Feasibility Studies

Mine Valuation Spring 2013

Valuation Studies
Purposes:
Feasibility study
Annual planning / budgeting
Marketing / sales
Property tax valuation
Insurance valuation
Financing
Regulatory requirement

Types of Valuation:
Market value
Salvage value
Replacement value
Net present value
Book value
Assessed value

Mine Valuation Spring 2013

Feasibility Study
An engineering and economic appraisal of whether a capital investment is
economically, socially and commercially viable
Purposes:
Acquisition
Continuation of exploration / development value optimization
Initial capital investment
Capital expansion
Major capital expenditure / sustaining capital investments
A feasibility study without a full economic analysis can be undertaken for
investments in initiatives to improve health and safety, environmental quality,
and community acceptance and to otherwise address sustainability issues.

Mine Valuation Spring 2013

Level of Feasibility Studies

Conceptual study / preliminary economic assessment/scoping analysis

Pre-feasibility study / preliminary feasibility study

Intermediate feasibility study

Comprehensive / final feasibility study

Mine Valuation Spring 2013

Conceptual Study (Preliminary Economic Assessment

PEA)

Often undertaken to make decision if exploration / development to

continue or acquisition to be made
Quick and dirty in nature
Must include fatal flaw analysis
Inventory of known information
May be desk-top study if access not possible
Can be internal or contracted work
Must be systematic
May undertake kick the tires site visit
Costing based on rules of thumb and broad estimating methods
Accuracy of financial analyses 30 to 50%

Mine Valuation Spring 2013

Conceptual Study (Preliminary Economic Assessment

PEA) (Continued)
Inventory Items
Available maps
Leases, deeds and other ownership information
Geologic and geophysical data
Drilling and other sampling logs and assays
Environmental and other permits
Records of environmental sampling / citations
Reports on the property / operation from federal / state / academia
Previous owners / operators / employees
Minutes of government / community hearings
Production records
Milling and / or smelting records
Royalty payment records
Other pertinent information

Mine Valuation Spring 2013

Conceptual Study (Preliminary Economic Assessment

PEA) (Continued)
Potential Fatal Flaw Items
Ownership unobtainable mineral and / or surface property
Political change of government
Infrastructure short-falls water, power, transportation, ports, processing
Environmental endangered species, air / water quality issues, waste
toxicity, visibility issues
Health and safety ground issues, toxicity
Community non-acceptance of project
Mine plan irresolvable conflicts
Processing issues acceptable reagents, fines separation, waste
disposal
Operating problems / costs ground, gas, water, dilution, grade,
transportation and supply issues
Labor availability skills, education
Solutions to potential fatal flaws can make a no go for one company
a successful mining enterprise for another, but progressing on the bet
that solutions will be found at a later stage can lead to a major loss
project.
Mine Valuation Spring 2013

Pre-Feasibility Study

Selective and systematic evaluation of information

Conclusive fatal flaw analysis undertaken
Physical site visit and inventory of data, assays and assets
Fieldwork to check geologic and quality data core holes, sampling
and assays
Broad assessment of environmental, safety, health and community
issues
General mining and processing plan developed
Financial analysis based on 20 to 30% contingencies undertaken
If project viability is validated, information from study should provide for
planning for 1) exploration plan to verify reserves, 2) studies to resolve all
major issues and 3) support in making key acquisitions of property

Mine Valuation Spring 2013

Intermediate Feasibility Study

Commitment of resources to complete study becomes significant

Geologic drilling, sampling and assays to define potential reserve
boundaries
Quantity and quality data must be made with sufficient accuracy for
the conduct of preliminary market research
Determination of the costs and issues for permitting, reserve and quality
finalization and geotechnical studies
Development of preliminary mine plan and processing flow sheet
Financial analysis based on 15 to 20% contingency
Development of preliminary financing and investment plan
Identify scope and cost of final or bankable feasibility study

