Gold$2,345.67/oz+0.82%
Silver$29.42/oz-0.34%
Copper$4.12/lb+1.15%
Uranium$85.50/lb+2.41%
Lithium (SC6)$1,240/t-1.08%
TSX-V$1,024.3+0.56%
Gold$2,345.67/oz+0.82%
Silver$29.42/oz-0.34%
Copper$4.12/lb+1.15%
Uranium$85.50/lb+2.41%
Lithium (SC6)$1,240/t-1.08%
TSX-V$1,024.3+0.56%
The Mining Watchlist

PEA, PFS & Feasibility Studies

From an Early Idea to a Detailed Mine Plan

How a project is de-risked on paper before any dirt actually moves.

Key Takeaways
  • Economic studies test whether a proposed mine could work under stated assumptions.
  • A PEA is an early economic assessment. A PFS and a feasibility study provide progressively more detailed work.
  • A positive study is not the same as a permit, financing commitment or operating mine.
  • Metal prices, recovery, costs, timing and the discount rate can change the headline results.
  • Compare the assumptions and remaining work before comparing the reported project values.

Three Levels of Homework

Imagine planning a house. An early estimate helps you decide whether the idea is worth pursuing. A developed design tests practical choices. Detailed engineering gives builders and lenders a firmer basis for a decision. Mining studies follow a similar progression, although real projects do not always move through every label in a neat sequence.

PEA — Preliminary Economic Assessment: an early look at potential economics. It can include inferred resources and should be read with the associated cautionary language. Its outcome is uncertain. Canadian securities regulators distinguish PEAs from the more advanced studies.

PFS — Pre-Feasibility Study: examines a preferred development approach with sufficient supporting work to assess whether resources can support reserves.

FS — Feasibility Study: develops the selected plan in greater technical and economic detail. The CIM standards describe these study levels.

Read the Inputs Before the Headline

A study is a model of the future. Its answer depends on what goes into it. A project may look attractive at a high metal price and much less attractive at a lower one. Strong recoveries, low construction costs or a fast timetable can also improve the result.

Which metal prices and exchange rates were assumed?
How much does construction cost, and when must that money be spent?
What production, recovery, operating costs and mine life support the forecast?
How much contingency is included, and what work remains?

Three Common Measures

Net present value, or NPV
translates estimated future net cash flows into a value today using a discount rate. It is a project-model result, not the company’s share price or cash balance.
Internal rate of return, or IRR
is the discount rate at which the model’s NPV becomes zero. It helps describe the modeled return profile, but should be considered alongside the size and timing of the investment.
Payback
describes how long the model takes to recover the initial investment. Check when the clock starts and whether the figure is discounted or undiscounted.

Make a Fair Comparison

Compare after-tax figures with after-tax figures, use consistent currencies and ownership interests, and note the discount rates. A project valued at $500 million under one set of assumptions is not automatically better than a $400 million project modeled more conservatively.

Read the sensitivity analysis: what happens if prices fall, costs rise or production disappoints? Then separate the technical result from the remaining permits, financing and construction decisions.

A study can reduce uncertainty without removing it.

Mineral Resources vs. Reserves

Next in the Mining 101 Series

Mining Project Milestones

The catalysts that move a stock from discovery toward production.

Continue →