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Articles tagged with: Study Management
Work Breakdown Structures – Don’t Forget About The WBS
Normally at the start of a mining study, the team members receive a matrix of responsibilities. This table shows which people (or groups) are responsible for different aspects of the study, i.e. who is responsible for geology, for mine design, for process design, infrastructure, etc. This is great tool and a necessity in making sure that everyone knows what they are supposed to do.
Next we generate a project schedule based on some work plan. In realty this isn’t the correct sequence.
Sometimes the WBS is forgotten
What often gets forgotten in early stage studies is providing the team members a Work Breakdown Structure (“WBS”). I consider the WBS an equally important component as the responsibility matrix and both should always be provided.
The WBS is a hierarchical breakdown of the project into phases, deliverables, and work packages usually associated with cost estimation. It is a tree based structure, developed by starting with the final objective and then dividing that into manageable components based on size, duration, and responsibility. Typically this is done for the capital cost estimate, breaking it down into individual cost areas and cost components. A WBS can also be used for the operating cost estimate.
The WBS can provide the following information to the team:
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It assigns the costing responsibility to specific people or group so each know what must be delivered.
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It provides a consistent format for developing and reporting the capital costs (and operating costs).
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It helps ensure that no cost components get omitted and no costs get double counted.
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It provides the cashflow modeler with a clean format to import the capital cost into the cashflow model.
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The WBS should be developed before the project schedule, not after it.
Any study will benefit from a WBS
Typically a WBS is developed for pre-feasibility and feasibility mining studies but is often ignored at the PEA stage. Some feel it is too detailed for that level of study. I don’t feel this is the case.
The WBS is a communication tool to confirm responsibilities. Thus even a simplified WBS is still useful at the PEA stage.
I have seen some instances where a WBS has been created but does not get wide distribution to the entire team. The WBS should be provided to everyone and ideally a team session be held to walk through the WBS structure.
The idea is not make everyone a costing expert, but rather to ensure all understand how the project cost estimate will be structured.
Conclusion
The bottom line is that regardless of the level of study, a WBS should always be created.
Some will say the WBS is not required for early stage studies but I have found benefits in having one, at least for the capital cost estimate. Obviously the level of detail in the WBS should be appropriate to the level of the study.
Once the WBS is in place, then go ahead and build your project schedule.
A competent Study Manager can easily create an initial WBS, thereby mitigating some headaches when the final study is being assembled. You may even want a basis WBs at the proposal stage.
By the way, before awarding a study to anyone, try to have a prepared Request for Proposal beforehand. I have written about the benefit of this document in a blog post titled “Request For Proposal (“RFP”) – Always Prepare One“
My entire blog post library can be found at this LINK with topics ranging from geotechnical, financial modelling, and junior mining investing.
Note: If you would like to get notified when new blogs are posted, then sign up on the KJK mailing list on the website.
Importance of a Study Manager – That’s the Key
Over my career I have worked as an engineering team member on numerous projects and mining studies. Some studies went better than others. Unfortunately some dragged on, ran over budget, and ended up delivering a less than optimal product once all was said and done.
There are numerous factors that will influence the successful completion of a study. They can be related to the quality of the technical team, the budget, the time window, and direction from the Owner. However the key factor that I observed is the competency of the Study Manager (or Project Manager).
Study Managers must wear many hats
Study managers are responsible for being the main liaison with the Owner. They must herd a team of geologists and engineers in the same direction. They must ensure that technical quality and consistency is maintained by the entire group. They are responsible for ensuring that budgets and timelines are being met. The combination of all of these responsibilities can be an onerous mission, more so depending on the experience of the Owner’s team.
Every technical team has those members that will deliver quality within timelines consistently. There are also team members that have difficulty meeting targets. The Study Manager, early on, needs to figure out who fits into which category and then must be able to work with each.
Studies can quickly grind to a halt
An entire study can quickly grind to a halt simply because one key component becomes bogged down. A good Study Manager may occasionally ruffle some feathers but is always appreciated by the team knowing that everyone will be held to account.
The Study Manager also needs to understand the objectives of the Owner and ensure the team is working towards those objectives.
The Study Manager however must also be honest with the Owner, keeping him informed of the actual progress and warn if some target will not be met.