Mine Valuation Spring 2013

Comprehensive Feasibility Study

Final fatal flaw assessment

Study must leave no aspect of the project unassessed
Reserves for pay-back period of project should be explored to proven or
measured status hard and tight for acceptance
Risk study to identify and assess all risks and to develop management
plans should be undertaken
Detailed environmental studies, hearings and permitting must be
commenced to test for any fatal issues - license to operate must be
established
Detailed planning of mining and processing to estimate costs to 10%
contingency
Preparation of detailed project schedule and costs
Net present cash flow analysis with detailed application of revenues, capital
costs, operating costs, taxes and royalties
If project is validated, study must be of sufficient detail to satisfy
shareholders, financiers and customers to participate

Mine Valuation Spring 2013

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Contents of a Comprehensive Feasibility Study

Reserve information and analysis

Thorough health, safety, environment and sustainability assessment

Market study

Risk analysis geologic, operating, political, market, technological

Mine and processing plans

Capital and operating costs

Financial analysis

Project timetable and budget

Mine Valuation Spring 2013

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Quantitative Process of a Feasibility Study

Assumptions
Reserves
Production Quantities Waste, Ore, Product, Grade
Revenue
Capital Budget
Labor Budget, Operating Hours, Supply Quantities
Operating Cash Costs

General
Progression

Iterative
Process

Non-cash Costs Depletion, Depreciation, Development

Income after Tax
Cash Flow
Net Present Value, Discounted Cash Flow Rate of Return
Sensitivity and Risk Analyses

Mine Valuation Spring 2013

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Outline for a Hard Rock Feasibility Study *

I.

Information on deposit
B. Health and safety
A. Geology
C. Political
1. Mineralization: type, grade, uniformity
D. Community and social
2. Geologic structure
III. Information on project economics
3. Rock types: physical properties
A. Market
4. Host rock / overburden characteristics
1. Marketable form of product: specifications
B. Geometry
2. Market location and alternatives
1. Size, shape, dip and strike
3. Market trends: supply / demand, competition
2. Continuity
3. Expected price levels
3. Depth
B. Transportation
C. Geography
1. Property access
1. Location: proximity to communities,
2. Product transportation: method, distance, charges
suppliers
C. Utilities
2. Topography
1. Electric power: availability, method, costs
3. Climate
2. Natural gas: availability, costs
4. Surface conditions: vegetation, streams
3. Alternative energy: methods, costs
5. Ownership
D. Land and mineral rights
D. Exploration
1. Ownership: surface, mineral, acquisition / option costs
1. Historical data
2. Land availability for access and facilities
2. Current program
3. Royalties
3. Reserves: quality, quantity
E. Water
3. Sampling and assaying methods
1. Potable water sources, quantities, qualities, costs
4. Proposed program
2. Mine water sources, quantities, qualities, costs
II. Information on sustainability issues and risks
F. Labor
A. Environment
1. Availability skilled and unskilled
1. Air quality
2. Labor organization history
2. Water quality: surface, ground
3. Pay scales
3. Soils
G. Government considerations
4. Flora and fauna
1. Taxation national, state, local
5. Other
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* Modified from Gentry & ONeil, 1984 Mine Valuation Spring 2013

Outline for a Hard Rock Feasibility Study (Continued) *

2. Regulations environment, health, safety, other
3. Proposed and pending legislation
IV.
Mining method selection
A. Physical controls
1. Strength: ore, waste, relative
2. Uniformity: mineralization, blending requirements
3. Continuity: mineralization
4. Geology: structure
5. Surface disturbance: subsidence
6. Geometry of ore body
B. Selectivity
C. Production requirements
1. Relative production of waste and ore
2. Development methods, quantities, timing
3. Capital requirements versus availability
V. Processing methods
A. Mineralogy
1. Properties of ore: metallurgical, chemical, physical
2. Ore hardness
B. Processes
1. Alternative flow sheets recoveries, grades, costs
2. Capital requirements versus availability
C. Product quality versus market specifications
D. Recoveries
VI. Capital and operating cost estimates
A. Capital costs
1. Exploration, engineering and permitting
2. Mining
a. Pre-production development
b. Site preparation

c. Mine facilities
d. Mine equipment
3. Mill
a. Site preparation
b. Facilities
c. Equipment
D. Tailings disposal
B. Operating costs
1. Mining
a. Labor
b. Maintenance and supplies
c. Development
2. Mill
a. Labor
b. Reagents and supplies
c. Maintenance
3. Administration and overhead
VII. Financial analysis
A. After-tax cash flow analysis
1. Net present value
2. Discounted cash flow rate of return
3. Pay-back period
B. Sensitivity analyses
VIII. Project schedule and budget
A. Project schedule
B. Project management scheme
C. Project budget
IX. Conclusions / Recommendations

* Modified from Gentry & ONeil, 1984 Mine Valuation Spring 2013

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Outline for a Coal Feasibility Study *

I.

