Mine Life and Reserve Life Index: Reading the Clock on a Producing Miner
A mine is a depleting asset with a countdown attached. Reserve life index and reserve replacement ratio tell you how much runway is left and whether the company is refilling it or liquidating.
Mine Life and Reserve Life Index: Reading the Clock on a Producing Miner
Summary box
- Reserve life index (RLI) = reserves ÷ annual production. It is the crudest and most useful runway metric in mining.
- Reserve life is not mine life. Reserves are the proven economic subset; the life-of-mine plan may also draw on resources that have not been converted.
- A reserve replacement ratio below 1.0x sustained over several years means the company is liquidating, whatever the production headline says.
- Reserves shrink for three different reasons — depletion, price, and reclassification — and only one of them is bad in the way it looks.
- Below roughly eight years of RLI, reserve replacement becomes the dominant question for the equity.
The core calculation
Reserve life index (years) = Mineral Reserves ÷ annual productionA mine with 4.2 Moz of gold reserves producing 420 koz per year has an RLI of 10 years.
Three constraints on reading it:
It assumes flat production. A mine ramping up has a shorter effective life than the arithmetic suggests; one winding down has longer.
It uses reserves, not resources. Only Measured and Indicated Resources that have passed at least a Pre-Feasibility Study become reserves — the CIM Definition Standards require "the completion of a Pre-Feasibility Study as the minimum prerequisite for the conversion of Mineral Resources to Mineral Reserves." Resources sitting outside the reserve are optionality, not runway.
It is a snapshot. Reserves are stated at an effective date and depleted every quarter thereafter.
Reserve life versus mine life
These get conflated constantly.
Reserve life is the arithmetic above: proven economic material divided by throughput.
Life-of-mine (LOM) plan is the schedule in the technical study. It may run longer than reserve life, because a LOM plan can include Measured and Indicated Resources the company expects to convert, and in some jurisdictions and study types, Inferred material.
So a company can honestly say "20-year mine life" while carrying nine years of reserves. Both statements can be true. The gap between them is a conversion assumption — a forecast about drilling and studies that have not happened yet.
The check: find both numbers. If the LOM plan materially exceeds reserve life, ask what fraction of the plan rests on unconverted material and what the company's historical conversion rate has been.
Reserve replacement ratio
Reserve replacement ratio = reserves added in period ÷ reserves depleted in periodMeasured over three to five years, not one. Single years are noisy: a resource conversion or an acquisition lands lumpily.
- Sustained above 1.0x — the company is growing its resource base.
- Around 1.0x — steady state.
- Sustained below 1.0x — the company is consuming its asset base and returning it as cash flow. That can be a deliberate, rational strategy for a mature asset. It is not a growth story, and it should not be valued as one.
Replacement can come from three sources, and they are not equally good:
- Exploration on existing ground — cheapest per ounce, best signal.
- Resource-to-reserve conversion — moving already-known material across the study threshold. Real, but finite.
- Acquisition — replaces reserves with cash or shares. Check the price paid per reserve ounce against the peer set before crediting it as replacement.
Why reserves fall: three different stories
A reserve statement dropping year-on-year could mean any of the following, and the reasons matter more than the number.
Depletion. The mine produced. This is the reserve doing its job. Entirely expected.
Price. Reserves are calculated at an assumed metal price. Lower the price assumption and marginal material falls outside the economic pit shell or stope design. The rock is unchanged. Raise the price later and it returns. This is the main reason reserve statements are volatile across a commodity cycle.
Reclassification or model change. New drilling, a revised geological model, higher costs, changed metallurgical assumptions, or a permitting constraint remove material permanently. This is the one that should worry you.
A company that publishes a reserve reconciliation — splitting the change into depletion, price, cost, model and acquisition components — is being straight with you. One that reports only an opening and closing balance is not, and NI 43-101 requires a reconciliation of material differences when a technical report is filed following disclosure of a reserve change.
What good and bad look like
| RLI | Reading |
|---|---|
| Under 5 years | Runway risk is the dominant equity question. Any permitting or exploration setback is existential. |
| 5–8 years | Replacement pressure is real and continuous. Watch the drilling budget. |
| 8–15 years | Comfortable for a single-asset producer. Typical of a well-run mid-tier. |
| 15–25 years | Long-life asset. Attracts a premium multiple and a lower discount rate. |
| Over 25 years | Usually a very large low-grade deposit. Check that the back end of the schedule is genuinely economic rather than an artefact of a long-dated price assumption. |
Note the interaction with valuation: at a 5% discount rate, cash flow in year 25 still carries meaningful present value; at 10% it is nearly worthless. Long reserve life is only worth what the discount rate says it is worth. That interaction is covered in mining stock valuation methods.
Related metrics worth pairing
Grade trend within reserves. Falling reserve grade at constant tonnage means the company is converting progressively poorer material. Production cost per ounce will rise even if cost per tonne does not.
Sustaining capital intensity. A long reserve life that needs a shaft deepening or a tailings lift to access is not free runway.
Depletion versus production. Reserves deplete at the mined rate including dilution and mining losses, not at the milled-ounce rate. The two differ.
Permit horizon. A 20-year reserve behind a 10-year permit is a 10-year mine until proven otherwise.
Checklist
- [ ] Reserves and annual production from the same effective date
- [ ] RLI calculated, and compared with the stated LOM plan
- [ ] Share of the LOM plan that is unconverted resource
- [ ] Three-to-five year reserve replacement ratio
- [ ] Reserve reconciliation present, splitting depletion / price / model
- [ ] Metal price assumption behind the reserve, versus spot
- [ ] Reserve grade trend across successive statements
- [ ] Permit term versus reserve life
- [ ] For multi-asset companies: RLI by asset, not just consolidated. A group average hides a mine about to run out.
That last point matters. A consolidated 14-year RLI across four mines can conceal one asset with three years left — and that asset may be the one carrying group cash flow.
How Mining Terminal handles reserve life
Reserve and resource statements are extracted per company and per project with category, effective date, cut-off grade and price assumption attached, alongside production metrics from the same filings. Because both sides of the ratio carry their own effective dates, reserve life can be computed on matched periods rather than by pairing a current production rate against a three-year-old reserve.
Successive statements are retained rather than overwritten, so the trajectory — and any reconciliation the filing provides — stays visible.
To screen a peer set by reserve life index or replacement ratio, get in touch or ask Nara.
Related reading
Sources
- CIM Definition Standards for Mineral Resources and Mineral Reserves, 10 May 2014 — BCSC-hosted copy
- National Instrument 43-101, Part 3 and Part 4 — Ontario Securities Commission
- The JORC Code, 2012 Edition — jorc.org
This article is educational and is not investment advice. Mining Terminal is a data platform, not a broker, dealer or investment adviser.