How to read a mining company’s exploration results

When a small-cap mining company publishes exploration results, the announcement can read like a different language. Grams per tonne. Intercept widths. Inferred resources. JORC compliance. If you do not know what these terms mean, you are not in a position to judge whether the company has found something real or whether it is managing expectations with impressive-sounding numbers. That gap between the headlines and the reality is where a lot of retail investors lose money.

This post focuses on one skill: reading what a mining announcement actually says, rather than what the promotional material around it wants you to think.

Drill results are the beginning of the story, not the conclusion. When a junior miner announces that it has hit mineralisation, the company has done something meaningful. But a single good drill hole is not a mine. What happens next determines whether that mineralisation turns into something worth owning. The company drills more holes systematically, sends samples to a laboratory for assay, and eventually produces a resource estimate. That is the first time you can genuinely compare one project to another.

The assay results that get reported in RNS announcements will usually include two key numbers: grade and width. Grade tells you the concentration of the target mineral in the rock. For gold it is typically expressed as grams per tonne. For copper it is a percentage. For lithium it is parts per million or a percentage. Width is the physical extent of the mineralised zone that the drill intersected. These two numbers combine to give a rough sense of how significant a drill result might be, but only if you read them carefully.

Here is where things get subtle. Mining companies report the intercept length, which is the distance the drill travelled through mineralised rock. But a drill rarely goes straight down at a perfect right angle to the mineralised zone. Depending on how the deposit is oriented, the true width can be considerably shorter than the reported intercept. A headline result of 50 metres grading 2 grams per tonne gold sounds impressive. But if the true width is only 15 metres because the drill cut through the vein at an angle, the economics look very different. Reputable companies will report both figures. If you only see intercept length and no mention of true width, that is worth noting.

The same logic applies to the difference between a high-grade narrow vein and a lower-grade wide deposit. A vein returning 10 grams per tonne over 2 metres of true width might sound more exciting than 1 gram per tonne over 50 metres of true width. But the second one could be far more valuable to mine, because the economics of bulk mining favour large volumes over small, high-grade pockets. Narrow veins require selective mining, which is slower and more expensive.

Once a company has enough drill data to start estimating the total size of the deposit, it publishes a resource estimate. This is where the reporting standards come in. In Australia, companies follow the JORC Code. In Canada, the equivalent is National Instrument 43-101. Both frameworks require companies to classify their resources by confidence level: Inferred, Indicated and Measured. Inferred means the data is early-stage and uncertainty is high. Indicated means confidence is growing but the resource is not yet fully defined. Measured is the gold standard, meaning the company has drilled enough holes at close enough spacing to be highly confident about what is underground.

The classification matters enormously and it is often where investors go wrong. An inferred resource can move a share price. But inferred numbers can also shrink dramatically when more drilling is done, because the initial interpretation turns out to be too optimistic. A measured resource, by contrast, is the kind that attracts institutional money and enables feasibility studies. When a company talks about its resource, check the classification split. A large resource that is 90 percent inferred deserves more scepticism than a smaller one that is 80 percent measured.

The most common misconception in this area is treating big headline numbers as evidence of a valuable deposit. Companies know that contained metal figures, the total amount of gold or copper or lithium implied by multiplying tonnage by grade, make for compelling press releases. But contained metal says nothing about the economics of extracting it. A deposit might hold 2 million ounces of gold and still be unmineable because it is too deep, too remote, too low-grade, or too contaminated with other minerals that complicate processing. The path from resource estimate to actual production requires feasibility studies, financial modelling, and in many cases a commodity price that makes the project viable.

The feasibility stage is where projects are tested against reality. Pre-feasibility and full feasibility studies answer the questions every serious investor should be asking: can this deposit be mined economically? What is the upfront capital cost? What are the ongoing operating costs? What net present value does the project carry at a given commodity price? These numbers are what separate a promising exploration story from a real business case. A project with a strong resource estimate but poor feasibility economics is not a good investment at most prices. Independent geological consultancies such as SRK, CSA Global and Snowden are often brought in to audit or produce these estimates, which adds credibility. But independent sign-off is not a guarantee of quality. The consultants work with the data the company provides.

Liontown Resources, an Australian lithium explorer, is the kind of example that illustrates what it looks like when everything comes together. The company published a resource estimate that hit the market at exactly the right moment, when institutional demand for lithium was accelerating and credible new deposits were scarce. The result was a dramatic re-rating. Importantly, the resource was credible: the numbers held up under scrutiny and improved with each subsequent drilling campaign. That is not always the case. The companies that attract capital and hold it tend to be the ones where the resource estimate grows or stays consistent with further work, rather than being quietly revised downward.

When the next RNS announcement from a small-cap miner lands in your portfolio, run through a short checklist. Are both intercept length and true width reported? What is the grade, and how does it compare to operating mines in the same commodity? Is the resource classified as inferred, indicated or measured, and in what proportions? Has an independent geological consultancy reviewed or produced the estimate? And, crucially, what would the economics look like at today’s commodity price?

None of this will tell you with certainty whether the company is going to make you money. But it will tell you whether the numbers are real. That is the only starting point that matters.

This post is drawn from The Little Book of Small-Caps by Cameron Oliver. Republished with permission.

Small Caps is a series drawn from first-hand experience of UK and global small-cap markets, updated as each new chapter arrives.

This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry significant risk. Always do your own research before making any financial decisions.