Breaking down the feasibility process: The Scoping Phase

The feasibility assessment process is important as it is the fundamental way in which project potential, and essentially, value is assessed and further more allows the quantification of risk associated with this value. Importantly, each step of the study process, from scoping and desk study phase through to final bankable feasibility, should incrementally and realistically add value to the project and so secure potential for return on investment. When the process is not well defined, adhered to, or critical decision gates held in low regard, value can either be destroyed or value can be misrepresented (inflated).

The use and abuse of feasibility studies by Mckenzie and Cusworth cites this example:

“By way of illustration, one needs to look no further than the case of a public company that lodged a prospectus in late 2004 to raise $5.5 million, ostensibly for the exploration and development of a resource project in Western Australia. Included in the prospectus were the following statements:

• a full feasibility has been completed for Stage 1 based on a five year plan, with all the key processing features costed;
• the maximum capital requirements for this stage of the project has been budgeted at A$14.5 million; and
• production start-up before end of 2005.

So far, so good. But further in the prospectus, the following statement appears: However, there are number of milestones for the company in achieving development of the… project: the resource needs to be upgraded to
minable reserve status, a short infill drilling program (approximately 2000 m at an estimated cost of $650 000) needs to be undertaken to complete a mine plan to allow production to commence; secure mining license and environmental approval for an open cut operation (estimated to take between four to six months); undertake bulk testing to assist geological modelling of resource; develop open cut mine plan model; and undertake metallurgical test work program. A supplementary prospectus was subsequently issued to amend, supplement and clarify the disclosures made in the prospectus, but it is apparent that the company’s understanding of the term ‘full feasibility’ differs markedly from a ‘feasibility study’ that complies with the minimum standards outlined above.

The project did eventually get into production in early 2007 at a reported cost of $41 million plus working capital, but it is clear that if not for the dramatic rise in commodity prices, the actual value of the project, whose scope is essentially unchanged but which came in 12 months late and at a cost 280 per cent over the prospectus forecast, would be substantially less than the project outlined in the prospectus.

The failure to understand the purpose of early phase feasibility studies, coupled with the failure to undertake studies that are fit for purpose represents an abuse of the study process. This can lead to the creation of unrealistic and unachievable expectations of project outcomes by all project stakeholders.”

 So, let’s define the scoping phase. The purpose of the scoping study in mineral exploration can best be summarised by the question “What could it be?”. This is the question that needs to be answered at the decision gate before advancing a project to the pre-feasibility stage. With the evidence collected from the scoping study, potentially, what could this deposit be? What is the possibility of this deposit being economical?

Project Pipeline

The project development framework according to Mckenzie

Surprising to some, the scoping phase of a project is as far reaching as the transition from regional to local target selection and the employment of quite a lot of technique, even as far as first pass drilling. Generally the scoping phase includes all activities up until pre-feasibility commences. It usually starts with a desk study which will include literature, maps, remote sensing and the drawing on of other non-site resources (networks and expertise). Field reconnaissance usually follows with accompanying mapping which should then spill over into a well planned geochemical sampling program. Soil and sediment sampling will be the most common tool that assists in taking the project from a regional to very localized scale. Ground and/or airborne magnetics may come into play at this stage but may also only be employed after first pass drilling to assist in ore body geometric and extent delineation. Drill core samples can at this stage already be submitted for mineralogical and metallurgical studies. As much as possible, and financially viable, should be done to answer the initial study question as accurately as possible, “what could this deposit be?”

“Scoping studies are typically undertaken during project generation or exploration and structured to:

  • assess the potential of the new or expanded business opportunity;
  • describe the general features of the opportunity including potential cases to be studied in the next phase;
  • determine key business drivers for the opportunity and any potential fatal flaws;
  • develop order of magnitude costs of the opportunity (both capital and operating);
  • identify technical issues needing further investigation, such as geological drilling or test work required;
  • determine the costs and time to undertake further development work to complete a pre-feasibility study;
  • identify the resources, personnel and services required to undertake further work on the opportunity; and
  • provide a comprehensive report with supporting appendices that includes a recommendation to proceed or otherwise.” (Mckenzie &Cusworth, 2007)

A lot of exploration activity is not however, not that straightforward with projects commonly changing hands between different companies at different times, under different market climates. Much of this selling and acquisition happens before a project gets to pre-feasibility and projects commonly have different data sets, acquired by different geologists, with different technologies, and importantly, different quality standards.

It is a common problem for data to be lost or compromised when projects change hands, especially if a project has been shuttered for a long time before a new company takes charge. The details and complexities of such situations are for another post though!

In more common, real-life situations were projects are continuously past around in the scoping phase, the key objective for any well organised operation is to get the project trajectory and planning in line with answering the key question as soon as possible, fully integrating what data is available and then doing the necessary work to fill in the gaps and bring the project to a place where a confident decision can be made about its value and potential.

Do you work on scoping stage projects? Ever inhereted a historic project to manage? Share your comments and experiences below!

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6 thoughts on “Breaking down the feasibility process: The Scoping Phase

  1. Hola…appreciate your work…you put forth the language of geology and mining in a new “voice”…an understanding of the technical straight-up, the procedures intelligently laid-out…I am a mutual fan of the quest for mineralization and the entities designed to further their cause…thanks…roberrt

    • Hi Robert!

      Thanks for your comment! Appreciate the feedback! I am glad you enjoy the blog. Please continue to comment and let me know what you think, or what you would like to see more of.


  2. Pingback: Breaking down the feasibility process: One simple graph that explains pre-feasibility | The Economic Geologist

  3. Pingback: Breaking down the feasibility process: Should we wait until the final feasibility study to consider business factors? | The Economic Geologist

    • Hi Maria,

      Thanks for the feedback. I am currently based in Brazil. I see your speciality is coal? Very interesting! It is an area that I have very little experience in, especially regarding resource estimation and reporting. Where are you based?


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