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A retail investors guide to all things ‘Pre-Feasibility Study’

Published 15-JAN-2021 12:54 P.M.


4 minute read

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Once a mining company has established the size and quality of its deposit, ample research must then be conducted to determine whether the resource can be extracted both economically and profitably.

To determine this outcome, an enormous amount of research and proof of concept is required to establish whether the project should go ahead, be redesigned, or abandoned.

Usually, four stages of proof are undertaken which represent the general levels of certainty reached:

  • Scoping (or Conceptual) Study
  • Pre-feasibility (or Preliminary) Study (PFS)
  • Definitive Feasibility Study (DFS)
  • Bankable feasibility study (BFS)

In brief, the Scoping Study is an early-stage study based on the forecast economics and assumptions of the mining project.

It is used for development planning and aims to determine whether further studies should go ahead. If the results obtained in the study are compelling, then the company should proceed to the PFS, which is more detailed and results more reliable.

The DFS follows the PFS and is the most detailed and comprehensive study, determining definitively whether to proceed with the project.

All parameters including geological, engineering, legal, operating, economic, social, environmental are considered in order for the company to have near certain confidence of the success of the project.

The BFS is the final stage before development, including the necessary detail on what terms financiers should lend to the company.

This study determines whether the project is profitable and how much capital will be required, allowing for the bank and engineers to determine if risks are acceptable, and confirm that the project is viable.

In this article, we will concentrate on the PFS stage.

What is a PFS?

The pre-feasibility is an early-stage analysis of a potential mining project.

Conducted by a small team of consultants, the PFS is designed to provide company stakeholders with key information such as logistics, capital requirements, and key challenges; all needed to help guide the decision-making process.

The PFS is a critical step in project development as it denotes the minimum prerequisite for conversion of a geologic resource into a reportable reserve.

When and why are PFSs undertaken?

A PFS is the key intermediate step in the assessment of a mining project and is intended to ascertain if a mineral resource is likely to support a viable mining project.

There are three common reasons for conducting a PFS:

  1. As a foundation when committing to a major exploration programme following a successful preliminary programme.
  2. To attract a joint venture partner, interest a buyer to the project or as a basis for a major underwriting to raise the required risk capital.
  3. To help justify proceeding to the final feasibility studies.

What is included in a PFS?

The PFS should identify the critical issues and risks to be resolved during the final feasibility stages.

A comprehensive PFS should include detailed designs and descriptions for the mining operation, as well as cost estimates, project risks, safety issues and other important information.

In addition to geological and mining design information, a PFS also takes into account factors that may impact or interfere with the final project. These can include community issues, geographic obstacles and permit challenges.

The following list covers the main items in a PFS:

  • assessing reserves and saleable product from the delineated resources
  • generic mine design
  • non-detailed, staged life of mine planning and production scheduling assessing the mining methods, treatment routes and identifying cut-off factors, recoveries, dilution and losses in both mining and treatment
  • outlining probable plant, infrastructure, services and other facilities
  • producing a summary development structure and timetable
  • determining capital and operating costs
  • evaluating the specification and marketability of the commodity
  • setting up the deterministic economic evaluation model
  • determining financial viability

The PFS phase may become a series of iterative evaluations that are progressively updated and modified as exploration and engineering design proceeds.

What can an explorer deduce from the PFS?

Whilst a Prefeasibility Study is at a lower confidence level than later stage studies, it is intended that through iterations and adjustments in this PFS stage, optimal development choices are deduced to form the basis of the next stage, the DFS.

What happens if the results of the PFS are positive? Negative?

If the PFS yields a positive results, the company is likely to progress to the next stage – a definitive feasibility study.

However, if negative, they may choose to either head back to the drawing board, or abandon the potential project entirely.

Should investors be excited by a PFS?

Although a PFS might only be considered ‘exciting’ when it provides positive results, it can be seen as a valuable tool regardless.

The study provides investors with useful and tangible updates on the progress of a company’s project, which helps paint a clearer picture of project milestones and challenges.

As such, investors can possess higher confidence when deciding whether to continue, increase or exit the investment.

General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

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The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

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