I may as well add a bit on Ore Reserves and Mineral Resources. An Ore Reserve is that part of the Mineral Resource that can be mined profitably after application of the Modifying Factors - I suggest that anyone interested read the JORC Code, Clauses 19 to 40. It's not hard.
In practice, for an open pit, what happens is that a mining engineer takes the Resource block model and subjects it to an optimization - this is a mathematical process whereby the operating cost of mining and processing is subtracted from the value of the metal in a block, multiplied by the metallurgical recovery (this is why met recovery is so important). In most software that does this, a series of pit shells are produced, each corresponding to an incrementally greater metal price. Low metal prices are early pit shells that make big margins (shallow and cheap to mine or high grade) high metal price shells indicate where the mine could go in the future with appropriate strategy - they have little to do with the actual metal price and more to do with capital and operating strategy.
What is operating cost? Well, it's not just diesel, chemicals and labour: there's a fixed component that includes depreciation, financing and maintenance of equipment. This component is even greater for the processing plant because the whole operation must carry the total fixed cost while the mill is not operating for regular maintenance. Typical operating costs for a bog-standard gold mine in Australia will be around $3/t for mining the rock and $15 - $30/t for processing ore, depending on mill capacity and process route. This is why dilution is so important - you're processing a tonne of waste rock, at $25, for no return. Even worse, it displaces a tonne of ore that can return a profit, exponentially exposing a mine to its fixed costs. In developing countries (cheap labour), you an add at least a third to these costs. The margins that I see on most reasonably well-run gold mines around the world (and I'm not in Australia at the moment) are very similar, despite what the Annual Report may claim.
So the Reserve is time dependent. A mine may not be mining the higher-value pit shell for some years, when only one thing is certain - the metal price, currency exchange rate and operating cost and most certainly the geologist's block model, will be completely different to what the engineer estimated in the first place. For this reason and unless the grade is exceptionally high, capital has been spent and repaid and the ore easy to mine, I get suspicious of bog-standard open pit mines that promote "Proved Reserves" that imply production beyond about eighteen months. Similar for 'Probable Reserves" that imply production beyond about three to five years.
If I get enough likes and feel motivated, I'll make an explanation of cut-off grades. And if ya like that enough, I may even comment on underground mines. The Natives are restless here at the moment and there's not great deal to do. . .
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