The Study Manager coordinates communication within the team and with the Owner. Some managers are excellent at this while others fall into the trap of communicating on a “need-to-know” basis or “too late” basis.
Timely and thorough communication is important. Don’t assume that one is hampering progress by involving the team in frequent communications. They serve a purpose.
Environmental Assessments need engineering input
Often the Environmental Impact Assessment is being conducted concurrently with an engineering study. The level of internal and external communication now becomes even more critical due to the large number of new technical disciplines involved.
It is not uncommon for EIA’s to make regulatory commitments that have not been signed off by the engineering side. The Study Manager should be aware when such commitments are being made because the engineering design needs to reflect them.
You should approve the Study Manager
When approving the consultant’s Study Manager, keep in mind that in some instances you may find that different managers within the same organization may have different internal authority. For example, if technical people are needed on another project, some managers are able to keep their team together. Other managers may lose team members to the other project if that manager has more internal authority. Losing manpower doesn’t help a study progress, so if possible try to get a sense for the authority that the Study Manager has within the organization.
Conclusion
The bottom line is that when a project Owner has received proposals for a study and is in the process of awarding that job, the most important consideration is who will be the Study Manager. If possible meet or chat about how they will manage the study and what their experience is. Check references if possible.
The voluminous proposals provided by consulting firms contain a lot of information like Gantt charts, organizational charts, cost estimates, team resumes, safety plan, and corporate project experience. Focus on the Study Manager. Don’t assume they are simply an administrator scheduling meetings and issuing monthly reports. They are the key to success.
A good Study Manager can make a poor engineering team perform, while a poor Study Manager can bog down a great technical team.
One thing to be aware of is that with some firms, a Study Manager is not the same role as a Project Manager. The SM may undertake more clerical duties, such as weekly or monthly reports, manhour tracking, distributing documents, and coordinating the logistics of the study rather than the technical aspects that a Project Manager may look after.
Another blog post discusses undertaking studies using multiple engineering teams and the pitfalls to watch out for. That blog post is at “Multi-Company Mining Studies Can Work Well…or Not“.
Note: If you would like to get notified when new blogs are posted, then sign up on the KJK mailing list on the website.
Request For Proposal (“RFP”) – Always Prepare One
When it comes to time to undertake any type of mining study, whether small or large, whether sole sourced or competitively bid, it is always a good idea to prepare a Request For Proposal (“RFP”) document.
I know that it can be an annoyance, but an RFP document is a lot better than a simply phone calling a consultant describing what you want. Its also better than a cursory email outlining what you want. In many cases the RFP doesn’t need to be a complex document; however RFP’s are appreciated by everyone involved. It provides the documentation that can help make things go smoothly.
The RFP doesn’t need to be complicated
Owner’s Perspective: preparing an RFP gives the opportunity to collect the Owner’s team thoughts on the scope of study needed, on the deliverables required, and on the timing. The RFP will outline this for the consultants and simultaneously help the owner’s team to get on the same page themselves.
The RFP is the opportunity for the owner to tell the consultants exactly what they are looking for in the mining study. It also specifies what they want to see in the proposal to help them compare multiple proposals if needed.
Consultant’s perspective: receiving an RFP is great to them since having a detailed scope of work laid out means they don’t need to guess the scope when preparing their cost estimate. It will be clear to the consultant what work is “in scope”. If extra services are required in the future, then “out-of-scope” work can be defended.
An RFP also gives the consultant some reassurance that the Owner has put thought into exactly what they want them to do.
What to include in the RFP
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.
Much of this RFP information can be a single template document that will be modified if different scopes of work will be sent to different consultants (e.g. tailings design, pit geotechnical, groundwater, feasibility study, etc.).
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Project Introduction (a high level overview of the project and the Owner).
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Table of Responsibilities for the Study (if other consultants are being involved in different areas).
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Scope of Work (for this Proposal), and highlight any specific exclusions from the scope.
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Additional Requirements (update meetings, monthly reports, timesheets, documentation, etc.)
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Schedule (the timing for the proposal, job award date, study kickoff, and completion date).
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Instructions to the Bidder (e.g. what information should be provided in each proposal and in what format).
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Other (the legal rights of the Owner, confidentiality statement, how proposals will be evaluated, etc.).
Specifying format makes it easier to compare proposals
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.
The RFP can request that each proposal should contain (at a minimum):
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Confirmation of the scope of work based on the RFP, which may be more detailed than the RFP itself.
