Most mineral engineers, geologists, mineral company executives and mineral development lending agencies think of the feasibility study concept as the formal methodology that brings the necessary information on the raw mineralogical data from a property, through the feasibility and preliminary design process all the way to the point where an comparable economic analysis of the envisioned project can demonstrate financial viability (Bullock, 2011). However, There is no a concise definition for the term “feasibility study”. Moreover, one might use different terms according to the degree of confidence.
The Canadian Institute of Mining, Metallurgy, and Petroleum defines a Feasibility Study as “a comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of applicable Modifying Factors together with any other relevant operational factors and detailed financial analysis that are necessary to demonstrate, at the time of reporting, that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a Pre-Feasibility Study”.
Regardless of the variation in the level of accuracy between the different levels of study, each study generally encompasses the same topics, which include, among others topics:
- Mineral resources and reserves
- Market Analysis, including estimated pricing and sales
- Production Schedule
- Mining systems and equipment selection
- Processing systems, equipment and flow sheets
- Capital expenses and operating costs
- infrastructure requirements and costs
- Human resource requirements
- Environmental and land requirements
- Capital expenses and operating costs
- Financial analysis
- Risk analysis.
According to McMahon (2007), only about 10% to 20% of all mining projects produce the return on the investment and the NPV that was projected by their Feasibility Study. Also, a study carried out by Gypton (2002) showed that about 58% of mining projects exceed capital cost by 15% to 100%.
Three phased, engineered and systematic approach to a mine feasibility study is recommended for minimizing risk. The ideal is to allocate progressively additional resources based on increased degree of confidence.
Bullock (2011) suggests some helpful guidance for managing feasibility studies associated with green field mining projects:
Level I – Preliminary Feasibility Study:
- Accuracy: -30% to 30%;
- Contingency: 15% to 25%;
- Percentage engineering hours: 6% to 8%
Level II – Intermediate Feasibility Study:
- Accuracy: -20% to 20%;
- Contingency: 12% to 17%;
- Percentage engineering hours: 15% to 20%
Level III – Final Feasibility Study:
- Accuracy: -15% to 15%;
- Contingency: 10% to 13%;
- Percentage engineering hours: 20% to 30%
Also, note that typically a Conceptual Study is used for making decision on whether to spend more money on additional exploration and continue with the second phase of Preliminary Feasibility Study.
Conceptual Feasibility Studies
- Accuracy: -35% to 45%;
- Contingency: 35% to 50%;
- Percentage engineering hours: <6%
Although this guidance clarifies the accuracy required for each phase of the feasibility study, it does not necessarily promote the concept of sustainable profit maximization. Moreover, by focusing exclusively on de-risking mining projects with accurate financial analysis, mining companies may avoid innovation.
One of the key aspects of a feasibility study is the possibility of assessing new concepts and solutions. In such circumstances test mine and/or pilot study may be warranted. Also, risk and sensitivity analysis must be deployed for managing unconventional conceptions capable of high rates of return on investment.
How can the local community contribute in a feasibility study?
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Bullock, R. L. (2011), “Notes on Mining Property Feasibility Studies & Evaluation Procedures (Mi Eng 409)”, Missouri University of Science and Technology, Rolla, MO, USA.
Gypton, C. “How Have We Done? Feasibility Performance Since 1980”, Engineering and Mining Journal (January, 2002)
CIM Standing Committee on Reserve Definitions “CIM DEFINITION STANDARDS – For Mineral Resources and Mineral Reserves” Canadian Institute of Mining, Metallurgy, and Petroleum (November, 2010) Last accessed on 06/22/2016 at http://web.cim.org/UserFiles/File/CIM_DEFINITON_STANDARDS_Nov_2010.pdf