Gold PEA / PFS / DFS / BFS Company Updates - NI 43-101 / JORC

     Note: List of Projects at bottom of page.

Since the history of mining and exploration has seen large scale frauds in reporting to investors some regulations have emerged to try to control reporting.

There are regulations around resources which can be reported and this can help investors to compare projects and assess potential returns.
In Canada 43-101 standards, in Australia, JORC.

  • Be aware that as different project assessments are made at different times, against moving commodity prices and infrastructure costs, direct comparability is difficult.
  • A very basic model may assist in aligning metal price assumptions for example. Aligning capex and costs for studies prepared at different times is more difficult but might use inflation assumptions to align.
  • Beware of companies stating pre and post tax NPV valuations which are clearly far from comparable.
  • It can often be unclear whether all calculations date from a project approval date, almost "now" when you make an investment as a shareholder, or a construction start / production start up date.
  • Different "Discount rates" are also used in various studies. I believe that as any bull market strengthens this will be the area where more and more aggressive discount factors are used to justify higher company valuations. At that point it will matter less that some large capex projects are 5 years away. For now it matters enormously and is a key reason for apparently low $/oz valuations for some companies. In a bull market gold's "inflation proofing" could give some justification to not applying discount factors but I would take this as a sign that a bubble is blowing. 
There have been criticisms of the JORC and NI 43-101 processes, there is still a feeling that geologists can be paid to deliver the report companies request rather than be held to account by a professional body.
A good discussion has been prompted by an exchange at the 2013 Scotiabank Mining Conference
an exchange between Clive Johnson of B2Gold and Joseph Conway of Primero ( (PPP) (20) that covered plenty of ground but along the way included this snippet:

Conway: I can tell you 43-101 is a piece of garbage. It's not worth anything.
Johnson: It's a joke.
Conway: It's a joke. It's not protecting you guys in any way, shape or form.
Johnson: Absolutely.
Johnson: What we typically see where it falls apart is the block model. We just say, give us your usually fails right there. The extrapolation that they're using for their reserves and resources is probably completely out of whack relative to the geostatistical information or data that is there.
Moments later Johnson shared a thought; a bit in jest, but not entirely so, perhaps.
Johnson: We've often talked in our group that one day, some day in the future when we're ready for a change, it'll be interesting to take a technical team like ours and start our own little fund. And with the ability to judge things, and I'm sure you guys have that as well, I can tell you for sure that fund would be short more than it would be long.
Discussion and analysis reported at:
Brent Cook on NI 43-101 at IKN
and previously on the risk of NI 43-101 giving a false sense of security
Mineweb "Truth Telling in Resource Estimates"
Mineweb - Additional Feedback
Defense of NI 43-101 by Garth Kirkham

A Summary of the Steps in a Feasibility Study at Infomine
  • Geology & Resource
  • Mine Design & Mineable Reserve
  • Metallurgy and Process Facility - Tailings Disposal
  • Infrastructure Development - Water Supply - Power Supply - Access  - labour etc
  • Environmental Impacts, permitting and Approvals
  • Cost Estimates - Financial Evaluation - Sensitivity analysis 

There are significant differences between quality standards applied at the different stages.
PEA - Preliminary Economic Assessment
PFS - Pre-Feasability Study
DFS - Definitive Feasibility Study
BFS - Bankable Feasibility Study
There has been criticism of the quality of PEA assessments, where inferred resources are more likely to be referenced. See Inca Kola links here.
Look for the Fatal Flaw, realistic key economic assumptions may direct attention.
And there have also been questions on the place of the Pre-Feasibility Study - PFS. Thoughts from Jack Caldwell at I Think Mining Blog
Many investors will apply risk weightings but clearly the PEA can offer earlier indications than the DFS.

The NPV from an investor's point of view may be different from the "Project NPV" if it is clear that there will be a long delay before construction begins. That delay is either dead money, or the chance to buy a bargain.

An overview of each stage, though with some different terminology, by the S.African company Senet - HERE
Discussion of the Scoping phase in Feasibility Studies and Geology and Feasibility and Breaking down the Feasibility process - at The Economic Geologist Blog including this graphic emphasising the value added at Pre-Feasibility, and the difference between value added by good and bad studies impacting the ongoing life of the project.

Also very important is to understand the confidence levels around defining reserves and resources

Some Useful links for Investors

There are a number of companies involved in making the official calculations and assessments.
Official Resource definitions and upgrades can lead to significant stock valuation changes as analysts re-rate their expectations to what can genuinely be news. Higher level studies, particularly to PFS, can make companies legitimate acquisition targets.

To flag up resource up/downgrades use
ResourceIntelligence - Resource Estimates
- This merely reports In situ gross value but flags changes and can be investigated further.

COMPANIES - Alphabetically to PEA / DFS - Summarising UDC, NPV & IRR% 

Many to add !! Do any readers know a good source to link, or want to create shared googledocs which recalculate at given gold prices?

PEA : Preliminary Economic Assessment
PFS : Prefeasibility Study
DFS : Definitive Feasibility Study
UDC : Undiscounted Cashflow
NPV : Net Present Value @ Give discount rate %
IRR : Internal Rate of Return %
Payback - years to repay capital cost from free cashflow