Why Pre-Feasibility Studies Really Matter

READY – FIRE – AIM! is a cliché that is all too often apt when describing what went wrong when a mining project is over-budget, late and off-target.

For owners of mineral assets, efficient and cost-effective project development is critical for achieving value. Unfortunately, too many executive teams are taking short-cuts in their development projects to conserve money and time, thereby doing precisely the opposite and exposing their shareholders to lost opportunities.

Most project participants can tell you that the study process for a project moves from concept study to pre-feasibility study (PFS) to definitive study with precision in the estimates improving from 40% to 25% to 10%. But, when the project proponent’s focus is only on increasing accuracy in each step, it is often a surprise when the project turns out to be precisely wrong.

Successful project developers know that the process has more depth than this. It follows a course that develops a business case from the concept stage to option selection to definitive design for final approval and implementation. The pre-feasibility study (PFS) is where the development options are identified, tested, optimised and selected. The PFS is the step where the project options that protect against uncertainty and risk are developed, and the real value of the asset is identified.

The PFS is the step where the study “craftsmen” is separated from those merely ticking boxes. It is tempting to take a development option identified in a concept study (developed on early-stage and incomplete information) and build it to a higher level of precision in a narrow-focused PFS and then invest in detailed engineering to define the same option for construction.

The difference between the two approaches can be illustrated in a familiar example of a shopping trip to a clothing store by a husband and wife. The husband strides in, finds the first pair of jeans that are his size, pays the money and leaves with his purchase. The wife, by contrast, has a look at the range of jeans, tries a few pairs on, bargains with the sales-person, ask a third party for advice on the look and leaves with a pair she knows fits well, are good quality and are the best value. The process didn’t cost her any more time or money than that she could afford.

Why then is it that the boards of so many small to mid-tier mining companies (and a few majors at that) focus on relentless project milestone delivery too early in the project process, with so little time and effort applied to risk analysis and option development.

Unforeseen risks can cost any timeline or budget far more than the effort required to assess and mitigate these. Missed opportunities can represent orders of magnitude multipliers of project value that add no more cost to the project than the cost of seeking reliable and experienced advice from those who have done it before.

Is the under-representation of women in mining companies at decision-making levels a fundamental weakness? Are male-dominated boards in touch with their feminine side enough to shop around and ask the right questions at the right time?

Here are some tips on how to make a PFS set your project for success:

• When a business concept has been identified, select a broad team to identify the PFS scope, risks and opportunities collectively. Be careful to guard against groupthink and blind spots. An independent professional facilitator is always valuable for this.
• Don’t be afraid of brutal honesty (in fact, encourage it) in facing project risks. It is a strength, not a weakness to question your assumptions. • Be explicit on the objectives. As an example, the goals for a mining project PFS could sound something like this – “Select a development option to deliver value to shareholders reliably, that is better than other options available” (like “do nothing”).
• Be clear on how opportunities are to be efficiently evaluated. Set time and budget limits. Beware of paralysis by analysis.
• A PFS should be about learning. With learning, you may change perspective. Install appropriate checks and feedback loops to make sure you keep focusing on your measures of success as you learn, and you are decisive at the right times. (Get off at the next stop if you are on the wrong bus).
• Close off the PFS with a transparent and inclusive decision on the option selected, the risk controls to be managed and the communication required inside the team and with stakeholders.

A final tip! Don’t be afraid to take a more feminine approach to the PFS stage of a project. What you learn could transform your project. There will be more than enough opportunity to release the hunter once everyone is confident that the correct prey has been identified and the hunt is on.