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How much are your reserves worth?

Eighteen years ago I wrote an article with roughly the same title as this one (Valuation of aggregate reserves. In: Quarry 2000: 8(4):47).

The geologist’s role in valuing reserves has not changed much in 18 years, but I have. In my previous article, I defined the geologist’s role by asking six questions. More is not always better. So today I will ask just one question: “How well do you need to understand your reserves?”

To begin with, an aggregate resource is material in the ground that possibly could be turned into aggregate (sand, gravel or crushed stone) through mining and processing. An aggregate reserve is material that can economically be extracted and processed using currently available technology and sold at a profit. I will write more about reserves versus resources in a future article.

{{quote-A:R-W:300-Q:"Sometimes a better approach than having a thorough reserve estimate is to have the geologist conduct a best case or a worst case scenario."}}On one hand, a “mum and dad” operation that occasionally provides a truckload of bank-run sand and gravel to a customer may not care about reserves at all. They may feel confident they have identified enough sand and gravel on their property to last them forever.

They have little investment in equipment, and even if they run out of gravel it would not dramatically impact their lifestyle. A geologist may not even have a role in this situation.

On the other hand, if someone wanted to purchase the property described above to develop the aggregate reserves, they most certainly would want to thoroughly understand the reserves. Opening a new aggregate operation requires a significant investment in money and time, and most likely the purchaser would be interested in a reasonable return on their investment. A geologist would have a substantial role in this case.

Deciding how much effort (time and money) you want a geologist to put into defining your reserves depends on what stage of development you are at. If you are at the permit stage, there are a number of issues to address.

One approach is to look at the weakest link. It may not be wise to thoroughly investigate reserves if you are not certain you will get a permit. But it may also not be wise to obtain all permits without knowing you have sufficient reserves to make the investment worthwhile.

If you are a fully operational pit or quarry and are expanding onto permitted land, it may be appropriate to conduct an extensive investigation of the reserves in the new mine area. Not only will the information gained in the assessment be used for financial considerations, it can also be extremely valuable for use for developing the mining plan.

{{image2-a:l-w:200}}Sometimes a better approach than having a thorough reserve estimate is to have the geologist conduct a best case or a worst case scenario.

A best case scenario involves preparing an estimate of the potential reserves using the most optimistic values for deposit thickness, quality, extent, overburden and so forth. If the calculations return a value that is not acceptable even under the most positive conditions, there may no reason to continue to study the deposit.

Similarly, if a worst case scenario prepared using the most pessimistic conditions produces a value that would be acceptable, there probably would be justification to continue with more robust reserve estimates. In essence, the best case or worst case scenarios test the weakest link.

So, how well do you need to understand your aggregate reserves? The answer is: “It depends.” However, the role of a qualified geologist is not only to define your reserves but also to help you decide how thoroughly your reserves need to be studied.

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