Fatal flaws in technical due diligences
A J H Newell1
1. MAusIMM(CP), Executive Consultant,
Processing, RungePincockMinarco, Brisbane
Qld 4000. Email: anewell@rpmglobal.com
ABSTRACT
The background and the basis for conducting a technical due diligence are discussed
as well as the source information, typical studies and potential limitations. Typical
short comings including ‘show-stoppers’ are presented for the metallurgical area,
with examples. Issues found in other areas such as geology, mining, infrastructure
and financial evaluations are briefly reviewed, highlighting the input and interaction
required by metallurgists with these disciplines. A checklist is provided as a guide
to maximise the success of a due diligence as well as a check on the quality of a
Feasibility Study.
INTRODUCTION
A due diligence is primarily required when funds are sought to develop a new
project or expand an existing operation or when there is a proposed merger or
acquisition. An investor, typically a bank and occasionally a trading house and/or
the merging or acquiring entity (usually a mining company or group of companies),
will select and appoint consultants to assist in the assessment of the project or
evaluation of the target asset.
There are two types of due diligence, namely legal/financial and technical, both
equally as important and both need to be found satisfactory before an acquisition or
merger can be progressed.
Historically, most technical due diligences conducted by RungePincockMinarco
(RPM) have been for financial institutions. Today, there are more potential operators
(ie mining companies) in the mix.
LEGAL/FINANCIAL DUE DILIGENCE
In a legal/financial due diligence, the investor conducts an investigation into both the
financial and legal status of the company, in an attempt to identify any current and
legacy issues, such as financial commitments, legal and ownership arrangements of
the company and the directors. It should be noted that the desirability for a merger
or acquisition can quickly evaporate with poor findings. This type of due diligence
should be conducted prior to undertaking a technical due diligence.
As an example, a client in the industrial minerals space planned a merger with a
Chinese producer. The technical due diligence went fairly well as one would expect
with an existing operation, except that the resources were not compliant with JORC
standards. However, the legal/financial due diligence (in this case completed in
parallel with the technical due diligence) discovered that not all of the shareholders
had been disclosed and moreover that there was money owed. Needless to say, the
merger did not go ahead.
TECHNICAL DUE DILIGENCE
A technical due diligence assesses the reasonableness of the technical and economic
aspects of a project in terms of practicality, viability and risks (Pincock, 2009). It
examines the methodologies, supporting data and underlying assumptions used
for evaluating or managing a project based on supplied information, technical and
operating data from similar projects, site visits and interviews with key project or
operating personnel.
The main purpose of a technical due diligence is to identify ‘show-stoppers’
– aspects of the project that make it impractical or unviable – and thus protect the
investor from potentially losing money by investing the project. Often the technical
due diligence uncovers a raft of assumptions or unusual methodologies – ‘devils that
you don’t know’ – that seriously undermine the project. This does not necessarily
mean that the investor would not become involved in the project, particularly when
the underlying asset has significant potential (eg good orebody); it usually encourages
a re-development of the project by the owners.
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A J H Newell
A successful and timely technical due diligence relies
on experienced personnel with a background in project
development as well as operations and an overlap with
other disciplines. For example, a metallurgist, besides being
competent in the processing technology associated with
that commodity as well as typical metallurgical responses
and costs, would require some knowledge of geology (the
geometallurgical aspects, such as ore types, as applied in
the resource model etc) as well as mining (mainly mine
scheduling, potential for and nature of dilution etc) to assist
in a more accurate and timely assessment.
Depending upon an individuals’ experience, a metallurgist
is often involved in assessing site infrastructure, except that
power stations, tailings storage facilities and rail are the
domain of infrastructure specialists. In addition, a metallurgist
often reviews the marketing arrangements and the nature of
the smelter/buyer contracts.
Technical due diligences are typically high level and
conducted over the time span of three to four weeks, depending
upon the size of the project and the number of assets. For a
major acquisition, a high level technical due diligence may
run into eight weeks or so. Occasionally a detailed technical
due diligence may be requested, which would take at least six
months or longer.
Two types of assets are the target of a technical due
diligence. Most assets that are investigated in technical due
diligences are projects supported by a Feasibility Study.
Consequently the main technical due diligence activities are
based around examining the reasonableness of the study,
approach/methodologies, supporting data and assumptions
and thus the likelihood of the project being technically and
economically feasible. In addition, attention is paid to the
nature of the project’s potential/upside as well as whether
risks and potential mitigations have been adequately
considered.
The other asset types considered in a technical due diligence
are an existing operation or operations, often becoming
available for either merger or acquisition at either the top or
the bottom of the mining cycle. These types of technical due
diligences are in some ways easier to conduct, since the asset
has passed the Feasibility Study stage and a body of industrial
data and actual costs is available for review. Occasionally, an
operating asset under technical due diligence is planning an
expansion. The expansion, which would be generally based
on an internal study, would hopefully follow the rigour and
accuracy of a Feasibility Study.
