Feasibility studies are the means by which mineral reserves are established prior to financing a project. However, guidelines are generally lacking for the content, data quality and accuracy of these studies. Regulators take a principle-based rather than prescriptive approach to the content of studies and look to the industry to define study content. Professional organizations, engineering firms and mining companies must eventually establish guidelines and best practices for this work. Most likely these will draw on standards or “stage gates” that have been developed by major mining houses and engineering firms.
Engineering studies must:
- Define optimal mining and processing methods, production rates, infrastructure, product sales, environmental management and risk mitigation.
- Increase confidence in resources, reserves, production plans, processing performance, infrastructure design, environmental management, permitting, capital and operating costs, and financial performance to support financing.
- Provide engineering designs suitable for accurate cost estimates.
- Develop project execution plans with sufficient confidence that project delays and cost overruns will not occur.
Establish the principal characteristics of the project from the geology, resources, metallurgy and development constraints. Assess different approaches to mining and processing. Identify project execution requirements. Test project viability with economic analyses. Recommend additional work to increase the confidence in geology, resources, metallurgical performance, infrastructure, operating and capital costs, environmental conditions and permitting to allow selection of the best development options.
Upgrade the project design and establish reserves. Enhance project performance. Improve and increase the confidence in mining title, resources, mine plans, process performance, operating and capital costs, infrastructure designs, construction and logistics requirements, and environmental management. Cost estimates will be preliminary. Conceptual designs are complete for most facilities, including construction-phase infrastructure. Recommend work to reach feasibility study.
Develop designs and execution plans that will support accurate capital cost estimates and detailed engineering. Continue to optimize the project performance. Resources, reserves and production plans will be of high confidence. Cost estimates are based on first principles and direct quotes. Product prices are firm; terms for shipping, smelting and refining are negotiated. Risks are mitigated. Financial analyses are thorough. Mining title is assured, environmental conditions are well established, a detailed environmental management plan has been developed and permitting is advanced. A project execution plan is detailed enough to proceed into engineering procurement and construction management (EPCM).
More detailed engineering may be undertaken prior to procurement and construction, otherwise this is done under the EPCM contract. Definitive engineering may be done where capital costs pose an extreme risk to project economics.
Banks may require more detailed engineering than an operating company funding with its internal equity. On the other hand, corporate governance and business practices at integrated mining companies may require a significant level of detail and checks at each stage in the development process. This is highly dependent on the risk and technical culture of each company.
Some companies unfortunately attempt to shortcut the process by leaping from scoping to feasibility in an attempt to gain the benefit of current high metal prices. Fast-track projects become hyper-track projects.
This can create major disconnects between project cornerstones and engineering designs, leading to a failed project or major remedial work that ultimately delays the project.
AMEC uses two guidelines in executing feasibility studies: one based on the objectives of each stage, the other based on engineering design. Each technical area is moved from very preliminary and low confidence at scoping level to high confidence at the feasibility level. Engineering designs progress from no more than five per cent complete at scoping to 20 to 30 per cent complete at feasibility. This may be advanced to 60 per cent in a definitive study or moved on to EPCM.
Larry B. Smith is vice president consulting with AMEC, Natural Resources/Mining and Metals.