Breaking down the feasibility process: Should we wait until the final feasibility study to consider business factors?

So far we have looked at the scoping and the pre-feasibility phases of the feasibility process. Of all the possible scenarios considered during the pre-feasibility study, the best scenario is selected and only it is then taken forward as the foundation for the final (a.k.a. definitive) feasibility study. This scenario will include the best understanding of the geological model and the accompanying resource estimation, details around the mining and recovery method, to which then a more accurate costing estimation, market understanding and execution strategy is applied to answer the fundamental question: “What will it be?” What will this resource be? What will this investment be? This question is broad (covering all aspects of the project in as much depth as possible) yet singular in focus (all things considered, including unconsidered things!, is this a feasible investment?).

Sick wave!

It just seemed very feasible to include this awesome photo in this post!

“Feasibility studies are typically undertaken after detailed data gathering of all material information relevant to the project development structured to:

  • demonstrate the technical and economic viability of a business opportunity based on the proposed project;
  • develop only one project configuration and investment case and define the scope, quality, cost and time of the proposed project;
  • demonstrate that the project scope has been fully optimised to ensure the most efficient and productive use of the mineral resource, capital and human resources applied to the project;
  • establish the risk profile and the uncertainties associated with this risk profile and develop mitigation strategies to reduce the likelihood of significant changes in the project assessment as set out in the feasibility study;
  • plan the implementation phase of the proposed project to provide a baseline for management, control, monitoring and reporting of the project implementation and establish a management plan for the operations phase;
  • facilitate the procurement of sufficient funds to develop the project in a timely manner; and
  • provide a comprehensive report with supporting appendices that includes a clear recommendation to proceed with the investment or otherwise.”

The definitive feasibility is intended to give the clearest and most certain opinion about the economics of the resource in the ground. Recommended future work from the pre-feasibility is completed during this phase which may include a little infill drilling to re-enforce the resources in the process of declaring reserves and will usually include bulk sample pilot mining and minerals processing activities. This is the final presentation of the full business case for consideration. Critically, the function of the feasibility study is not to demonstrate that the project is feasible but rather to determine whether or not the project is feasible. This might just seem like hair-splitting semantics but the reality is that there can commonly be enormous internal pressure on project leaders to produce a “feasible” project, which usually sets the stage for the toxic cycle of confirmation bias and increased subjectivity.

There is a tradition in the mining and exploration industry that the pre-feasibility is mostly technically focused and the feasibility study mostly business focused. I believe however, that the business case should already be playing a central role from the scoping phase. There are many considerations but I would like to highlight three factors that are early indicators of the business case.

Firstly, local geological variability is commonly underestimated, or overly smoothed right from the start of the resource modelling stage (late scoping phase). I mentioned it before in “Geology and feasibility…” that according to study done by McCarthy (2003), poor geological work accounts for at least of the reason 50% project fail. The study confirms that, from a geological perspective, these failures are due to “inadequate attention to local ore variability” and “statistical modelling overriding common sense”.

Secondly, a quick basket price calculation, whether from a first pass resource model or even just a few boreholes, can very early on give a geologist a strong indication of the nature of the beast being delineated. Basket price refers to the value of ore having considered all extractable and saleable elements expressed on a per tonne basis or, for some precious metal projects, per equivalent refined ounce. If your basket price is boarder line early on, it is unlike that it will get much better later on.

Finally, early mineralogical and metallurgical characterisation will immediately start to give an idea of possible recovery methods and the related costs. Even very early on, small but representative core sample studies can be extremely helpful in contextualizing the deposit within a business case.

The final feasibility study includes a detailed economic study and business case for a minerals project and should aim to provide the definitive answer to the question: “What will this project be?”. Interestingly, cost estimation is the least likely reason for a feasibility study to fail (apart from hydrology). This is probably due to the fact that there are many operating mines from which to extract accurate costs, and also because the uniqueness of mineral deposits (or the variability between them) far out-ways the variability in available mining methods.

The conclusion is therefore that it is in the best interest of a project, and the company for that matter, to build the business case in parallel with the technical advancement of a project. In fact, starting with a strong business case even before exploration  begins is even more favourable. Waiting until the pre-feasibility or feasibility stages before making serious business case considerations and calculations can be fatal to a project. Technical advancement along with robust economic understanding and study must guide the exploration process from the word go. When the business case shares the stage from the begin, it drives excellence in the technical study, acting as a motivator. Excellence in the technical aspects will in turn allow more accurate financial modelling earlier on, which will safe time and money and increase added value.

If you missed the first two posts in this series, you can find them here:

Breaking down the feasibility process: The Scoping Phase

Breaking down the feasibility process: One simple graph that explains pre-feasibility

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