Are you aware of the chronology of the steps required when exploring for and developing a commercially viable mine?

Those steps are summarized chronologically as follows:

• exploration drilling is conducted;

• if exploration drilling results in discovery of what is believed may be a commercial ore body, resource estimates are developed based on the size and grade of the deposit. For Canadian companies these resource estimates typically are developed pursuant to the reporting standards governed by National Instrument 43-101;

• a pre-feasibility study is conducted to determine the theoretical economics of the deposit, give an early indication of key risks, outline further required work programs, and determine whether further investment in engineering and other studies is warranted;

• a feasibility study (sometimes, although less appropriately, referred to as a ‘bankability study’) is conducted to determine the technical and financial viability of the project. This study includes metallurgy, evaluation and forecasts of economic ore recoverability, engineering, infrastructure and ore processing costs, production, marketability, debt and equity requirements, mine life, and reclamation (environmental) costs. This study results in a ‘develop, or walk from’ the project decision;

• where a project is determined to be economically viable all required regulatory approvals are obtained;

• the construction of mine and processing infrastructure and tie-in to external infrastructure is completed. Where processing is contracted to third parties that is arranged;

• the ore body is then mined and continuously expanded by further exploration while the mine is operated through to the end of its economic life; and,

• reclamation pursuant to then prevailing environmental laws is completed at the end of the mine’s life.

The timing of the development of every commercial mine is fact specific. However, there typically is an elapsed time of, say, five to nine years from the time exploration begins to first production, broken down as to ‘exploration and development of reserve estimates’ (2 – 4 years), ‘pre-feasibility and feasibility studies’ (1 – 2 years), and ‘permitting, mine development and construction’ (2 – 3 years). Over the course of that time period and during each development phase a myriad of failures, reversals, and changes to commercial risk can, and typically does, occur. It is important that as a practical matter the Board and management of many exploration companies have no intention or strategy to do other than find commercially viable mineral deposits and then create a liquidity event by selling either those deposits or the outstanding shares of their companies to major producers.

The views expressed in this Post are those of the author. They are offered to readers for information and general guidance only. They are neither intended to, nor should be taken to, constitute economic or investment advice. See Legal Disclaimer.

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