A Preliminary Economic Assessment (“PEA”) is defined in NI 43-101 as “…a study, other than a pre-feasibility or feasibility study, that includes an economic analysis of the potential viability of mineral resources”. This is a fairly broad definition that provides for plenty of flexibility. While there are generally accepted industry norms for a pre-feasibility or feasibility study, the PEA can have a wide ranging scope.
Some PEA’s can be based on a large database of test work and site information while others may rely on very preliminary data and require design projections based on that data. Some PEA’s may have production schedules consisting largely on Inferred resources while other schedules may be based on higher proportion of Indicated resource. Some PEA’s are able to incorporate information from advanced socio-environmental work while other PEA’s may not have access to such information. Therefore one should not view all PEA’s are being created equal.
The PEA can be developed at a fairly early stage in the project life. That initial PEA may then be superseded with a series of updated PEA’s as more data is acquired. Typically one would expect to see changes in project size or scope in these updates and hopefully improved economics. Shareholders generally will appreciate being kept updated on positive growth trends.
The sequential PEA approach is a good way to continue advancement of the project without making the big step to a pre-feasibility or feasibility study. Perhaps the project is still growing in size and a feasibility study at this stage would not be presenting the true potential, hence going with an updated PEA. On the downside of the sequential PEA approach is that investors may get tired of hearing about PEA after PEA and want to see a bigger step in advancement leading towards a production decision. How long can you keep studying this project they ask?
With regards to the content of a PEA, there is essentially no right or wrong with regards to what constitutes a PEA. Hence the Securities Commissions consider the cautionary language an important component of the PEA Technical Report and may red-flag you if it’s not in all the right places. However this cautionary language is generally focused on the resource. For example “The reader is cautioned that Inferred Resources are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves, and there is no certainty that value from such Resources will be realized either in whole or in part.” In this cautionary statement there is no mention of all the other speculative assumptions that may have been used in the study. For example, the Inferred resource may not be that significant however the amount of metallurgical testwork might be a bigger uncertainty. The previous cautionary language doesn’t address this issue and therefore it is important that one reviews the chapters in the Technical Report pertaining to risks and recommendations to get a more complete picture of the situation.
My bottom line is that when reviewing a PEA report, be aware of all the uncertainties and assumptions that have been incorporated into that study. The report may be well founded or built on a shaky foundation. No two PEA’s are created alike and this must be clearly understood by the investor. Perhaps develop a PEA “checklist” for yourself that can be used to rate the amount and quality of data used for the various aspects of study to help understand where gaps may exist.