Information on deposit
A. Geology
1. Stratigraphy
2. Depositional environment
3. Geologic structure
4. Rock types: physical properties
5. Topsoil characteristics
6. Coal: rank, thickness, variability and quality
B. Hydrology
1. Surface water: quantity, quality, downstream uses
2. Groundwater permeability, porosity,
transmissivity, aquifers, users
C. Geometry
1. Size, shape, dip and strike
2. Continuity
3. Depth
D. Geography
1. Location: proximity to communities, suppliers
2. Topography / altitude
3. Climate
4. Surface conditions: vegetation, streams
5. Ownership
E. Exploration
1. Historical data
2. Current program
3. Reserves: quality, quantity
3. Sampling and assaying methods
4. Proposed program
5. Beneficiation requirements

II.

Information on sustainability issues and risks

A. Environment
1. Air quality
2. Water quality: surface, ground
3. Soils
4. Flora and fauna
5. Other
B. Health and safety
C. Political
D. Community and social
III. Information on project economics
A. Market
1. Potential customers
2. Product specifications
2. Market location and alternatives
3. Market trends: supply / demand, competition
3. Expected price levels
B. Transportation
1. Property access
2. Product transportation: method, distance, charges
C. Utilities
1. Electric power: availability, method, costs
2. Right-of-way considerations
3. Alternative energy: methods, costs
D. Land and mineral rights
1. Ownership: surface, mineral, acquisition / option costs
2. Land availability for access and facilities
3. Royalties

* Modified from Gentry & ONeil, 1984 Mine Valuation Spring 2013

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Outline for a Coal Feasibility Study (Continued) *

E. Water
G. Mine development schedule: timing, quantities, qualities
1. Potable water sources, quantities, qualities, costs
V. Beneficiation methods
2. Mine water sources, quantities, qualities, costs
A. Mineralogy
F. Labor
1. Properties of coal: metallurgical, chemical, physical
1. Availability skilled and unskilled
2. Coal hardness
2. Labor organization history
B. Processes
3. Pay scales
1. Alternative flow sheets recoveries, grades, costs
G. Government considerations
2. Capital requirements versus availability
1. Taxation national, state, local
C. Product quality versus market specifications
2. Regulations environment, health, safety, other
D. Recoveries
3. Proposed and pending legislation
VI. Capital and operating cost estimates
IV. Mine Development and Extraction
A. Capital costs
A. Compilation of geologic data: contour and isopach maps
1. Exploration, engineering and permitting
B. Mine size determination market, economic factors
2. Mining
C. Reserves
a. Pre-production development
1. Method of determination
b. Site preparation
2. Economic stripping ratio (surface) or development /
c. Mine facilities
production ratio (underground)
d. Mine equipment
D. Mining method
3. Plant
1. Selection considerations
a. Site preparation
2. Production requirements
b. Facilities
3. Mining recovery
c. Equipment
E. Mine lay-out
D. Tailings disposal
1. Selection considerations
B. Operating costs
2. Pit / panel orientation
1. Mining
3. Mine support systems: utilities, haulage, drainage
a. Labor
F. Mine equipment
b. Maintenance and supplies
1. Selection considerations
2. Mill
2. Production capacity
a. Labor
G. Mine development schedule
Mine Valuation Spring 2013
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Outline for a Coal Feasibility Study (Continued) *

b. Reagents and supplies
c. Maintenance
3. Administration and overhead
VII. Financial analysis
A. After-tax cash flow analysis
1. Net present value
2. Discounted cash flow rate of return
3. Pay-back period
B. Sensitivity analyses
VIII. Project schedule and budget
A. Project schedule
B. Project management scheme
C. Project budget
IX. Conclusions / Recommendations

Mine Valuation Spring 2013

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