Page 87 - 2019 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The geologist conducting the reserve evaluation makes the decision as to the number of holes and the spacing in accordance
with standards and procedures established by the Company. Further, the anticipated heterogeneity of the deposit, based on
U.S. geological maps, also dictates the number of holes drilled.

The generally accepted reserve categories for the aggregates industry and the designations the Company uses for reserve
categories are summarized as follows:
Proven Reserves – These reserves are designated using closely spaced drill data as described above and a
determination by a professional geologist that the deposit is relatively homogeneous based on the drilling results
and exploration data provided in U.S. geologic maps, the U.S. Department of Agriculture soil maps, aerial
photographs and/or electromagnetic, seismic or other surveys conducted by independent geotechnical engineering
firms. The proven reserves that are recorded reflect reductions incurred through quarrying that result from leaving
ramps, safety benches, pillars (underground) and the fines (small particles) that will be generated during processing.
Proven reserves are further reduced by reserves that are under the plant and stockpile areas, as well as setbacks
from neighboring property lines. The Company typically assumes a loss factor of 25%. However, the assumed loss
factor at coastal operations is approximately 40% due to the nature of the material. The assumed loss factor for
underground operations is 35% primarily due to pillars.
Probable Reserves – These reserves are inferred utilizing fewer drill holes and/or assumptions about the
economically recoverable reserves based on local geology or drill results from adjacent properties.
The Company’s proven and probable reserves reflect reasonable economic and operating constraints as to maximum depth
of overburden and stone excavation, and also include reserves at the Company’s inactive and undeveloped sites, including
some sites where permitting and zoning applications will not be filed until warranted by expected future growth. The
Company has historically been successful in obtaining and maintaining appropriate zoning and permitting (see Environmental
Regulation and Litigation section).

Mineral reserves and mineral interests, when acquired in connection with a business combination, are valued using an excess
earnings approach for the life of the proven and probable reserves.
The Company uses proven and probable reserves as the denominator in its units-of-production calculation to record
depletion expense for its mineral reserves and mineral interests. For 2019, depletion expense was $37.5 million.
The Company begins capitalizing quarry development costs at a point when reserves are determined to be proven or
probable, economically mineable and when demand supports investment in the market. Capitalization of these costs ceases
when production commences. Capitalized quarry development costs are classified as land improvements.
New mining areas may be developed at existing quarries in order to access additional reserves. When this occurs,
management reviews the facts and circumstances of each situation in making a determination as to the appropriateness of
capitalizing or expensing the related pre-production development costs. If the additional mining location operates in a
separate and distinct area of a quarry, the costs are capitalized as quarry development costs and depreciated over the life of
the uncovered reserves. Further, a separate asset retirement obligation is created for additional mining areas when the
liability is incurred. Once a new mining area enters the production phase, all post-production stripping costs are expensed as
incurred as periodic inventory production costs.

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