What is a preliminary economic assessment? Here’s a look at the information they include and why they’re a crucial part of the 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 a prefeasibility and feasibility study 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 preliminary economic assessment?
Before a project becomes a mine, several technical studies must be completed on a deposit. As mentioned, putting a PEA together is one of the first steps in the process, with a prefeasibility and feasibility study 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 a prefeasibility or feasibility study, PEAs, which are also sometimes referred to as scoping studies, may contain results of testing 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 preliminary economic assessment?
As noted, the purpose of a PEA is to evaluate a project’s economic viability. Generally, PEAs will include base case information on the associated with bringing the project into production, an estimate of how the mine will operate once it is built and how much metal and money it will produce.
The PEA helps companies understand and associated with a project. The study can be part of exploration with both open-pit mining and underground mining.
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,OTC Pink:ROGFF) outlined how the project will perform before and after tax in three different gold price scenarios:
Chart via Roxgold.
What comes after a preliminary economic assessment?
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.
These studies can help determine things such as operating costs and potential tonnes to be mined for commodities such as precious metals and base metals. They can also offer insight into the average grade of the resources that will eventually be mined or how many ounces or tonnes per day could come from the asset and at what metal prices.
Prefeasibility studies also take into account other key factors that could impact a project, such as community issues, geographic obstacles and permit challenges. They should include multiple options for tackling different issues.
Once a prefeasability study has been reviewed and approved, companies then move onto the feasibility study, which includes fewer assumptions and harder facts.
Feasibility studies contain similar content, but are much more accurate than prefeasibility studies in their assumptions and require more resources to conduct. These studies are intended to evaluate if a mineral reserve can be mined effectively and if it will be profitable.
Detailed mining feasibility studies are also used as the basis for a project’s capital estimates, operating costs and overall economic viability.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.