A Beginners Guide to PEA's and Feasibility Studies
Before a project becomes a mine, several technical studies must be completed in order to determine the viability of the project. The first of these is the preliminary economic assessment (PEA), with pre-feasibility (PFS) and feasibility studies (FS) that follow. All of these studies analyze and assess the same geological, engineering and economic factors; however, they include significantly different levels of detail and precision.
Preliminary Economic Assessment (PEA)
A PEA, also referred to as a “scoping study”, is a study that includes an economic analysis of the potential viability of mineral resources taken at an early stage of the project prior to the completion of a preliminary feasibility study. PEA's will generally include information on how much money it will take to bring the project into production, how the mine will operate once it is built, and how much metal (and money) it will produce. More specifically, a PEA will have 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.
The chart below shows a summary of a typical mining company's PEA results:
Unlike pre-feasibility and feasibility studies, PEA’s may contain results that are based on inferred mineral resources. This means the information on resource quantity and grade that is included may be based on limited information and sampling.
Why are PEA's important?
The economic analysis by way of a PEA is generally the first signal to the public that a mineral project has potential viability. Given the significance of this milestone in the evolution of any mineral project, the market views PEA results as important information.
After producing a positive PEA, a company can then move on to a pre-feasibility study.
Pre-Feasibility Study (PFS)
Similar to a PEA, a preliminary feasibility study (PFS) is an economic analysis of the viability of a mining project; however, it is more precise and contains more detailed information. Employment of project specific metrics is actually what sets them apart from PEA’s, which are generally based on industry standards rather than derived from detailed site-specific data.
A PFS will also take into account other key factors that could impact a project such as community issues, geographic obstacles, permit challenges and more. In addition, it will usually include a range of options for the technical and economic aspects of a project and are used to justify continued exploration, to complete the required project permitting, or to attract a joint-venture partner.
In general, PFS`s should have an accuracy within 20 to 30 percent, while feasibility studies (FS) require more formal engineering work and have an accuracy within 10 to 15 percent.
If a completed pre-feasibility study turns out to be positive, the company will usually advance the project to the next stage: a feasibility study.
Feasibility Study (FS)
Both pre-feasibility and feasibility studies contain similar content, but the differences lie in the accuracy and level of detail.
A Feasibility Study is "a comprehensive study of a mineral deposit in which all geological, engineering, legal, operating, economic, social, environmental and other relevant factors are considered in sufficient detail that it could reasonably serve as the basis for a final decision by a financial institution to finance the development of the deposit for mineral production.”
So, when we talk about feasibility, we don’t mean practical feasibility (“Can silver be mined here?”) but economic feasibility (“Can silver be mined here at a profit?”) – because if nobody can make a buck doing it, it just not going to happen.
Demonstrating economic feasibility is the objective behind every rock chip collected, soil sample taken, diamond-drill hole bored, metallurgical test conducted, and everything else we see our junior companies working on.
In other words, there’s gold and uranium and some level of all the naturally occurring elements in almost every gulley, gulch, gorge, and goat pasture in the world but what’s rare is economic concentrations of many of them, especially the precious and other low-occurrence metals.
Feasibility studies are not unique to mining, of course, but in the mining world they boil down to three main questions:
1) What do we have?
Typical topics include property description and location, history, geology and exploration, mineral resource estimates, and mining and mineral reserves.
2) What’s the best way to get it out of the ground?
Typical topics include mineral processing, metallurgical test program, process plant design, permitting, environmental, tailings and water management, infrastructure and support facilities, and, occasionally, community resettlement.
3) How much money can we make doing it? Typical topics include capital costs, operating costs, financial analysis that shows the bottom line Internal Rate of Return (IRR) and Net Present Value (NPV) figures, and conclusions and recommendation.
It is important to note that even a fully engineered, bankable feasibility study is only an estimate, and is never completely right: the more assumptions and the fewer facts in such a model, the more obscure it ends up becoming. In the end, the decision whether or not to continue with a project comes down to the judgment of the project leaders.
The feasibility study is only a step along the path to production. In addition to the FS, licensing and permitting approval will also need to be attained in order to advance a project to the production stage.
The chart below summarized the three different types of technical studies and highlights the differences between them: