JORC Resources: Here’s What’s Crucial For Investors to Know Before Investing

Investors will often hear of JORC Resources or a JORC Code and may think companies are alluding to a mere textbook.

It is a strict public reporting standard that governs how mining companies disclose exploration results, Mineral Resources, and Ore Reserves to the market. It exists to protect investors by ensuring statements about a deposit’s size and economic potential are transparent, comparable, and made by suitably qualified professionals.

If you invest in ASX-listed miners, this code is central to how project value is communicated. And so let’s outline how JORC resources are derived, the difference between classifications of resources, and what investors should take into account before making a decision.

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How Are JORC Resources Derived?

The JORC Code ensures transparency, accuracy, and consistency in resource reporting, thus informing investor decisions. The process to obtain JORC resources will entail an in-depth search, analysis, and evaluation of mineral deposits. The next sections break down the specific steps as follows:

Exploration Activities

Mineral resource estimation starts with exploring and this includes processes such as geological mapping and sampling. Various advanced technologies are employed, such as geophysical surveys and geochemical analyses, to make it extremely accurate. The most advanced is drilling.

Data Collection and Analysis

Exploration produces a massive amount of data, including core samples from drilling, assay results, and geophysical measurements. It is all analyzed to see how the minerals are spatially distributed, how continuous the deposit is, and economically viable or not. At this stage, statistical modelling is highly used.

Resource Estimation

Resource estimation involves creating a three-dimensional geological model of the deposit. Sophisticated software is used to integrate exploration data and generate estimates of mineral quantities within defined boundaries. Experts use techniques like kriging and inverse distance weighting to predict the distribution of minerals.

Compliance with JORC Standards

The Qualified Professional, referred to as the Competent Person, should assess the resource and ensure that the estimate is compliant with JORC standards. The role of the Competent Person is of paramount importance in ensuring the reported resources are based on a sound scientific principle and represent a reasonable level of confidence.

Understanding the JORC Classifications: Mineral Resources vs Ore Reserves

The most important distinction is between a Mineral Resource and an Ore Reserve. A Mineral Resource is a concentration of material in the ground with reasonable prospects for eventual economic extraction. That phrase is critical: it means the material might be mined one day, but it has not yet been fully demonstrated to be economically viable.

An Ore Reserve, by contrast, is the economically mineable part of a Measured or Indicated Resource after detailed technical and economic studies have been applied. Reserves incorporate mining dilution, recovery factors, modifying factors such as metallurgy, infrastructure, legal permits, environmental considerations, and realistic cost and price assumptions. In simple terms, a Resource is geological confidence; a Reserve is bankable mine planning.

Investors often get misled when companies highlight large Resource numbers without clarifying that they are not Reserves. A million ounces of Inferred Resources is not the same as a million ounces of Proven Reserves.

Only Ore Reserves demonstrate that a project is commercially viable under defined assumptions. Early-stage companies typically have Resources; developers with feasibility studies may convert portions into Reserves. If a company’s valuation assumes Reserve-level certainty but only Resources exist, that is a red flag.

Also note that there are 2 Ore Reserve categories: Proven and Probable. Proven Reserves derive from Measured Resources and carry the highest confidence in both geology and modifying factors. Probable Reserves usually come from Indicated Resources and have slightly lower confidence but are still considered economically mineable. Banks, lenders, and acquirers focus heavily on Reserve categories when making funding decisions.

Measured, Indicated, and Inferred Resources

The JORC resources are stratified into three categories according to the level of geological assurance and economic viability: measured, indicated, and inferred. Each category has a purpose and sets consequences for the investors as well. They all boil down to geological confidence and data quality.

Measured Resources

Measured resources represent the highest level of confidence. These are well-defined mineral deposits with sufficient data to ensure accurate estimations of quantity and quality. Exploration data for measured resources include closely spaced drill holes and robust sampling, ensuring minimal uncertainty.

