From drill hole to resource estimate: how junior miners turn geology into a number the market can value
Most investors focus on the headline discovery. The real edge is understanding how a drill result becomes a credible, independently verified resource estimate that institutions can act on.
Most retail investors discover junior mining companies at the wrong end of the story. They see a share price chart that has tripled in a month and trace it back to a headline about a major new discovery. The assumption is that the hard part is over. The drill bit has found something, and now the company just needs to turn that geology into a credible resource estimate. The truth is that the journey from a first drill hole to a published, independently verified resource estimate is where most small-cap mining stories either become real or quietly unravel.
Why a drill result is not a resource estimate
A drill result is a data point. It tells you the grade and width of mineralisation at a specific point in the ground. It says very little about what is above, below or adjacent to that point. A published resource is something different. It is a statistically grounded extrapolation from multiple drill holes, prepared by an independent technical professional and published under an internationally recognised reporting code.
The distance between a drill result and a resource estimate matters enormously to investors. A single impressive hole can move a share price. A properly classified resource estimate can move a company from speculative play to acquirable asset. Understanding which stage a company is at is one of the most useful things a retail investor can do. Knowing what it would take to reach the next stage is just as important before buying into any junior mining stock.
Understanding that journey does not require a geology degree. It requires knowing what the reporting standards are and what the key numbers mean. It also requires knowing how to tell a genuine milestone from a press release dressed up as one.
The reporting codes that give a resource estimate its credibility
When a junior mining company publishes resource information, it does so under one of two globally recognised reporting codes. NI 43-101 governs Canadian-listed companies and applies widely across North American markets. JORC governs Australian and many internationally listed miners. Both codes require that the report be prepared or supervised by a Qualified Person or Competent Person. This is an independent technical professional with demonstrated expertise in the relevant commodity and geology.
This sounds procedural. It matters enormously. Before these standards existed, companies could publish almost anything and call it a resource estimate. The codes introduced independence, methodology requirements and legal liability. When you see an NI 43-101 or JORC-compliant resource estimate, you are seeing something that an external professional has staked their career on. That is not a guarantee of accuracy, but it is a genuine filter. The full JORC code is published by the Joint Ore Reserves Committee and is freely available to read.
The Qualified Person requirement means most resource estimates are prepared by specialist geological consultancy firms. SRK Consulting, CSA Global and Snowden Optiro appear repeatedly across the sector. Their involvement adds credibility. It does not remove the need for scrutiny. The press release summarises; the technical report contains the methodology, the assumptions and the caveats.
The four numbers in every resource estimate
Every compliant resource estimate reduces to four core data points. Tonnage is the total volume of rock containing mineralisation, expressed in millions of tonnes. Grade is the concentration of the target metal within the rock. It is expressed as grams per tonne for gold, percentage for copper, and parts per million for some critical minerals. Contained Metal is the product of the two: the theoretical total quantity of the metal in the ground before any processing losses.
Classification is the fourth number, and it is the one most investors ignore. Inferred resources are based on limited drilling. The confidence interval is wide and the number can shift dramatically with more data. Indicated resources have enough drill coverage to be more reliable, but are not yet at the standard required for engineering studies. Measured resources have the highest level of geological confidence. Only Indicated and Measured resources can feed into formal feasibility studies.
An Inferred resource is a hint, not a foundation. A company announcing 500 million tonnes entirely in the Inferred category is a different proposition. Compare that to a company with 200 million tonnes, most of it Measured and Indicated. The headline looks better for the former. The underlying credibility belongs to the latter. This distinction is one of the most common small-cap red flags that investors overlook when evaluating a junior miner.
One practical habit that separates experienced small-cap investors from the rest: always download the technical report, not just the press release. The press release is written by the company’s communications team. The technical report is written by the independent Qualified Person, under legal obligation to be accurate. They are very different documents. The headline-grade number that moves a share price is often drawn from the best interval in the best hole. The technical report will tell you how representative that interval is of the broader deposit.
Reading the technical report itself, rather than the press release summary, tells you things the headline number never will. How was the drilling spaced? What interpolation method was used to estimate grades between holes? What assumptions were made about mineralisation continuity? Were there caveats about geological complexity or data quality? These are the questions a professional investor asks as a matter of course. A diligent retail investor can learn to ask them too.
From resource estimate to feasibility study
A resource estimate answers the question of what is there. A feasibility study answers the question of whether extracting it makes economic sense. Pre-feasibility studies are the first formal pass at this. They assess project economics at a high level and establish whether the project warrants the investment required for a full feasibility study.
The numbers that emerge from these studies carry their own vocabulary. NPV is the Net Present Value of the project, discounted at a given rate and expressing the expected economic value in today’s money. IRR is the Internal Rate of Return: the annualised expected return on the capital invested. CapEx is the capital expenditure required to build the mine. OpEx is the ongoing operational cost per unit of production once the mine is running.
A project with strong NPV, high IRR and manageable CapEx relative to the contained metal value is one that will attract serious interest. A project where the CapEx is enormous relative to the NPV faces a different calculation. If OpEx per ounce is close to the gold price, the project needs a better commodity price or richer grade to become viable. Both scenarios exist in the small-cap mining universe, and both can be found trading at elevated valuations on attractive stories.
Liontown Resources illustrates what happens when everything comes together at the right moment. For years it was an obscure Australian junior working a lithium project called Kathleen Valley in Western Australia. The drilling was systematic, the resource estimate was growing, and the JORC-compliant classifications were properly documented. None of that attracted much attention until the global electric vehicle industry started consuming lithium at a scale that outpaced supply.
Between 2020 and 2022, Liontown moved from a sub-100-million-dollar market capitalisation to over three billion. The resource estimate had not changed dramatically. What changed was the commodity context around it. A properly documented, credibly classified resource estimate that had sat unnoticed became the foundation for serious institutional investment once the demand picture shifted. Our post on what happens when institutions start buying small-cap stocks explains how that institutional attention changes the price dynamic.
That is the lesson here. A resource estimate is not just a geological document. It is the credibility infrastructure that allows a company to attract capital, attract partners, and ultimately attract a buyer if the project warrants one. The investor who understands how to read it has a meaningful edge over the one who only reads the headline grade. That edge is built on understanding the classification system and the feasibility economics behind the number.
Small Caps is a series drawn from first-hand experience of UK and global small-cap markets, updated as each new chapter arrives.
Disclaimer: The value of investments can go down as well as up, and you may get back less than you invest. This article is for informational and educational purposes only and does not constitute financial advice. Always do your own research and consider seeking independent advice before making any investment decision.