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List of exclusions.
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List of final deliverables.
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Proposed Study Manager, resume and relevant study management experience.
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Proposed team members, organizational structure by areas of responsibility, and resumes.
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Cost estimate on a not-to-exceed basis for each area, subdivided by team member, hours and unit rates ,and possibly in a specific table format.
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A fee table for the various job classifications that would be applied to out-of-scope additional man hours.
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All indirect costs, administrative costs, indicating mark-ups (if any).
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Miscellaneous disbursements (i.e., airfares, hotel, vehicles) and indicate if there are mark-ups.
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Detailed study schedule to completion.
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Payment schedule.
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Specify if there are any potential conflicts of interest with other projects.
Conclusion
The bottom line is that an owner should always take the time to prepare some type of RFP for any mining study they want to undertake. The owner should also request a consultant proposal based on that RFP, even if it is being sole sourced to just one consultant.
Depending on the size and nature of the study, one can use judgement on how detailed the RFP or consultant’s proposal must be, but one should always have the proper documentation in place beforehand.
A key part of any mining study is the project capital cost estimate. In my view it is important that any RFP includes the requirement to develop a Work Breakdown Structure. This has many uses, and is discussed further in the blog post “Work Breakdown Structures – Don’t Forget About The WBS“
My entire blog post library can be found at this LINK with topics ranging from geotechnical, financial modelling, and junior mining investing.
Note: If you would like to get notified when new blogs are posted, then sign up on the KJK mailing list on the website.
Mining Due Diligence Data Rooms – Help!
Many of us have heard the statement “Have a look in the data room, it’s all in there”. This can bring a cold sweat to even the most experienced engineer who undertaking a due diligence review. How many of you can recall being given FTP access to a data room that is full of highly disorganized folders and sub-folders, files with cryptic names, different updates of the same file in different folders?
It’s like looking for a needle in a haystack.
It can be difficult to impossible to determine which files are important and relevant and which files have been simply dumped into the data room. There is nothing worse than spending a day reviewing an Excel financial model only to find out that it wasn’t the latest version and a different un-related folder had the correct version.
Data rooms are typically created for due diligence exercises, or during advanced an engineering stage. Regardless of the purpose, it is helpful for all involved to have a document control person who understands what is in the data room, what is important, and what is non-essential.
Large projects often have an dedicated document control person to manage the data room. However smaller companies in a due diligence phase may tend to use a team approach. Everyone dumps all their electronic files into the data room, including email transcripts, using some type of sensible folder structure (hopefully).
It’s then up to the user to dig through the files to locate what they need. This can be an onerous task, costing everyone money in wasted time.
Organization of the mining data room is key
Comprehensive searchable document management systems such as Ansarada, Aconex, SharePoint, and others are available. They can be pricey and will require a team mindset to function, organize, and catalog the information. However a properly implemented system can make it easier to search for files, keywords, and the latest versions of files. “Properly implemented” means that the entire team takes time when putting information in to ensure it is properly tagged meta-data. Its is not uncommon for such systems to become repositories for hundreds or thousands of different files.
When using a cloud-based data room or FTP site, try to select one that allows bulk downloading of documents rather than only allowing one file download at a time.
Some data rooms, for security and tracking purposes, require users to be online in order to open a document, even documents downloaded onto your computer. This makes it difficult to work when one doesn’t have internet access (like on an airplane).
Some data rooms limit the cut & pasting ability from the documents. This can make it difficult to prepare your own summary report if you want to include pasted images from the documents.
Conclusion
The bottom line is that management of a mining data room is critically important, although I don’t know if there is any single magic solution.
Small mining companies may have tight budgets and a limited management team so organizing data properly isn’t high on the priority list. I suggest to anyone organizing a data room, please take the time to properly set up the folder structure, develop a single bibliography of what files are in there, and assign a person to be familiar with the general contents of the data room.
Unless its a legal case involving lawyers, don’t just dump in everything. Avoid unnecessary data files or “work in progress” files that are not actually required by anyone.
Read More on the Subject
Another aspect of data rooms that can help make a due diligence taxing is the way the spreadsheet models are built. Models can either be made simple and user friendly, or can be complex showing how clever the model creator is. You can read some thoughts on this at the following link “Mine Financial Modelling – Please Think of Others“.
