Probable reserves definition
/What are Probable Reserves?
Probable reserves are those mineral reserves for which quantity and grade are computed from information similar to what is used for proven reserves; however, the sites for inspection, sampling, and measurement are less adequately spaced. The resulting degree of assurance is sufficiently high to assume continuity between points of observation.
A publicly held company must disclose the estimated tonnages and grades of its proven and probable reserves. A sample of this reporting appears in the following exhibit, which is an extract from the Newmont Corporation Form 10-K filing.
Reporting the probability of recovery for reserves makes it easier for investors to estimate the present value of a mining company’s assets, and therefore the price they are willing to pay for its shares.
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How Probable Reserves are Measured
Probable reserves are measured using two key classifications, often referred to as the 2P and 3P methods, which reflect different levels of certainty. They are described below.
Proven Plus Probable Method
In the 2P (Proven plus Probable) method, probable reserves are combined with proven reserves to create a fuller estimate of the total economically recoverable resource base. Probable reserves are assessed through geological data, drilling results, and engineering studies, but with less dense sampling and measurement than for proven reserves. The estimation assumes a reasonable continuity of mineral content between observation points, though with a slightly higher degree of uncertainty than proven reserves. Together, the 2P estimate provides a realistic and commercially useful figure for investors and planners by blending the highest-confidence reserves with those that are highly likely, but not absolutely confirmed.
Proven Plus Probable Plus Possible Method
In the 3P (Proven plus Probable plus Possible) method, probable reserves are included along with proven and possible reserves to form an even broader view of the resource potential. Here, probable reserves are again measured based on sound geological and engineering evidence but acknowledged to carry more risk than proven reserves. The 3P method captures a fuller spectrum of the resource, with probable reserves offering moderate certainty and possible reserves introducing higher uncertainty. This approach is often used to show the maximum upside potential of a resource development project while transparently communicating the varying degrees of confidence associated with each reserve category.