Engineer’s Perspective
One question is whether the independent geologists and engineers working on the advanced studies should be aware of the path the company is following. Is the company a Builder or a Vendor?
Some may feel that the technical work should be independent of the path being followed. Based on my experience as both an owner’s representative and independent study QP, I have a somewhat different opinion. The technical work should be tailored to the intended path.
The Engineer on the Mine Builder Path:
If an engineer understands that a Mine Builder’s project will move from PEA to PFS to FS in rapid succession, then there is more incentive to ensure each study is somewhat integrated.
For example, a PEA will use Inferred resources in the economics. However, if the project will advance to the PFS stage, where Inferred cannot be used, then it is important for the PEA to understand the role that Inferred plays in the economics. How much drilling will be needed to upgrade Inferred resource to Indicated for the PFS, if needed at all?
Typically, capital costs tend to increase as advancing studies get more accurate due to greater levels of engineering. A Builder wants to avoid large cost increases when moving from PEA to PFS to FS. Therefore, when costing at the PEA stage, one may wish to increase contingency or use conservative design assumptions. After all, one is not trying to sell or promote the project internally, but rather move it towards production.
There is no value to the Mine Builder by fooling themselves with low-balled cost estimates. (Although some may argue there is still a desire to low ball costs to get management to approve the project). Conversely Mine Vendors do have some incentive to low ball the costs.
Perhaps some of the recent project capital cost over-runs we have seen is that the Vendor mentality was used at the PEA stage to optimistically set the capital cost baseline. Subsequent studies were then forced to conform to that initial baseline. Ultimately construction will be the arbiter on the true project cost. Hence there is no real value in underestimating costs, ultimately making management appear incompetent if costs do over-run.
The Mine Builder will also be advancing environmental permitting simultaneously with their advanced studies. Hence at the early stage (PEA) it is important to properly define the site layout, processing method, production rate, facility locations, etc. since they all feed into the permitting documents.
Changing significant design details in the future will set back the permitting and construction timelines. Hence, for the Mine Builder, the engineers should focus on getting the design criteria mostly correct at the PEA stage. For the Mine Vendor, this is not as important since multiple studies are being planned for in the future anyway.
The Engineer on the Mine Vendor Path:
The objective of the Mine Vendor is to make the project attractive to potential buyers. There is less urgency in fast tracking detailed engineering and permitting.
It is not uncommon to see multiple drilling programs, followed my multiple studies of scenarios with different size, production rate, and layout. The degree of engineering conservativeness in design and costing is less critical since future studies may be on substantially different sized projects.
The role that the Inferred resource plays in the economics is also less important at this time, since a lot more drilling may be coming. The Vendor’s objective tends to be on maximizing resource size not necessarily optimizing resource classification.
While the Mine Vendor may also be advancing environmental permitting as another way to de-risk the project, the project design may still be in flux as the resource size changes. Major modifications to the plan may cause permitting to stop and re-start, leading to an extended project timeline and wasted money.
There is also risk in starting the permitting with a project definition that isn’t of economic interest to future buyers. Sometimes the Vendor may be making regulatory commitments that constrain the operating flexibility of future mine operators. Its easy to commit to things when you aren’t the one having to live up to them.
The Mine Vendor will also de-risk the project by moving from PEA to PFS and even to FS. The caution with completing a FS is that it is a costly study and essentially brings one to the end of the study line. What does the company do next if there is still no buyer?
Feasibility studies also have a shelf life, with the cost estimates and economics becoming inaccurate after a few years. Some companies may re-examine the project, re-frame it, and jump back to the PEA or PFS stages. There can be an on-going study loop, requiring continued funding with no guarantee of a sale in sight. Often feasibility studies have the dual role of trying to boost the share price and market cap, as well as frame the project for potential buyers.
Conclusion
As an engineer, it is helpful to understand the objectives of the project owner and then tailor the technical studies to meet those objectives. This does not mean low balling costs to make the study a promotional tool. It means focusing on what is important. It means recognizing the path, and what doesn’t need to be engineered in detail at this time. This may save the client time, money, and improve credibility in the long run.
In many cases, the precise size of the deposit is less important than understanding the site, access, water supply, local community issues, the environmentally acceptable location for dumps and tailings, etc.. It can be more important to focus on these issues rather than having a detailed mine plan with multiple pit phases that immediately becomes obsolete in a few months after the next drilling campaign.
Potential buyers will have their own technical team that will develop their own opinions on what the project should be and what it should cost. Just because a Mine Vendor has a feasibility study in hand, doesn’t mean a potential buyer will believe it.
This post is just a brief discussion of mining project timelines. For those interested, there a few additional project timelines for curiosity purposes. Each path is unique because no two mining projects are the same. You can find these examples at this link “Mining Project Timelines”.
Let me know about other interesting projects that have interesting paths to learn from. I can add them to the list.
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Often in 43-101 technical reports, when it comes to pit optimization, one is presented with the basic “NPV vs Revenue Factor (RF)” curve. That’s it.
Pit optimization is a approximation process, as I outlined in a prior post titled “
It’s always a good idea to drill down deeper into the optimization output data, even if you don’t intend to present that analysis in a final report. It will help develop an understanding of the nature of the orebody.
While waiting for various third-party due diligences to be completed, the company continue to do exploration drilling. There were still a lot of untested showings on the property and geologists need to stay busy.
With regards to the Heap Leach PEA, we did not wish to complicate the Feasibility Study by adding a new feed supply to that plant from mixed CIL/HL pits. The heap leach project was therefore considered as a separate satellite operation.
I have updated and simplified the trade-off analysis for this blog. Table 1 provides the costs and recoveries used herein, including increasing the gold price to $1500/oz.
These cross-over points described in Table 2 are relevant only for the costs shown in Table 1 and will be different for each project.
Perhaps with technology, like Zoom, one can replicate the personal feel of a trade show booth. One can still have back and forth conversations with investors rather than just doing lecture style webinars.
Management teams should introduce more than just the CEO or COO. Include VP’s of geology, engineering, corporate development, from time to time. Don’t hesitate to let the public meet more of your team. Trade show booths are often manned by different team members.
Better communication with investors can increase confidence in a management team. Although some investors may not enjoy technical discussions, I think there is a subset that will find them very helpful and interesting. There will likely be an audience out there.
As an aside, if you are using Zoom make sure the host has configured the right settings. There are instances where anonymous participants can suddenly share their own computer screen, i.e. with questionable videos, to the group. It’s been referred to as “zoom bombing”.
On the site they have a searchable database for tax information for specific countries.
Changes in economic parameters would impact the original pit optimization used to define the pit upon which everything is based.
The RFP sent to bidding consultants should contain (at a minimum) the items listed below. A sole sourced study can have a scaled back RFP document, but many of these key items should be maintained.
If a company is competitively bidding the study, it can be easier to compare multiple proposals if certain parts are presented in the exact same format. Usually different consulting firms have their own proposal format, which is fine, however certain sections of the proposal should be made easily comparable.
Gather your team around their computers and fire up screen sharing software like Teams, GoToMeeting, Skype, or Zoom. Give control of the mouse to someone who knows the site well. Here are some of the things you can do on your group tour.
In my personal experience I find that larger consultants are best suited for managing the large scale feasibility studies. This isn’t because they necessarily provide better technical expertise. Its because they generally have the internal project management and costing systems to manage the complexities of such larger studies.
One of the purposes of an early stage study is to see if the project has economic merit and would therefore warrant further expenditures in the future. An early stage study is (hopefully) not used to defend a production decision. The objective of an early stage study is not necessarily to terminate a project (unless it is obviously highly uneconomic).