statement that inferred resources are not reserves creates an information barrier that forces the buyer to conduct in-depth due diligence. By recognizing the limitation of confidence, the acquirer requires the delivery of pre-feasibility or feasibility studies before signing financial commitments, reducing exposure to risks of cost underestimation or tonnage overestimation. This practice also aligns expectations between the parties, avoiding subsequent contractual disputes related to asset performance.

For the seller, the caveat maintains the integrity of disclosure documents and avoids allegations of misleading advertising. When communication strictly follows code criteria, the company demonstrates transparency and regulatory compliance, which can facilitate access to market capital and project approval with regulatory bodies. Thus, the phrase acts as a bilateral protection mechanism, balancing the responsibility of those presenting the data and the needs of those consuming them.

Where this phrase should appear in any material regarding an asset#

The insertion of the warning phrase should occur at critical reading points, ensuring that any user of the document recognizes the limitation of the inferred resource before proceeding with the analysis.

1. Executive summary – immediately after the presentation of resource volumes.
2. Mineral resources section – accompanying the classification table (measured, indicated, inferred).
3. Methodological description – when explaining the origin of exploration data.
4. Risk statements – within the chapter on risk factors and uncertainties.
5. Preliminary economic value presentation – before displaying NPV or IRR estimates based on unconverted resources.
6. Investor disclosure material – in prospectuses, roadshow presentations, and fact sheets.

By positioning the phrase in these locations, the communication fulfills the transparency principle required by the JORC and NI 43-101 codes, allowing the viability assessment to follow a sound methodological path.

The distinction between inferred resource and probable reserve remains central to mineral project evaluation. When the warning phrase is incorporated systematically, it guides the reader to demand the necessary feasibility studies before assuming economic value, reducing the probability of decisions based on unverified premises. This practice reinforces technical discipline in mining rights negotiations and sustains market confidence in the disclosed information.

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