When attempting to quantify the amount and quality of a possible mineralized
deposit on their property, exploration companies and producers generally follow
a process which seeks to state, in reasonably accurate and concise terms, just
what they have...or might have. Following the Bre-X fiasco, wherein 'highly
inaccurate' reserves of a supposed deposit in Borneo were publicized and acted
upon by a tidal wave of investors, sophisticated and neophyte alike, a new
set of reporting rules was enacted.
Canadian National Instrument 43-101, is a rule developed by the Canadian Securities
Administrators governing the process of disclosing to the public, scientific
and technical information about mining projects. The NI 43-101 report is presented
(usually within the context of a company News Release) by a "Qualified Person" -
by a (presumably) competent licensed geoscientist, who often works for the
company in question and is assumed to be skilled in analyzing the mineralization
under review.
Reduced to its essence, the continuum of terms, expressed from highest
to lowest confidence levels is as follows:
Reserves (Proven/Probable): Proven reserves are those that can be
mined using current technology at current prices. Probable reserves may become
economic if they 'pan out' by being confirmed as expected.
Resources (Measured, Indicated, Inferred): This part of the equation
is derived primarily from 'sampling' efforts - drill hole programs, trenching,
and even 'grab sampling'. These resources, in all three subcategories might
be of economic interest and with the passage of time and more research, turn
out to be economic.
Brent Cook, an independent geological consultant, Editor of Exploration
Insights, conference presenter and active private investor, sums it up
nicely when he says:
"An investor needs to bear in mind that not all resources or reserves
are of the same quality. One company's two million ounce measured, indicated
and inferred resource may ultimately convert to proven and probable reserves
whilst the next company's two million ounce resource may end up as no more
than an interesting anomaly to be revived during each successive minerals
boom. Likewise, Qualified Persons are not all equally qualified and the
quality and veracity of any resource estimate is no better than the integrity
of the data supplied and person reporting."
So how would you 'measure' this deposit?
In July, 2012, Pan American Silver made an announcement regarding the proposed
future of its Navidad deposit, rumored to hold 700 million ounces of silver,
located in Chubut Province, Argentina, as influenced by proposed provincial
tax draft legislation. They said in part:
"These increased royalties and the net carried interest are in addition
to the 10% export duty payable on the sale of concentrates and the 35% income
tax rate, which are payable to the federal government.
"This level of government participation and tax burden is unprecedented
relative to any of the other jurisdictions where Pan American operates, including
the province of Santa Cruz in Argentina, where the Company's Manantial Espejo
mine is located. The Company's initial review of the effects of the proposed
legislation, when coupled with the current inflationary environment in Argentina,
indicates that the increased provincial participation will render the Navidad
project uneconomic at any reasonable estimate of long-term silver prices.
"While the proposed law remains subject to revision within the legislative
sub-committee and during the debate process in the provincial legislature,
in the event that the law is approved as proposed without any meaningful
modifications, Pan American will have no other reasonable option but to suspend
further investment in Navidad. Without clear potential for positive economic
returns, further investment and project expenditures cannot be justified."
The becalmed "battleship project" Navidad, in Chubut Province, Argentina
Keep Brent Cook's comments in mind as we move to use these mining terms in
an analogy about the future availability of physical silver supplies and how
this might apply to you.
For our purpose today,
Reserves
Proven - "silver in hand" - in a safety deposit box, a hole in the
ground in your back yard - someplace where YOU know that it definitely resides.
Probable - from an "allocated" account, in one of the very few Exchange
Traded Products (ETPs) which states that you can - if you so desire - take
delivery of your silver or gold. (Trust on your part is a factor here, no?)
From an "allocated" bank or trust account which claims to be storing
silver in your name, in case you would like at some point to retrieve it.
Should you be without a bit of cynicism on this matter, consider looking up
the sad story (as reported in 2010 in The Globe and Mail, entitled "An
unkind complicatedness") of Canadian Amar Patel, 73 years old, suffering from
chemotherapy, dealing with breast cancer, and simply trying to retrieve silver
from the bank who was 'holding' it for her in the form of certificates she
had purchased decades before.
After undergoing a series of stressful and humiliating detours, including
at one point having the bank responding that it could still deny her request
if the transaction was deemed not to be in her "best interest", she finally
was able to take delivery of her silver.
Resources
Measured: The reported yearly global supply, (new and recycled) totals
as collated and reported by an established organization like the Silver Institute.
Indicated: A collation of the expected production totals of primary
and secondary silver miners, based in part upon the previous year's output,
AND upon what the companies themselves project that they will be able to produce
during the coming year(s).
Inferred: Presumptive silver potential in the earth's crust as concluded
via studies of the U.S. Geophysical Survey, along with such statements from
analysts like "Over one billion ounces of silver has been mined from Idaho's
Silver Valley. It is estimated that another billion ounces remain to be found."
Or, "Silver can be found in the earth's crust in a ratio of 9:1 (or 8:1),
therefore we conclude that another "x" million ounces remain to be located."
So, silver stackers, if you don't actually have that silver in hand - or close
by - as Dirty Harry would say, "Do you feel lucky today?"