The Code states that a Measured Resource is based on detailed and reliable exploration, sampling and testing, and that geological and grade continuity are confirmed. The word confirmed is critical. It signals the highest level of geological certainty. Measured Resources can convert to Proven Ore Reserves if the modifying factors support economic extraction.

Clearly for investors, measured resources are the most reliable indicator of a project’s potential value. However, even measured resources require further assessment, including feasibility studies, before being converted into reserves.

Indicated Resources

Indicated resources have a moderate level of confidence. While sufficient data exist to estimate quantity and grade, there is less certainty compared to measured resources. The spatial continuity of the mineral deposit is reasonably assumed but not guaranteed.

The Code says data spacing, quality and reliability are enough to allow geological and grade continuity to be assumed with reasonable confidence. The word reasonable is central. This level supports mine planning and evaluation of economic viability. Indicated is the bridge category — not fully certain, but reliable enough to underpin technical studies and potentially convert to a Probable Ore Reserve.

Indicated resources often form the basis for preliminary economic assessments (PEAs) and feasibility studies. They are important for planning but involve higher risk than measured resources. For investors, these resources suggest potential but require cautious evaluation.

Inferred Resources

Inferred resources have the lowest level of confidence. These estimates are based on limited data and rely heavily on geological interpretation. As a result, inferred resources come with significant uncertainty.

If you look at the code itself, the code says an Inferred Resource is estimated on the basis of limited geological evidence and sampling and that geological continuity is assumed but not verified. The phrase assumed but not verified is the giveaway. It means there is enough information to suggest mineralisation continues between drill holes, but not enough to confirm it with high certainty.

Some stock exchanges do not allow companies to tell investors to rely on companies with only Inferred Resources or do not let them derive NPVs using Inferred Resources. The code itself specifies that they cannot be converted directly into Ore Reserves

Investor Considerations: Beyond Resource Numbers

Investors often focus on the size of a JORC resource when evaluating mining companies, but there is much more to consider. Large resource estimates can be enticing but may not always translate into profitable ventures. Key considerations include:

Cost of Development

The conversion of a resource into a producing mine is capital-intensive. Chalice Mining’s Gonneville deposit unveiled in 2021 can be seen as a lesson. The company announced a huge JORC resource (16Moz of Palladium, Platinum and Gold combined in case you’d forgotten), but the development cost and timeline of the project killed investor enthusiasm. It might take until 2029 to produce, with significant up-front capital requirements ($1.6-2.3bn according to the company’s own estimates).

Investors should look at estimates of capital expenditure (CapEx), operational expenditure (OpEx), and the cost per ounce or tonne of production. Projects with high costs can strip away profitability, even of large resources.

Timeline to Production

Mining projects often face long lead times due to permitting, environmental assessments, and construction. Investors need to assess whether a company’s cash flow can sustain these delays. Projects with shorter timelines for production are generally more attractive.

Commodity Prices

Resource economies depend on commodity prices, so a deposit rich in nickel or copper may present appealing economic opportunities during a price uptrend but may be out of the money if a price decline occurs. Analysts should take into consideration historic price volatility and long-run demand trends for the commodity.

Grade and Metallurgy

Grade (concentration of valuable minerals) is a critical factor. Higher-grade deposits are typically more economical to mine. Metallurgical characteristics—such as the ease of processing ore, also impact project costs and timelines. Low-grade or complex deposits require more processing, increasing costs.

Funding and Financial Health

Investors should analyse a company’s balance sheet and funding strategy. A highly leveraged company may struggle to finance development, especially in a volatile market. Equity dilution through capital raising is another risk to consider.

Competent Persons

This may seem immaterial or a formality, but hear us out. JORC Code also requires disclosure by a Competent Person. This is often misunderstood. A Competent Person is not simply a “qualified person” in a generic sense (i.e. a geologist). Under JORC, they must be a member of a recognised professional organisation and have at least five years of relevant experience in the style of mineralization and activity being reported.

