The Use and Abuse of Feasibility Studies

Feasibility Studies (FS) are critical in the development of resource projects.

They cover a wide array of technical disciplines, such as mining, metallurgy, chemistry, civil engineering, and environmental science.

Each resource project is unique, requiring tailored technical assessments to determine its development potential.

However, the primary objective of an FS is to evaluate whether a development opportunity makes good business sense, not just its technical feasibility.

A common misconception is that FS should focus solely on technical issues. In reality, these studies are the foundation for creating a robust business plan that addresses both technical and broader commercial, economic, and social considerations.

Typically, initial assessments of the development potential of a resource project are aimed at assessing the project’s key technical and economic characteristics, with subsequent assessments designed to confirm assumptions and reduce the uncertainty associated with the development to an acceptable level.

References to FS are often prefaced with ‘order of magnitude’, ‘preliminary’, ‘indicative’, ‘pre’, ‘final’, ‘bankable’, ‘definitive’, ‘detailed’ or other terms to indicate the level of detail investigated in a study. Resolution of technical issues is often seen as the primary focus of a FS, whereas in reality, these technical issues are the basis upon which a business plan is built. This is not to say that technical issues are unimportant – they are a prerequisite to the demonstration of a project’s viability.

It is generally accepted that the preparation of a Feasibility Study (FS) is an important element early in the life cycle of a resource development project (eg Laird, 2001; Amos, 2001). It is also widely accepted that the FS process is multi-phased and iterative (eg West, 2006).

A well-conducted FS must demonstrate that technical issues have been resolved and that a comprehensive business plan has been developed to assess the project’s risk-reward profile.

Unfortunately, there are instances of misuse in FS.

This can stem from misunderstandings of the study phases and their purposes, leading to unrealistic project expectations.

For example, a company’s prospectus indicated a completed FS with detailed costings and a five-year plan, yet revealed significant milestones were still unaddressed. The project eventually proceeded but at a significantly higher cost and delayed timeline, highlighting the discrepancies between study expectations and actual outcomes.

To improve the industry’s track record, adopting a robust framework for conducting feasibility studies is essential. Framework Figure 1:

Framework Figure 1.

A proper Feasibility Study should:

➡️ Ensure the Study is a good strategic fit and meets Corporate objectives.
➡️ Demonstrate technical and economic viability.
➡️ Confirm the project’s scope is fully optimised.
➡️ Establish the project’s risk profile.
➡️ Facilitate timely procurement of funds.
➡️ Support informed investment decisions.

Understanding the different phases and purposes of FS can prevent the common abuse of the process, thereby aligning project outcomes more closely with initial study expectations.

For further details, dive deeper into FS with whitepaper authored by Bill Mackenzie (Mining Executive) and our founder, Neil Cusworth.

At the AusIMM Project Evaluation Conference 2016 in Adelaide, Neil Cusworth presented an update of this 2007 paper called ‘The Use and Abuse of Feasibility Studies – Has Anything Changed?’