Mining studies: PEA, PFS and FS

The three studies side by side

Costs and timings are indicative for a mid-size project and vary widely.

What is inside a study

Every study covers the same chapters, in more detail each time:

• Geology and resources: the resource estimate the plan is based on.
• Mining: open pit or underground, mining rate, a schedule of tonnes and grade by year, life of mine.
• Processing: the flowsheet, recovery, the product and its payability.
• Infrastructure: power, water, roads and tailings: see infrastructure spend.
• Costs: capex, operating costs and cost of sale.
• Environment, permitting and community: baseline data, permits required, closure.
• Economics: a cash-flow model after government take, giving NPV, IRR and payback, with sensitivities.

The step from resources to reserves applies the modifying factors: mining, processing, cost, legal, environmental and social. That is why reserves can only come from a PFS or FS. See resources versus reserves.

What each study unlocks

A feasibility study that lenders will rely on is called bankable. That is a judgement made by lenders and their independent engineer, not a category in the reporting codes. See the typical financing path for how the funding options change at each step.

Reading the headline numbers

A study's press release leads with NPV and IRR. Before using them, check:

• After tax or pre-tax? Only after-tax NPV reflects what owners can receive.
• Price deck: which metal price, and how it compares with the futures curve and analysts' long-term forecasts.
• Discount rate: 5% is common for gold, 8% for base metals: see valuing a project.
• Share of Inferred in a PEA's mine plan. Reporting codes require a cautionary statement when Inferred resources are included, and some limit how they can be used.
• Sensitivity tables: how much NPV falls with a 10% lower price or 10% higher capex.
• Who wrote it: an independent engineering firm and named qualified persons, or the company itself.

Why numbers change between studies

An invented gold project, followed through all three studies:

Three common patterns show up:

• Tonnes drop at the PFS, because Inferred material cannot be used and not every Indicated tonne converts to a reserve.
• Capex rises as engineering firms up and contingencies are set more honestly.
• NPV falls, but market value rises. Each study removes uncertainty, so investors pay a higher share of a lower NPV. The P/NAV multiples here are illustrative only.

A study whose NPV rises sharply from the last one deserves a close look: a higher metal price, a bigger pit or a new processing route can all be reasons, and some are sounder than others.

Red flags

• A PEA that relies mostly on Inferred resources, especially in the early years of the plan.
• Metal prices well above the futures curve or consensus forecasts, without a base case at lower prices.
• No sensitivity tables, or only upside cases.
• Recoveries not supported by testwork on representative samples.
• A permitting timeline faster than other projects in the same jurisdiction: see permitting.
• Capex far below comparable projects of similar size, with no clear reason.
• A long gap since the last study, so that costs and prices are out of date.

What to take away

Know which study a number comes from before using it. A PEA shows potential, a PFS shows a plan, and an FS shows a mine that can be financed. Expect the NPV to come down and the confidence to go up as the project moves from one to the next.

All figures are invented for illustration. Accuracy ranges and costs are indicative and vary by project. This is educational material, not investment advice.