How to write a better feasibility study Strategies to attract more investment with your feasibility study SByMauo Chess | February 18,2019 the last few years, the notion ofthe “bankable” feasibility study bas evolved from what anxious bankers would ask for p chat shareholders now demand before filly committing to a jor to granting a loan to something project. What's more, ie has gone from one study to several, asthe mining project goes from design through to construction and commissioning, What factors have led to mining company shareholders making such demands? Fist, cher is the mining sector's credibly: After more than [USS120 billion was written off herween 2010 and 2015, the capital markets ate cautious, In addition, the mineral resources sector has been marginalized by the tech sec making capital harder to find and forcing companies to conduct ther studies in phases to continvally lure investment into a project, Secondly, it has become more difficult to find major geological deposits, despite record-high mineral exploration expenditure, Shareholders and the mining companies are more cautious about assuming 100 percent of the tsk of investing in exploration given the seacity of new finds, therefore, many CEOs are now taking consolidation or simply downsizing, as Capstone, New Gold and Barrick. Gold have done. Thirdly, there are huge cost overruns, especially 25 new mining projects are increasingly in remote locations and many yield thinner grades. McKinsey noted in a 2017 report that four out of five mining projects experience a 43 per cent average cost overran, “The result ofthis is that today’s phased approach to feasibility studies have now become a series of hurdles to clear atthe cequity-entry level, then atthe debt-entry level, and then possibly atthe project-commissioning level, A smart mining company, however, can adopt some pre ive strategies inthe feasibility study process to allow it ae will to locate hard-to-find equity and publish a stady th deliver value for «longer period of time: Phasing: A phased development may require more capital in the long run, say $400 million per phase ws. 8700 million for the whole project. However, $400 million may be easier to rise, Once operational, the proj an then start generating capital for subsequent phases, offering lower risk. Infill drilling: Using infill drilling while your project is being b and Probable Reserves during const ican offer many advantages, including adding: (a) Proven ion, (b) a cost ‘cushion in ease cost overruns occa and (€) 4 revenue cushion {in case metal prices go soft before commissioning, Inf dailing allows a mining company to also present a “growth™ investment toa capital market looking for growth, Share: Mining companies can share their infrastructure more. Whether itis power, roads, water of telephony, often feasibility studies show infrastructure usage rates of 5-10 per cent, while the project is situated next door to a town or ‘other mines where all could benef from sharing these utilities, Sharing could not only reduce the costs, but it may also reduce the mine's politcal and permitting risks RELATED: SX STRATEGIES FOR CUTTING POLITICAL RISKIN MINING PROJECTS (HTTP: MAGAZINE CM Ss /BOLIFICAL-RISK-AND-HOW-TO REDUCE EN) Solar: The cost of setting up a solar power utility has dropped dramatically. So if your mine is situated between latitudes 35 North and 35 South, and far from a reliable power grid, definitely look t solar options. Not only can this energy be cost-competitive, but i reduces involvement with the various authorities, Setting up solar power can also allow you to sel, surplus electricity toa neatby town, reducing political risk ‘Once your mine is exhausted, you can transfer the power asset to the local utility to further reduce restitution costs Realistic: The world has databases and can pre-screen your studies. Do nor suggest that certain costs could vary +/- 10 or 20 per e the four or more years. The same goes for hen they in Fact vary 40 or 50 per een, or that ake si months when in fact it will take siting wil of grades and metal prices. Your feasibility study should reflect realy LLeast-isk: Feasibility studies focus mostly on reducing costs to maximize net present value, but say tele about risk. Often risk can be substantially reduced fora fraction of the ‘operating cost increase, For example, by providing power toa nearby town, a project may marginally is ease its operating costs, but substantially reduce the political risk Update: Yes, de-risking a project takes time. While an ‘update may be validated by an internal Qualified Person, ultimately you will need an external author to review your remaining project from the ground up. So choose your authors careilly and make sure tha they are subsequer available to update the report Finding capital ie getting more and more difficls for mining. companies, so the required feasibility study has to work alot harder, These strategies can make the feasibility study a better and longer-lived investment for mining companies to attract capital ‘Mauro Chiesa has over 35 years of experience in financing and advising extra ive and infrastractare projects, He has worked with multinational banks in New York City, a the World Bank Group and EDC.