What is a PEA? Read on for a look at the information PEAs include and why they are a crucial part of the exploration and mining process.
Investors interested in the resource sector will find that there are many key terms they need to learn. Knowing what a preliminary economic assessment (PEA) is will help new market participants better understand company news and mining projects.
A PEA is defined as a study that includes an economic analysis of the potential viability of a project’s mineral resources. PEAs are completed before prefeasibility and feasibility studies, and are an important step in determining whether a company should develop a project.
Read on for a more in-depth look at the information PEAs include and why they are a crucial part of the exploration and mining process.
What is a PEA?
Before a project becomes a mine, several technical studies must be completed. As mentioned, putting a PEA together is one of the first steps in the process, with prefeasibility and feasibility studies following.
All of these studies analyze and assess the same geological, engineering and economic factors; however, they include significantly different levels of detail and precision.
For example, unlike prefeasibility and feasibility studies, PEAs, which are also sometimes referred as scoping studies, may contain results that are based on inferred mineral resources. That means the information on resource quantity and grade that they include may be based on limited information and sampling.
PEAs must be presented in the form of a technical report, or must be supported by a technical report. In some cases, the technical report must be independent.
What’s in a PEA?
As noted, the purpose of a PEA is to evaluate a project’s economic viability. Generally PEAs will include information on how much money it will take to bring the project into production, how the mine will operate once it is built and how much metal (and money) it will produce.
More specifically, a PEA tends to have information on pre-production capital costs, life-of-mine sustaining capital, mine life and cash flow, as well as details on processing and production methods and rates.
PEAs also include information on project economics at various metal prices. For example, in its 2013 PEA for the Yaramoko gold project, Roxgold (TSX:ROXG,OTCMKTS:ROGFF) outlines how the project will perform before and after tax in three different gold price scenarios:
Chart via Roxgold.
What comes after a PEA?
After producing a positive PEA, a company can then move on to prefeasibility and feasibility studies. As explained, these studies look at the same geological, engineering and economic factors, but at a higher level of detail and precision.
Prefeasibility studies also take into account other key factors that could impact a project, such as community issues, geographic obstacles, permit challenges and more. They should include multiple options for tackling different issues.
Feasibility studies contain similar content, but are more accurate than prefeasibility studies. In general, prefeasibilty studies should have an accuracy within 20 to 30 percent, while feasibility studies require more formal engineering work and have an accuracy within 10 to 15 percent.
You can read more about prefeasibility and feasibility studies here, and more about the full lifecycle of a mining company here.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.