A Preliminary Economic Assessment (“PEA”) is defined by 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”. The term “other” is fairly broad which provides plenty of flexibility. While there are generally accepted industry norms for a pre-feasibility (PFS) or feasibility study (FS), the mining PEA can actually have a broad technical scope. Some are more complicated than others.
Some PEA’s may have mine plans and production schedules based largely (or entirely) on Inferred resources. Other PEA’s may rely on higher proportion of Measured and Indicated resource.
Some PEA’s might be based on a large database of metallurgical test work and site information. Others may rely on very preliminary met data on a few ore types and thus require assumptions regarding that data.
Some PEA’s are able to incorporate information from advanced socio-environmental activities while other PEA designs may not have access to community feedback and initial concerns.
There seems to be some opinion that PEA studies are not worth the paper they are written on. I would suggest that one should not assume that all PEA’s are equal in thoroughness and technical support. Investors view a PEA as a measure of the value of the project. The geologists and engineers doing the PEA’s tend to view them as a document simply to support a decision whether to spend more money on the project (are they naive maybe?). The companies themselves view the PEA as helping to address both issues.
Sequential PEA’s
The PEA is developed at a fairly early stage in the project life. The initial PEA may be superseded with a series of updated PEA’s as more information is collected. Why is this done?
Perhaps companies feel that shareholders will appreciate being updated on positive project growth. More drilling means more tonnes, and hopefully more revenue.
The sequential PEA approach is a way for companies to continue advancement of the project without making the costly step to a Pre-Feasibility study or more expensive Feasibility study.
Maybe the project size is still growing and a Feasibility study locking in a design at this time would not consider the true potential, hence pushing for the sequential PEA approach.
The downside of the sequential PEA approach is that investors may get tired of hearing about PEA after PEA. They may want to see big steps towards a production decision and not baby steps that consume time and money. They ask themselves “How long can these guys keep studying this project?”.
There is no right or wrong as to what constitutes a PEA.
The securities commissions and NI43-101 consider that the cautionary language is an important component of any PEA Technical Report. They may red-flag it if cautionary language not in all the right places (that’s why you see it so often).
For example the typical “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.”
That cautionary statement is focused on the Mineral Resource, but there is no mention of all the other speculative assumptions that may have been used in the PEA. For example, the Inferred resource may not be that significant, however the lack of metallurgical test work might be a more significant uncertainty. Therefore always visualize the cautionary language in sections that don’t have cautionary language. To better understand this, always read the Technical Report sections pertaining to risks and opportunities (and recommendations) for a more complete picture of the entire report (usually Sections 25 or 26) .
Conclusion
The bottom line is that when reviewing a PEA report, be aware of all the uncertainties and assumptions that have been incorporated into the study. Each PEA is unique with respect to this. The study may be well founded or built on a shaky foundation.
Often it seems that share prices do not move much with the disclosure of a new PEA. There is a lack of confidence in them. Conversely, one also hears that it is better for future financings if a mining project has at least reached the PEA stage. PEA’s … we either hate them or love them.
It may help to develop your own personal checklist to identify the quality of data used in different parts of the PEA study. This may help you understand where data gaps may exist.
In another blog post I discuss how it is important for the Study Manager and project Owner to ensure the entire technical team is on the same page and understands the type of information they are working with. The technical detail in the final study should be consistent throughout. You can read that blog at “PEA’s – Is it Worth Agonizing Over Details“.