For more discussion on the topic of mining due diligence, another blog post discusses the help that a technical checklist can deliver. There are many aspects of a mining project, from legal, social, to technical and a checklist helps to avoid missing things. You can read more about the checklist on this at “Mining Due Diligence Checklist“. You can even request a free copy of my Excel checklist if interested.
Note: If you would like to get notified when new blogs are posted, then sign up on the KJK mailing list on the website. Follow us on Twitter at @KJKLtd for updates and insights.
Junior Miners – Get Your Own Independent Consultant
Over the past few decades I have worked in different consulting roles; as an independent consultant; as a member of a large consulting team; and as owner’s representative managing consultants. I have worked on projects where the mining company has their own external consultants that they have worked with for years (decades), learning that there are roles for both the independent consultant and larger consulting firms.
A previous blog (“9. Large Consulting Firms or Small Firms – Any Difference?”) discusses where large and small consultants fit into the overall picture. Large technical teams are required where there are broader scopes of work, significant effort levels, and where multiple skills sets are needed.
Independent Consultants
Independent consultants offer a unique service. They are well suited for assisting a project Owner directly, either independently or as part of an overall corporate advisory team. They may work on a part time basis, so don’t bring the fixed financial liability of a salaried employee. Furthermore, non-technical junior mining management should always have easy access to internal technical skills for brainstorming ideas or receiving technical direction.
Even if some of the management are technically oriented, having independent thought is valuable. The question is whether the consultant should be a cheerleader or be a true independent observer.
Independent consultants part of the management team will differentiate themselves from large engineering firms in several ways.
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They don’t bring a lot of extra personnel onto a job. They focus on their niche experience and on what is needed. One can always pull in other expertise when needed.
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They can provide unbiased advice. Larger firm sometimes have business development conflicts. The independent consultant does not have the motivation to win a feasibility study or EPCM contract. They motivation is to stay employed, so they want to deliver quality input and feedback.
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A company can develop long term working relationships with their independent consultants. Everyone gets familiar with each other’s objectives and goals. Large engineering firms can be revolving doors with people continually moving on to other roles or even other firms.
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Independents can work efficiently at a pace of their own choosing. This can result in lower costs and faster deliverables. I have worked with many independent consultants that work extra time to meet their client targets.
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Independents can provide long term stability since they generally won’t have any employee turnover. Personally I was involved for over 15 years with a bauxite mining operating in Suriname. The expat technical staff at the mine site had regular turnover. Ultimately I ended up being the only constant for the mine operator, knowing the history and why things were done they way they were. I even had copies of old reports they could no longer find in their archives. We avoided re-inventing the wheel each time a new technical manager was brought in.
Consultants and Stocks Options
A point of conversation is whether the independent consultants should receive stock option compensation. I have worked under both situations.
Awarding stock options might eliminate the “independent” nature of the relationship and hence negate the ability to sign off as an independent QP. However in some circumstances, the company may not require the consultant to be a QP since they mainly act in an advisory role. A question to ask is whether the company wants “independent” advice from someone who may be a shareholder or option holder?
One advantage of awarding stock options is that the consultant may become more beholden to the project. They feel it is their project too, rather than simply acting as a paid adviser. They may have a longer term interest in being involved with the project and the company, and are less likely to move on.
Conversely the company may prefer the consultant doesn’t have any direct ownership so that their advice can be viewed as being unbiased. Having a contrarian viewpoint on corporate plans may be a good thing.
Overall I feel that awarding stock options is a good way to foster long term commitment from the consultant. It can be easier for them to walk away without such an inducement to stay, but there are no guarantees.
Conclusion
The bottom line is that independent consultants have a role to play and should be part of all owner’s teams, whether be on the Board or on an Advisory Panel. The independent consultants can be selected based on their specific specialization (i.e. exploration, resource modelling, mining, metallurgy, environmental) and provide valuable part time guidance to the company.
The caveat is to ensure that the consultant is technically capable. I have also seen instances where some advisors actually gave poor advice. Perhaps they weren’t that technically capable, or maybe were simply friends of management.
Lastly, decide whether the consultant should be an honest advisor or a cheerleader. Companies should want to hear the truth. If a future 3rd party due diligence team comes in, they will be looking for flaws in the project. It would be in a company’s self interest to already know what those flaws are before the due diligence team.
