Mountain Pass has likely been drilled out and evaluated to the extent that most of its inventory of “resources” has either been qualified as economic reserves or classified as uneconomic. Thus, SEC’s non-recognition of resource classifications benefits MCP in comparison to its competitors whose less-advanced projects have not been investigated sufficiently to make the reserves/resources distinction. An over-simplified explanation of that difference is that “resources” must be adequately drilled (trenched, etc), analyzed for mineral content, geologically and statistically modeled to essentially a positive feasibility status, then integrated into the life-of-mine plan in order to be classified as “reserves.” However, for mining professionals and investors alike, a project’s resources are also vitally important, since those are the basis for the operation’s future ore reserves, subject to technical and economic parameters.

Most mining firms, even those based in the US with projects located only in the US, have already adopted NI 43-101 or equivalent standards in their reporting of resources and reserves, including only “reserves” in their required reports to SEC (e.g. 10-K’s) but including both in their other public technical documents. US professional organizations like SME and MMSA have recognized the inconsistencies in SEC’s guidelines relative to those of other industrialized nations and are actively lobbying SEC to catch up to their international peers.

Clear, concise and cogent contrasting of the codes. I sense that in the next few quarters a tipping point will become apparent separating the wheat from the chaff. Continuing the agrarian metaphor, as the frustratingly still low hanging fruits ripen, can you provide your insights on interpreting PEA’s, BFS’s and scoping studies with an eye to: “there’s never been a negative PEA”?

Thank you.

Molycorp uses a cutoff grade of 5% TREO, and used a 4% cutoff previously. The cutoff grade is usually the economic cutoff, so it is puzzling that they either cannot or do not report reserves at a lower cutoff grade. Are their recoveries so low or costs so high that the lower grade material below 5% is not economic, or have they not completed adequate metallurgical testing on the lower grade material? These would be logical questions based on SRK’s reserves report.

One cannot compare resources to reserves. Presumably Molycorp has the rigorous economic studies (feasibility study level) completed to allow the conversion of the additional tonnage into reserves. It would be interesting to understand if their resource base has increased or if they have achieved more reserves by converting existing “inferred” resource into a higher classification (indicated or measured) by more detailed drilling.

I too ponder why they could not be operating at a lower cutoff. It is not misleading to report resources at varying cutoffs and as metal prices change companies can legitimately re-assess reserves if the economics allow it.

Perhaps the greatest difference between reporting in the US versus Canada is the level of disclosure required… not that Molycorp is doing anything wrong in this regard but quite frankly if the securities commissions don’t require you to report more fully then why would you? Focus on production rather than filing reports on Sedar! I do believe the Canadian disclosure requirements serve investors far better in this regard.

They always want it their way.

Their standards.

Then force companies to adopt their ways and their systems.

Frankly, from Moly I would not listen. They always seem to be looking for the edge. Why not just get on with it and produce REE’s and stop all the chest beating. LIKE China does!

1) Increases in mineral-reserve estimates are of direct value, by the very nature of what a mineral reserve actually represents, compared to, say, a similar increase in a mineral-resource estimate, which only has indirect value. A mineral resource gives no indication of the economic viability of the deposit – only a mineral-reserve estimate can do that.

I think the only thing that surprises me about the reserve update from Molycorp is that they (or their consultants SRK) have maintained the same, relatively high cut-off grade as in the past. Given current technology, and the present value of rare earths, I might have expected them to lower the cut-off grade, which would probably have given them even higher reserves.

Mark Smith, Molycorp’s President & CEO, does however make a powerful point in the press release when he said that “[i]t is noteworthy that the cutoff grade of 5% used by SRK far exceeds the head-grades of most other known rare earth projects around the world, which underscores the unique richness of our ore body“. Mountain Pass is indeed a rich ore body.

One other comment on this: it is my understanding that companies may be taxed on their reserves, since they may be considered as real, tangible assets, so companies won’t want to get too carried away with upgrading resources to reserves.

2) You’re right of course, that it is to be expected for an NYSE-traded company to be measuring reserves to SEC standards. But if the intent was to “provide a simple comparison“, then clearly such a comparison fails, for the reasons stated above.

If the news release had simply referred to the fact that the vast majority of other leading projects have mineral-resource estimates only, and don’t have estimates of mineral reserves, then we wouldn’t be having this conversation. Such statements would be factually correct, and would demonstrate, as I commented earlier, just how well-established Mountain Pass is in comparison to other non-Chinese rare-earth projects.