Novice miners love to proclaim drill results. They show that the backers’ work is in progress and can also trigger massive stock price appreciation.

But they can be a foreign language for generalist shareholders. What does 100 grams per tonne (g/t) of gold mean when over 0.1 meter versus 1 meter? Should you be worried if someone accuses your favorite gold explorer of just drilling into the vein? We will come back to these specific points, but to make it clear: drill results are extremely important to junior miners, and understanding them is crucial for investors.

Investor Chronicle Small-cap expert Simon Thompson notes that positive drilling results “substantially mitigate investment risk” and can reduce the valuation gap between a junior miner’s market cap and net present value (NPV). estimated – the sum of the estimated cash flow of future production valued in today’s money – from the mine it is developing. “Drilling results can be a game-changer in this regard,” he adds.

hole in one

“The main idea of ​​everything you do in exploration is to generate drill targets to test your geological concepts,” says Joe Mazumdar, a geologist and mining analyst who runs the popular Exploration Insights website. Drilling is what gives investors “your proverbial 10 bags,” he adds, referring to companies whose stock prices climb by a factor of 10.

The typical process for an explorer is to find a prospect – potentially through previous exploration in the area, or simply to spot where the potential may be – and then to use techniques such as soil sampling, geochemistry of surface or even an airborne geophysical survey, which involves flying a helicopter with an electromagnetic loop underneath that can pick up metals underground. This work should then generate theories about what lies beneath.

Companies will then typically raise funds from investors to begin a drilling campaign. A recent announcement about this came from Beowulf Mining (BEM), which plans to spend £1m on a 3,400 meter program from both a gold prospect and a zinc-lead-silver prospect in Kosovo this year. “We are optimistic that the [induced polarisation] the anomalies represent high-grade parts of the mineralized systems that we believe are present,” said managing director Kurt Budge. This means that the company will use previous work on the surface (Induced Bias is the process used to develop A picture where the metals are underground) to determine where to point the drill.

If the results are favorable, the company will develop a working model of mineralization (the spread of metal through rock) and come up with a first resource, which is the first estimate of how much copper, gold, lithium or similar. , is found in the ore body. It can take years from the identification of the target to that point, and then even more years before construction of a mine begins. But the biggest stock price gains come after strong drilling results and potentially around the time the first resource is announced. The shares then often fall back when the company actually has to finance a mine.

The drilling campaign itself is generally defined in terms of total length, which is 3,400 meters in the case of Beowulf. This means that 3,400 meters of drill core (cylinders of ore or rock, which are the width of a coke can) are pulled out of the ground using a drill rig. These cylinders, called core samples, are then cut in half, with one half taken to a lab and analyzed (at this point they are called assays) for metal content, and the other stored.

Tell me about it

Next comes promotion. Stock exchange news releases are littered with these terms as companies announce “significant” gold intersections or mineralization.

Target Explorer Lexington Gold (LEX) reportedly hoped to cause a stir last week with a hole at the Loflin project in the United States, which returned 36 meters at 1.67 grams per tonne (g/t) of gold. “[These] the results of the analyzes confirm an important new discovery,” the company said.

Explorers are keen to show how much gold, silver or lead they have found. What investors see is the best of what the drill campaign had to offer, presented using averages across different segments across the core.

“The most important aspects of the drill results show good thickness and grade continuity,” Mazumdar said.

Gold exploration numbers can be difficult for non-experts to analyze given the nature of the mineralization: a site may have only one vein, but if an explorer hits that vein, they may announce a extremely positive drilling result (“bonanza-grade” is the term often used to refer to the highest grade in grams of gold per ton) which bears little relation to a working mine in a few years. Hence the idea of ​​a company trying to dig in the vein in order to present the market with extremely high figures in grams per tonne.

Christopher Ecclestone, mining and metals strategist at Hallgarten and Company, says details such as the distance between holes are also very important. “If it’s five drill holes 500 meters apart, that’s informative but useless to drill a resource,” he says.

The drill results will likely have higher grades than the resources the company will produce in the future, and they form the basis of a mining plan for the deposit. A good rule of thumb is that underground gold mines need grades high in the single digits and above (grams per tonne), while an open pit gold mining like Centamine (CEY) The Sukari mine will have a low single digit gram per ton.

A copper mine will have its grade measured in percentage terms, with 0.5 to 3% the norm. Atalaya Mining (ATYM) announced a 129 meter hole grading 1.19% copper in February, highlighting segments with double that grade over 15 meters and 12 meters. The length indicates that the mineralization is widespread, although the higher grade zones still make up one-fifth of the total length. Atalaya was drilling in a known deposit, however, the positive results are not going to blow up its share price.

This exploration is being done to better understand an option to expand 28km from its existing mine, so it is very different from an undercapitalized junior miner betting the house on a borehole.

Knowing the context is key, says Mazumdar. He said mineability (is the deposit near surface or in stable rock?), metallurgical recovery and the actual location of the site are all key issues for the long-term investor. “Few retail investors take this into account,” he says.

Ecclestone echoes this point, saying good numbers for an open-pit mine 500 meters underground means hugely expensive development given the amount of rock that needs to be moved before mining even begins. “People are starting to move away from the open pit mine,” he says, citing the long-term environmental impacts of digging a pit that could span 1 km or more of ore.

But the flip side is that stock prices could move despite these realities, given investors’ willingness to bid on a junior when a catalyst presents itself.

AEX Gold (AEXG), which is trying to reopen an underground mine in Greenland, had plenty of big numbers to shout, but these are less meaningful given the work needed to get the Nalunaq mine back into shape. Its shares slumped just over a year ago on news that the mine had serious safety issues and restarting production would not happen this year as previously planned. Pure Gold (PURE)another Toronto Stock Exchange company with a secondary listing in London, was able to report 21.1 g/t over four meters at its underground mine in Ontario, but could soon run out of cash after mining conditions unfold much harder than expected.

These examples show the trader/investor separation. Traders can generate plenty of returns simply by picking drill results that will be popular with the market, while often very loyal investors will see the early promise of promising exploration programs turn sour as the realities of exploitation mining manifest themselves.

The reality is that even longer-term investors need to be aware of this dynamic. As Mazumdar concludes, “I would advocate that you take advantage of any significant share price increases associated with the release of a good hole and cash out before the next holes come, especially on the gold market, because gold is something that is more variable.”