One of the things an advisor can help do is help decide the study path the company should take. To learn more about the possible mining study paths, you can check out this blog post “4 Mining Study Types (Concept to Feasibility)“.
Note: You can sign up for the KJK mailing list to get notified when new blogs are posted. Follow me on Twitter at @KJKLtd for updates and other mining posts. The entire blog post library can be found at https://kuchling.com/library/
For some free mining calculator apps, including project timelines and a simplified cashflow modeller, check out this website https://sites.google.com/view/drillingdown
Large or Small Mining Consulting Firms – Any Difference?
Some junior mining companies select their mining study consultant based on the assumption that they need a “big name” firm to give credibility to their study. This creates an interesting dilemma for many smaller mining companies since they the larger firms can cost more. Its also a dilemma for smaller engineering firms trying to win jobs. While large consultants may cost more due to higher overheads; their brand name on a study may bring some value.
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.
The larger firms are normally able to draw in more management resources; for example, project schedulers, cost estimators, and document control personnel. Ultimately one will pay for all of these people, albeit they may be a critical part in successfully completing the study.
A feasibility study is more rigorous than a pre-feasibility study, which in turn is more rigorous than a PEA or scoping study.
Sub-contracting Parts
For certain aspects of a feasibility study, one may get better technical expertise by subcontracting to smaller highly specialized engineering firms. However too much subcontracting may become an onerous task. Often the larger firms may be better positioned to do this.
In my view, likely the best result will come from a combination of a large firm managing the feasibility study but undertaking only the technical aspects for which they are deemed to be experts.
The large lead firm would be supported by smaller firms for the specialized aspects, as per a previous article “Multi-Company Engineering Studies Can Work Well..Or Not”.
What about smaller studies?
For smaller studies, like scoping studies (i.e. PEA’s), which can be based on limited amounts of technical data, I don’t see the need to award these studies to large engineering firms. The credibility of such early studies will be linked to the amount of data used to support the study. For example, there may be limited metallurgical testing, or limited geotechnical investigations; or the resource is largely inferred.
Not all PEA’s are equal (see “PEA’s – Not All PEA’s Are Created Equal”). A large firm’s application of limited data may be no more accurate or defensible than a small firm’s use of the same data.
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).
I have seen instances where larger firms, protecting themselves from limited data, were only willing to use very conservative design assumptions in early stage mining studies. This may not be helpful to a small mining company trying to decide how to advance such a project.
Conclusion
The bottom line is that for early stage studies like a PEA, smaller engineering firms can do as good a job as larger firms. However one must select the right firm. Review some of their more recent 43-101 reports to gauge their quality of work. Don’t hesitate to check with previous client references.
For the more advanced feasibility level studies, be wary if a smaller firm indicates they can do the entire study. Perhaps they can be responsible for some parts of the feasibility study as a sub-contractor to a larger firm. Managing these large study may be beyond their experience and internal capabilities.
Whether you are considering a small or large engineering firm, know their strengths and weaknesses as they will relate to the specific’s of your study.
In another blog post I have expanded the discussion about the importance of the study manager role. You can read that post at this link “Importance of a Study Manager – That’s the Key“.
Another blog post discusses undertaking studies using multiple engineering teams and the pitfalls to watch out for. That blog post is at “Multi-Company Mining Studies Can Work Well…or Not“.
Note: You can sign up for the KJK mailing list to get notified when new blogs are posted.
Mining PEA’s – Is it Worth Agonizing Over Details
A previous blog post, titled “PEA’s – Not All PEA’s Are Created Equal” , discussed that different PEA’s will consist of varying levels of detail. This is dictated by the amount of technical data available (or not available). But so too will different chapters in the same PEA be based on different data quality.
I have seen PEA’s where some of the chapters were fairly general, relying on limited data. Meanwhile other sections in the same study had a lot of depth and detail. Does it make sense to use varying detail in a study? Detailed work cost more money, but is it wisely spent money?
The level of detail justifiable
If the Resource supporting the PEA mine plan is largely Inferred material, then the mine design and production plan will have a significant degree of uncertainty. So there is not a lot of justification for other engineers to prepare a detailed tailings design associated with that mine plan.
