How to Read a Mining Feasibility Study Before Investing

This guide walks you through the key sections of a mining project feasibility study so you can separate a solid investment from a risky one. You will learn what to check first, which numbers matter most, and how to spot red flags before committing capital.

What You’ll Need

The full feasibility study document (often 500+ pages; the executive summary alone is not enough)
A basic calculator or spreadsheet to verify key figures
Access to current metal prices (e.g., from exchange websites or financial news)
Patience to read through technical sections you may not be familiar with

Step-by-Step

Start with the executive summary – but do not stop there. Read it to get the project’s size, expected production, capital cost, operating cost, and timeline. Then go deeper into the body; the summary often glosses over risks.
Check the date and the standards used. Feasibility studies must follow a recognized code (e.g., JORC, NI 43-101, SAMREC). If the study is older than two years, check whether the assumptions still hold. Look for the effective date and the qualified person’s name and credentials.
Verify the mineral resource and ore reserve estimates. Resources are what might be mined; reserves are what can be mined economically. Look at the confidence categories: Measured and Indicated resources, and Probable and Proved reserves. If the split is heavily Inferred, treat the project as higher risk.
Examine the mining method and metallurgy. Open pit vs. underground changes cost and risk. Check the recovery rate – the percentage of metal extracted from ore. A recovery below 80% for a typical gold or copper project warrants extra scrutiny. Look for test work results, not just pilot plant claims.
Analyze the capital cost (CAPEX). This is the upfront cost to build the mine. Compare it to the company’s stated budget. Look for contingency allowances – usually 10-25% of total CAPEX. If contingency is low, ask why. Also check if the CAPEX includes infrastructure like roads, power lines, and water supply.
Analyze the operating cost (OPEX). This is the cost per tonne of ore processed or per ounce/pound produced. Compare it to industry averages. For gold, all-in sustaining costs (AISC) above $1,200 per ounce are high; for copper, operating costs above $2.50 per pound are elevated. Adjust for the project’s location and ore grade.
Review the financial model. The study should include a net present value (NPV) and internal rate of return (IRR). NPV uses a discount rate – usually 8-10%. Check the assumptions: metal prices, exchange rates, tax rates, and mine life. Run your own sensitivity test: what happens to NPV if the metal price drops 20% or costs rise 15%?
Look at the mine life and production schedule. A longer mine life (10+ years) spreads out risk. Check the annual production rate – is it consistent, or does it spike early? A front-loaded production schedule can flatter the NPV.
Read the environmental and social sections. Permits, water rights, and community agreements can delay or kill a project. Look for unresolved issues: pending litigation, lack of a water license, or no agreement with indigenous groups. These are not just ethical concerns – they are financial risks.
Check the tailings and waste management plan. Tailings dam failures have caused major losses. Look for the dam design, closure plan, and whether the cost is included in the financial model. If the study only mentions ‘dry stack’ without details, be cautious.
Compare the study to the company’s other announcements. If the company has issued press releases about ‘expanded resources’ or ‘lower costs’ that are not in the study, find out why. The study should be the most conservative, current document.
Do your own simple math. Multiply the annual production by the metal price, subtract the operating cost, and see if the margin covers the capital cost over the mine life. For example: 100,000 oz gold per year at $1,800/oz gives $180M revenue. If OPEX is $1,000/oz, that is $100M cost, leaving $80M margin. If CAPEX is $400M, it takes 5 years to break even before financing costs.

Common Mistakes

Trusting the executive summary alone. It is a sales document. The risks are buried in the appendices.
Ignoring the difference between resources and reserves. A huge resource with tiny reserves means the project is not economically viable yet.
Using spot metal prices instead of the study’s long-term assumptions. The study uses a forecast price; compare it to current prices and decide if the forecast is realistic.
Overlooking the discount rate. A low discount rate (like 5%) inflates NPV. Use 8-10% for a standard mining project.
Not reading the footnotes. The assumptions about ore dilution, mining losses, and metallurgical recovery are in the footnotes. If they are optimistic, the whole model is suspect.
Forgetting about sustaining capital. The initial CAPEX is not the end. Mines need ongoing investment for equipment replacement and expansion. Check if sustaining capital is in the model.

Tips

Compare the study to similar projects in the same country and commodity. A gold mine in Nevada will have different costs than one in a remote part of Africa.
Look for the ‘sensitivity analysis’ section. It shows how NPV changes with price and cost variations. If the project cannot survive a 20% price drop, it is high risk.
Check the qualified person’s track record. Have they signed off on studies that later proved accurate? A history of overruns is a warning sign.
Pay attention to the mine plan’s strip ratio (for open pit) or development ratio (for underground). A high ratio means more waste to move, which increases cost.
Look for independent reviews. Some companies hire third-party consultants to audit their feasibility study. If the study lacks that, treat it as less reliable.
Remember that a feasibility study is a snapshot in time. Commodity prices move, and so do costs. Re-evaluate the project periodically if you hold the investment.

Troubleshooting

If the study does not add up or is missing key sections, here is what to do:

Missing financial model: Some studies omit the full Excel model. Ask the company investor relations for it. If they refuse, that is a red flag.
Inconsistent numbers: Compare the resource table with the reserve table. If the reserve grade is higher than the resource grade, check if dilution and losses were applied correctly. If not, the reserve is overstated.
CAPEX looks too low: Cross-check with similar projects. If a comparable mine costs $500M and this one says $300M, look for what was left out – maybe the study excludes the tailings dam or the power plant.
OPEX looks too low: Check the fuel price, labor rates, and power cost assumptions. Remote sites often have higher costs. If the study assumes $0.10/kWh electricity but the local grid charges $0.25, the OPEX is wrong.
No environmental baseline: If the study does not include a full environmental impact assessment, the project may not have progressed enough to be called a ‘feasibility’. Ask for the status of permits.
You still cannot decide: If you are unsure after reading, treat the investment as speculative. Only commit money you can afford to lose, or wait for a bankable feasibility study (BFS) that is more detailed.

Frequently Asked Questions

Q: What is the difference between a pre-feasibility study and a feasibility study?
A: A pre-feasibility study has lower accuracy (usually ±30%) and fewer detailed engineering. A full feasibility study is ±15-20% accurate and includes detailed mine design, metallurgy, and financial modeling. Only the latter should be used for investment decisions.

Q: How long is a typical feasibility study valid?
A: Usually 2-3 years. After that, costs and prices may have changed. If the study is older, check if the company has issued updates. If not, the data may be stale.

Q: What is a ‘bankable’ feasibility study?
A: It is a study detailed enough for banks to lend money against it. It follows strict standards (like NI 43-101) and includes all technical, environmental, and financial details. Not all feasibility studies are bankable.

Q: Should I invest if the NPV is positive?
A: Not automatically. A positive NPV is necessary but not sufficient. Check the IRR – if it is below 10%, the project may not compensate for the risk. Also, check the payback period – if it is longer than 5 years, the project is exposed to price swings.

Q: What is the most important number in a feasibility study?
A: For most investors, the all-in sustaining cost (AISC) per ounce or pound is the most critical. It tells you the true cost of production, including sustaining capital and general expenses. If AISC is above the current metal price, the mine loses money.

Q: Can I trust the resource estimate?
A: Only if it was prepared by a qualified person and reported under a recognized code. Even then, resource estimates are based on drill samples – they are not exact. Look at the drill hole spacing; wider spacing means lower confidence.

General steps for current mainstream versions; menus can differ by device and version. See the disclaimer or report an error.

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