Evaluating stock resources

When evaluating the availability of stock resources, the main categorisation is between resources and reserves.

Reserves are known concentrations of (usually) minerals which are currently available for extraction, with the technological ability to obtain them economically, and there is legal entitlement to exploit them. 

In contrast, resources are concentrations of (usually) minerals which may be viable to extract at some point in the future but which are uneconomic to do so at present or unavailable. The distinction is whether they are currently economically viable and available to exploit. 

As conditions change over time, resources may be reclassified as reserves and sometimes reserves may return to being resources depending of the relative cost of extraction and value on the market. For example, if a new extraction method allows the mineral to be extracted more easily, a proportion of the resource may now be deemed a reserve. Conversely, if demand decreases - leading to lower market value -, or if a change in laws makes the extraction less feasible, the reserves may become uneconomic to exploit and be reclassified as a resource.

The availability of resources and the classification of resources and reserves is determined by a range of factors:

• Physical availability: the quantities of the resource availability around the world.
• Economic viability: whether the value of the resource makes it profitable to extract
• Political/legal access: access to licences to extract a sub-surface resource. In most countries, it is the government which owns mineral resources (the 'lower 48' states of the USA are a notable exception, where the landowner owns the minerals) and grants permission for them to be extracted.
• Environmental/sustainability concerns: can the resources be extracted without causing unwanted/illegal damage to the environment?

These four factors are all interconnected. For example, resources may exist in a country but the government may not want them to be extracted (Germany has banned hydraulic fracturing, or ‘fracking’ – so this natural gas source is a resource rather than a reserve.) It may be that some areas are considered too environmentally sensitive and therefore resource extraction is not permitted by the government; this is the case with parts of Alaska and is a future challenge for the Arctic Circle and Antarctica. Not only are the four factors related, they are also dynamic and subject to change over time, as well as assuming greater or lesser importance in different parts of the world.

The North Sea oil and gas industry illustrates this changing distinction between reserves and resources well. In the early days of the industry in the 1960s and 1970s, some of the oil and gas identified under the North Sea was not able to be extracted due to a combination of the technology of the time and the relatively low oil and gas prices. As demand for oil and gas has increased, the price has risen and this has provided an incentive for the industry to develop new technology and to invest in more expensive projects which has allowed them to access more oil and gas, thus those earlier identified resources became reserves.