Similarly there is little value in developing a very detailed operating cost model or cashflow model for a study that has many underlying uncertainties. Certainly an IRR to two decimals is impressive, but unwarranted. Overly detailed work may be a waste of time and money, adding to the PEA duration, increasing engineering costs, and giving the unintended (or maybe intended) impression that the study is more accurate than it really is.
Different levels of detail in the same study can crop up when diverse technical teams are each working independently on their own aspects of the study. Some teams may feel they are working with highly accurate data (e.g. a production tonnage) when in reality the data they were provided with is still highly speculative.
Conclusion
The bottom line is that it is important for the Study Manager and project Owner to ensure the entire technical team is on the same page.
The team should understand the type of information they are working with, to ensure the technical detail in the final study is consistent throughout.
Experienced reviewers will recognize where the key data gaps are in a study. Hence they may view the entire study with that in mind regardless of how detailed some of sections in the report appear to be.
You can read more on the subject of uncertainty in PEA’s in the previous blog post at this link “Mining PEA’s – Not All PEA’s Are Created Equal“.
Note: You can sign up for the KJK mailing list to get notified when new blogs are posted. Follow me on Twitter at @KJKLtd for updates and other mining posts. The entire blog post library can be found at https://kuchling.com/library/
For some free mining calculator apps, including project timelines and a simplified cashflow modeller, check out this website https://sites.google.com/view/drillingdown
Multi-Company Mining Studies Can Work Well…or Not
These days most, if not all, economics mining studies rely on a engineering teams comprised of participants from different consulting firms or from different regional offices of the same firm. This approach gives the opportunity to use specific experts for different aspects of the study.
My recollection is that many years ago larger consulting firms would offer to do an entire study in-house. They would have the in-house team to cover almost the entire study. That approach seems to have changed and now the multi-company path is the norm.
This approach is partly being driven by the clients who wish to use specific consultants they are familiar with and have existing relationships with.
In some instances, larger firms may still make the argument they can take on all of the project scope themselves. However one must reflect on such offers. The danger being a less qualified technical team seconded from offices that are not busy. Possibly you won’t get the best team; you get who is available.
In many multi-company studies, it is not uncommon that few of the team members have ever worked together before. It may be a consultant’s team building exercise right from the start.
I have had both good and bad experiences with these types of engineering teams. Some of them work very well while others floundered. Even when working with different offices of the same firm, things may not go as planned.
The Study Manager is Key
To have a successful mining study team, in my experience the two key factors are;
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The competency of the Study Manager;
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The amount (and style) of team communication.
The Study Manager is vital to keeping everyone working on the same page and ensuring timelines are met. A single team member delaying their deliverables will delay others on the team.
Some consulting firms have multiple projects underway at the same time. Unexpected delays in one study may cause them to shift idle personnel onto other studies. Unfortunately sometimes it is difficult to bring the team back together on the original study at a moment’s notice.
The Study Manager must ensure that everyone understands what their deliverables are. Generally this is done using a “Responsibility Matrix”, but these can sometimes be too general.
Where cost estimation is involved, the Responsibility Matrix should be supported by a Work Breakdown Structure (“WBS”) assigning the costing responsibilities. Given that the contentious parts of many studies are the capital and operating cost estimates, I personally view the WBS equally as important as the Responsibility Matrix.
Team communication is vital and there are different ways to do it. Weekly or bi-weekly conference calls work well but these need to be carefully managed. With a large team on a conference call, there is a fine line between getting too much technical detail versus not enough detail.
On some studies I have seen a weekly call restricted to one-hour long and then everyone flees until next week’s call. At the end of these conference calls, one might have an uneasy feeling of it being incomplete. Perhaps people were not clear on something but hesitated to ask become the one-hour time limit is up. In such cases it is important for the relevant parties to continue on or to have a separate call.
Make it important to speak up
The bottom line is that multi-company teams will work fine as long as the study manager is capable. Its not a simple task, and not everyone can do it well. However everyone (client and the other team members) appreciate working under a really good study manager.
In another blog post I have expanded the discussion about the importance of the study manager role. You can read that post at this link “Importance of a Study Manager – That’s the Key“.
In another blog post I have gone into a bit more depth on the role a Work Breakdown Structure plays. You can read that post at this link “Work Breakdown Structures – Don’t Forget About The WBS“.
Mining PEA’s – Not All PEA’s Are Equal
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“.