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Economic Studies

Whereas a good resource estimate is the cornerstone of any project, the economic study is able to translate the in-situ resource into hypothetical economic value, and is therefore very important to investors, and financiers of any project. Three levels of studies are used in most cases: a Preliminary Economic Assessment (PEA), a Preliminary Feasibility Study (PFS) and a Feasibility Study (FS). A PEA is also called a Scoping study (Australia, Great Britain), and a FS can be named Bankable FS (BFS) or Definitive FS (DFS), although I have encountered other versions as well. Main difference between the three stages are the level of detail and accuracy/margin of error: a PEA has an accuracy of 25-30%, a PFS 20-25% and a FS 15%.

Books can be written about derisking a project through a sequence of economic studies and upgrading resources into reserves, but reality is that lots of newly constructed mines fail when ramping up, and this has more often than not to do with a critically flawed resource. Therefore I don't see a permitted and financed project going into construction as being "almost fully derisked" and therefore an easy double/triple depending on metal prices, but actually the opposite. Another thing to keep in mind is, that if a deposit was that good, it would have been acquired by a mid tier/major producer well before construction/production. This means either the deposit and its exploration upside is too small/not economic enough, or the potential suitors already spotted fatal flaws or want the ramping up junior producer to work out all the teething issues first and see if the mine could produce a decent string of good quarters.

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