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A Guide to Mining Project Studies

PUBLISHED

2023-03-31

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Ever wonder what all the jargon means when resource companies announce the progression of their mineral projects? We’ve put together a guide to help you better understand each of the study stages.

Scoping Study

The Scoping Study is the first level of these studies, providing an early-stage evaluation of a mining project's potential economic viability and is largely conceptual in nature.

A Scoping Study provides an order of magnitude estimation of the potential viability of a Mineral Resource by taking into consideration various modifying and operational factors that are necessary to justify moving forward to a Pre-Feasibility Study.

Scoping Studies contain details regarding information on pre-production capital costs, life-of-mine sustaining capital, mine life and cash flow, as well as details on processing and production methods and rates. Specifically, the Scoping study will endeavor to answer the following questions:

• How much funding will likely be needed to begin production of the project?


• How will the mine operate once it is built?


• How much of the commodity will a mine produce annually and what is the expected mine life?


• Based on that production and assumed commodity prices and operating costs, what is the expected profitability of the project and return on invested capital?

When a Scoping Study is based on inferred mineral resources and/or exploration targets that are a part of the Mineral Resource, the company’s public reports must clearly state the proportion and order of these resources in the study.

And whenever an entity discloses a Scoping Study, it must include a cautionary statement either in the same paragraph or immediately after the disclosure.

The Scoping Study must not be used as the basis for estimation of Ore Reserves.

Pre-feasibility study (PFS)

Similarly, to the Scoping Study, the PFS is an economic assessment of a mining project's feasibility, however it is more detailed and precise.

By this point, the project has reached an advanced stage in mining where a preferred method for either underground mining or open pit mining has been established, and an effective technique for mineral processing has been determined.

This process involves conducting a financial analysis based on reasonable assumptions and considering relevant factors that a competent person would consider when making such a determination.

So, the overarching goal is to determine whether all or part of the Mineral Resources can be classified as an Ore Reserve at the time of reporting.

Feasibility Study (Definitive Feasibility Study and Bankable Feasibility Study)

It is important at this point to note that, as stated in the JORC Code, 2012 Edition, “Terms such as ‘Bankable Feasibility Study’ (BFS) and ‘Definitive Feasibility Study’ (DFS) are noted as being equivalent to a Feasibility Study.”

The Feasibility Study is a detailed assessment of the selected development option, including applicable modifying and operational factors.

These operational factors include geological, engineering, legal, operating ESG, which serve as the basis for a financial institution's final decision to finance the deposit's development for mineral production.

The study must also include a detailed financial analysis to demonstrate that extraction is economically justified at the time of reporting.

The goal is to determine whether the project is feasible and economically mineable.

So, in this stage, the DFS answers the question “can the commodity be mined at a profit.”

This stage of mining essentially boils down to three fundamental questions:

1. What exactly do we have?

This includes: characterization and location, past occurrences, geology and surveys, approximations of mineral resources, and mining and mineral reserves.

2. What is the most effective method for extracting it from the earth?

This includes: common subjects covered are mineral processing, metallurgical testing procedures, designing process plants, obtaining permits, managing environmental concerns, dealing with tailings and water, setting up infrastructure and support facilities, and in some cases, relocating communities.

3. How much profit can be made?

This includes: initial expenses of acquiring or establishing an asset or project (capital costs), the ongoing expenditures related to operating and maintaining the asset or project (operating costs), and a return on capital analysis that determines the bottom-line Internal Rate of Return (IRR) and Net Present Value (NPV). Additionally, the report includes recommendations and conclusions based on the findings of the analysis.

The outcome of the study can provide a reasonable foundation for a proponent or financial institution to make a final decision on whether to proceed with or finance the project's development. The level of confidence in the study's findings will be greater than that of a PFS.

The parameters of a BFS don’t usually differ from those in a DFS, other than by providing more detailed information on the lending terms that financiers should offer to make the project financially viable.

This just means that the level of quality and standard meets the requirements for submission to a lender.

However, whether a bank will lend money for the project depends on factors beyond the control of the feasibility study team.

In addition, the entity providing financing for the project may not be a bank specifically. It could be a joint venture partner or equity investors.

Overall, the Technical Studies analyse and assess the same geological, engineering, and economic factors, and include different levels of precision and detail at each stage.

Such studies can assist companies in determining how they will grow by providing insights into their operations. This includes important metrics, such as: the size of the mine at the degree of confidence at different levels of geological confidence, the most effective method for extraction, how the mine will operate and how much it will cost to run, and most importantly, how much money can be made.

These are important because they provide an assessment that can be viewed industry wide, enabling anyone from retail investors to operators of the mines to assess the financial and geological metrics of a mine.

Source: SmallCapInvestor. A Beginners Guide to PEA's and Feasibility Studies.

 

Note: all data provided herein is from the JORC Code, 2012 Edition. The JORC code is a mandatory system that sets out minimum standards, recommendations and guidelines for Public Reporting in Australasia of Exploration Results, Mineral Resources and Ore Reserves. It applies to any professional responsible for any Public Report of Exploration Results, Mineral Resources or Ore Reserves for a company listed on the ASX or any other exchange where JORC Code compliance is required.

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