If you want to achieve a high success rate as a natural resource investor, then you must have the ability to accurately interpret drill results. This is something that few retail investors are capable of doing and therefore is a simple way of getting the upper hand over other speculators.
Before we delve into the interpretation of drill results, we firstly need to know the different classifications of resources and what they each mean.
There are three categories that resources can be classified into: measured, indicated, and inferred. The different classifications are assigned based on degrees of confidence with resources in the ‘measured’ category having the highest degree of confidence and ‘inferred’ having the lowest. The following table summarizes the degree of confidence assigned to each category of resources.
Keep in mind that these numbers are not set in stone, meaning certain speculators may use higher or lower numbers for certain categories.
The Difference Between ‘Infill’ and ‘Step-Out’ Drilling?
A drilling program is often divided into a step-out drilling program and an infill drilling program. It is crucial to understand the difference between the two in order to know how a set of drill results may impact a company’s share price. Essentially, step-out drilling is done to add to the current resource model, while infill drilling is done to convert current resources from the ‘inferred’ to ‘measured’ and ‘indicated’ categories. Step out drilling programs have a fixed starting point from which they intend to expand the mineralization zone, while infill drilling programs are used to confirm the presence of mineralization between the step-out drill holes.
In order to better understand this difference, let’s take a look at a cross-sectional map of a deposit model, like the one below.
Prior to the commencement of a drill program, a company will establish ‘drill targets’ which are areas in which they believe the mineralization has the most expansion potential. In the map above we see three drill targets marked by yellow circles: A, B and C. Step-out drilling is done in these zones to determine whether the mineralization continues into them. We can see possible examples of where future step-out drill holes might be made, shown by the blue stars on the map.
Some examples of what possible infill drill holes might look like are shown by the pink lines. We can see that these lines are pointing towards areas in which the existence of mineralization has already been confirmed. These are areas which may have a combination of ‘measured and indicated’ resources as well as ‘inferred’ resources. However, in order to convert resources from ‘inferred’ to ‘measured and indicated’ the company will need to get more precise data about the deposit model. To do this, more holes will need to be drilled in these zones.
How Will This Impact the Stock?
When a company releases a set of drill results, the results will be reported in terms of interval length (in metres) as well as the grade of mineralization.
Let’s look at an example of a junior mining company's drill results:
“Drill hole LP20-147 intersected 104.1 meters averaging 3.14 g/t Au, 2.1 g/t Ag, 0.27% Cu and 0.01% Zn with a sulphide intersection of 30.0 meters averaging 9.02 g/t Au, 5.1 g/t Ag, 0.63% Cu and 0.00% Zn.”
So essentially, the total length of the intersection was 104.1 metres; however, there was an interval within this hole of 30.0 metres which averaged 9.02 g/t Au.
What is considered ‘significant’ in terms of grade and interval length?
Well, it depends on several factors. It is important to compare a drill hole with other holes in the vicinity. Drill hole LP20-147 can be seen on the right side of the map, just above ‘Target A’. It looks as though other holes in the area have been returning between 2.0-8.0 g/t Au. So, anything in the upper end of this range or higher would be significant in terms of grade. The 30.0 metre interval averaging 9.02 g/t was the best hole drilled on the property and was a higher grade than any of the surrounding holes.
But what about size?
Often times a company will report very high grades in an intercept (+1,000 g/t), but the stock won’t budge. How is this possible? Well the significance of a drill intercept is not just about the grade, but is also directly related to the LENGTH of the interval. If the interval is very small (let’s say 0.5 metres), then it is likely that this mineralization occurrence is an anomaly and that this grade does not continue throughout the rest of the deposit. For drill hole LP20-147, the length of the broad interval (104.1 metres) is massive, and so is the interval within that length (30.0 metres).
However, there is more to the story than simply the length of the interval and the grade. There are too many investors who will simply look at the grade as well the length of the interval and form an opinion based on this.
BUT THIS IS NOT A PROPER ANALYSIS.
In order to find out the true significance of a drill hole, we need to determine the exact location of the drill on the cross-section map in order to figure out whether it was an infill drill hole or a step-out drill hole.
From the map, we see that Drill Hole LP20-147 was an INFILL DRILL HOLE. Without a doubt, a drill hole like this will have a positive impact on the share price. However, this drill hole will not do anything to add to the resource size. All this drill hole did, was confirm the existence of mineralization in the previously drilled zones, allowing the company to convert a larger portion of the resource from the ‘inferred’ to ‘measured and indicated’ categories. These resources can now be estimated with a higher degree of confidence.
For infill drill holes, we are expecting to see similar or higher grades of mineralization than other holes in the area. The chances of hitting mineralization are much higher, so a successful infill drill will have less impact than a successful step-out drill hit. However, if an infill drill hole does not return any mineralization (highly unlikely), then this will have a major negative impact on the stock, as it would imply that resources which were previously ‘inferred’, do not actually exist.
For step-out drill holes, these are made in unexplored areas, so successful step-out drill results will have a greater impact on share price than successful infill drill holes. However, unsuccessful step-out drill hits are not as impactful, since the mineralization was never fully assumed to be there in the first place. Step-out drilling uses a 'guess-and-check' approach.
For investors, it is essential to be able to accurately read and interpret drilling results, which after reading this, you should be able to do.