The feasibility study process is critical in mineral exploration as it is the best opportunity the project owner will have to define what the project could, should and will be. In my previous post, we looked at the scoping phase of the feasibility process and how it is responsible for answering the question: “What could the project be?”.
The next phase of the process is known as the pre-feasibility study and addresses the question: “What should the project be?” This is arguably the most important study in the feasibility process for any organisation. I will explain why I hold this opinion, but let’s first define the practicalities of the pre-feasibility study.
Though most exploration handbooks and textbooks will give you a robust enough definition, for the purpose of this post I will again, as previously rely on Mckenzie’s text. Importantly, the pre-feasibility process includes the delineation of the mineral resource in its formal sense and the final pre-feasibility study will rely primarily on this resource. Furthermore it is achieves the following:
Once all of the above has been ironed out and the fundamental question been answered, there is in fact little change that happens in terms of the project trajectory and in fact value creation. The fact that little value is added to a project after pre-feasibility may come to a surprise to some, but have a look at this graph from (again) Mckenzie’s study.
Impact of study phase on project value. (Mckenzie, 2007)
There is of course lots of juicy information presented on this graph, but notice the change in the gradient of the upper blue line after the boundary between the “Scoping” and “Pre-feasibility” phases. The gradient of this line defines the rate of value change (in this case, increasing). What you should notice is that during no other study phase is the gradient of the line this steep and therefore, is so much value added to the project. There is of course a very logical explanation for this! The predominant activity of the pre-feasibility process is the delineation of the in-situ mineral resource of the project.
What this graph really demonstrates and re-affirms is the fact that the resource (as in statistically defined with a cut-off grade applied) is the fundamental underlying asset of any project and minerals company for that matter. As soon as a resource delineation commences there is an unprecedented increase in project value.
For this reason, the pre-feasibility stage is the most important. It creates the most value, especially so from a relative cost perspective. It is common for the feasibility stage to be exponentially more costly than the pre-feasibility phase. Critically also, the different factors that define the answer to the question “What should the project be?”, including mining methods, general minerals processing methods and execution configuration are decided upon, remain relatively unchanged and so set the stage for the final feasibility study.
Finally, an important issue that this graph brings into perspective is study quality. The upper and lower solid blue lines also define study quality and its relation to project value. From the graph it is evident that at no other stage in the feasibility process is quality more critical than during the pre-feasibility phase, and therefore, the delineation of the resource and the associated modelling and estimation. The quality of a project’s resource model is the most definitive factor in determining the value trajectory of a project over its lifetime. As we can see from the graph, significant project value is destroyed with poor resource evaluation at the pre-feasibility stage.
As geologists, we need to get stuck in doing the best geology we can, constantly pushing the standards because, in so doing, we have a real (and possibly the only) opportunity to create fundamental value in a minerals exploration project.
This article appeared courtesy of The Economic Geologist. To read more in depth, incise articles on geology click here.