They must consent to the form and context of the public statement. This is meant to ensure accountability. If a company releases exploration results or Resource estimates without proper Competent Person sign-off, that is a serious breach.

The Case Study of Chalice Mining

The Gonneville deposit of Chalice Mining is one of the more complex JORC resources from an investor’s point of view. In 2021, the company declared a “monster” resource of over 10 million tonnes of nickel, copper, and platinum group elements (PGEs). This kept growing and was last updated in July 2023.

560Mt @ 0.54% nickel or ~1.7g/t palladium equivalent. 55% of this is Measured and Indicated with the balance Inferred. This equates to 16Moz of 3E (Palladium, Platinum and Gold combined), 860kt nickel, 520kt copper and 83kt of cobalt. This is equivalent to 3Mt of nickel equivalent or 30Moz of palladium equivalent.

At first, the discovery boosted the share price, but investor interest began to dwindle once the details about the economics of the project started coming out.

Key Challenges for Gonneville:

• High Development Costs: Bringing the deposit into production would require $1.6-2.3bn in CapEx, including mine infrastructure and processing facilities.
• Long Timeline: The estimated production start date of 2029 reflects the significant time required for permitting, construction, and commissioning. Heck, it is going to take until 2026 to even make a decision to go ahead
• Market Volatility: Prices for nickel and PGEs, key components of the resource, are subject to fluctuations (and are in a bear market right now), adding uncertainty to long-term revenue projections.

Despite these challenges, Chalice Mining remains optimistic, because of the size of its deposit and its strategic importance for the green energy transition. It is the first major PGE discovery in Australia’s history and it lies just an hour’s drive from Perth!

How to Evaluate JORC Resources as an Investor

Understand the Resource Categories

Always differentiate between measured, indicated, and inferred resources. Higher-confidence categories reduce risk but may come with higher upfront costs.

Examine Economic Studies

Feasibility studies and economic evaluations give an indication of the viability of projects. Some of the major metrics to be used for assessment include net present value (NPV), internal rate of return (IRR), and payback period.

Monitor Management and Execution

A strong management team with a track record of successfully developing projects is a valuable asset. Look for companies with clear strategies and transparent communication.

Consider Market Trends

Investors should always align their investments with broader market trends. For example, demand for battery metals such as nickel and cobalt is expected to grow as the world transitions towards renewable energy.

Final Thoughts

While the JORC resources offer a framework through which the value of mineral assets can be assessed, this alone will not determine their attractiveness to investors. One must distinguish between measured, indicated, and inferred resources, but more important is to understand the economic reality of the project’s development. Chalice Mining’s Gonneville deposit is one of many examples that show how large, high-quality resources face great difficulties.

Optimism should be balanced with due diligence. For the investor, that would be by looking at the costs, timelines, market dynamics, and the company’s strategy to ensure navigating through JORC resources is a very viable process. There are high rewards in the mining sector, but so are the risks. A good understanding of JORC resources can lead one to the opportunity of making the right investment while avoiding pitfalls.

FAQs

• What does the JORC Code represent?

  The JORC Code is a set of professional standards for reporting mineral resources and reserves, ensuring transparency, accuracy, and consistency in the mining industry.

• What is the difference between measured, indicated, and inferred resources?

  Measured resources have the highest confidence, followed by indicated, which have moderate confidence, and inferred, which have the lowest confidence and highest uncertainty.

• Why are development costs critical in evaluating mining projects?

  Development costs determine whether a resource can be profitably converted into a producing mine. High costs can erode profitability, even for large deposits.

• How does Chalice Mining’s Gonneville deposit exemplify JORC resource challenges?

  Chalice’s Gonneville deposit illustrates that large resource size does not guarantee profitability, as development costs and long timelines can dampen investor enthusiasm.

• What should investors consider when evaluating a mining project?

  Investors should assess resource categories, economic studies, development timelines, commodity prices, and the company’s financial health to make informed decisions.