Reserve Audits – What They Are, What They Should Cover, How They Are Used

Reserve audits have increased in recent years as more companies, especially juniors, enter the ranks of producers. Corporate and individual investors are seeking corroboration of stated reserves. The reserve audit satisfies this need. An audit assures investors that the reserves, as presented, are a reasonable and accurate approximation of the quantity and grade of the economically viable material present. The reserve audit verifies that there are no fundamental errors in logic, style or the data base, and that the reserves, as given, may be used for mine planning or economic forecasting. Reserves that pass an audit may be used with confidence in preparing cash flow projections and in deriving net present value or internal rate of return on any given project. This article describes what a consultant does while performing the reserve audit. In performing an audit there are four general areas of concern that must be checked: definitions, parameters, data and procedures. In each of these, the auditor must convince himself that the reserve study has complied with governmental regulations and guidelines, professional standards and industrial practices. Any deviation from these norms must be identified and its effect upon the appropriateness of the reserves evaluated. By concluding that a reserve study passes his audit, the reviewer is stating that there are no fundamental errors in logic or style and that spot checks have revealed no substantive errors in procedure or mechanics. The responsibility for the reserves remains with the entity that compiled the original study.