As a final comment, a generally less intense variation on a
technical due diligence is an independent technical review
(ITR) or independent engineer’s report (IER), which are
mainly used for an initial public offering (IPO) or stock market
listing. ITR/IERs have a similar content and approach to that
of a due diligence, however, are conducted at a higher level
(ie less depth) and often take the form of a fatal flaw analysis.
The nature of a Feasibility Study is discussed in some detail
in Appendix 1 since in the assessment of a project, the quality
of a Feasibility Study has a significant bearing on the outcome
of a technical due diligence. Some typical characteristics of
non-Western feasibility studies are also presented.
When technical due diligences are conducted on non-
Western Feasibility Studies, projects need to be evaluated
within the context of the local commercial, technical and
political environment and not necessarily compared with the
standard Western approach which addresses the risks raised
by Western investors and developers.
2 we are metallurgists, not magicians
A Feasibility Study, when properly developed, has
progressed through the Scoping Study and Pre-Feasibility
Study stages. When a study stage has been bypassed, it
is quickly revealed in a Technical Due Diligence; there is a
general lack of methodology in the study approach, only a
focus on selected areas, various options remain open and
unresolved, marketing studies are not as advanced as they
should be, insufficient test work to support the study level –
captured in a document that is incomplete, contains gaps and
does not flow.
It goes without saying that studies should be conducted by
competent and experienced personnel with a proven track
record, either within the company or outside (eg consulting
companies or engineering, procurement, construction
management – EPCMs). As an example, a recent due diligence
of an industrial operation wishing to expand revealed a very
poor quality Feasibility Study, conducted by a fabricator. It
was the show stopper of all show-stoppers, fatally flawed in
many ways, as highlighted later in this paper. Technically,
it lacked metallurgical detail, such as mass balances, design
criteria, flow sheets, process and instrumentation drawings
(P&IDs), design criteria etc and was based on limited test
work employing samples from another deposit. Financially,
there was no breakdown of the capital and operating costs,
while the methodology and supporting data was poor.
The main areas examined in a technical due diligence
parallel those presented in a Feasibility Study, namely:
•• Geology – is often the most important area and has
significant potential for a fatal flaw; there needs to be
a high level of certainty that an orebody exists and
supports economic extraction, allowing subsequent
recovery of any project expenditures. Some significant
flaws that can be encountered include:
•• geological interpretation and the subsequent
conversion of drilling core data into a model
•• basis for classification of resources (inferred and
indicated).
•• Mining – has potential for fatal flaws, particularly
underground mines; major shortcomings include:
•• mine design and schedule – output not in terms of
ore types and is ‘lumpy’; significant variations in ore
grades, ore type blends and volumes
•• the optimum mining rate has not been determined
•• inappropriate underground mining method
•• proposed levels of costing accuracy not achievable
•• limited supporting geotechnical and hydrogeological
studies (particularly pit slope assumptions).
•• Metallurgy – often has a multitude of minor flaws
and occasionally some fatal flaws; suitable flow sheet
and equipment with reasonable costs are the main
considerations; more details are presented in the
following section.
•• Environmental – is a potential show stopper, sufficient
studies need to have been conducted and permitting
must be in place.
•• Infrastructure – can become a significant show stopper,
particularly for larger projects in remote locations and
typically for industrial minerals; inadequate water and
power supply studies; inadequate tailings disposal
planning; trade-off studies have not been conducted;
local climatic, seasonal or seismic conditions have not
been fully considered. In addition, the lack of or limited
sterilisation drilling as well as geotechnical studies for
the locations of the processing plant and tailings storage

facility can introduce unexpected costs and significantly
delay a project or limit production (eg Escondida).
•• Social/indigenous – has potential to be a show stopper
(cf Garg Island); local support for the project needs to
demonstrated.
•• Marketing – occasionally a show stopper (eg product
quality and or volumes not accepted by market).
•• Financial evaluation – only as good as the quality and
reliability of the inputs. Note that any project valuation
(eg net present value (NPV)) must be based on at least
Indicated Reserves if a public document and for a
Feasibility Study financiers generally like to see at least
six years of reserves.
•• Project execution – potential for flaws, occasionally
fatal flaw, generally due to optimistic construction
schedules (impact of seasons and climate has not been
fully considered), equipment delivery schedules and
ramp-up times.
An issue that can initially arise when conducting a technical
due diligence is getting access to documentation and data in
a timely fashion. This information is typically provided via
an online data room through a series of access protocols. The
quality of data can vary greatly and be in unusual places; for
example, in a recent technical due diligence of a large nickel
operation, some metallurgical studies were in geological
reports – which is not a place that a metallurgist would
naturally search.
Another strategy employed by target companies is the
provision of copious quantities of data, of variable relevance
and often out of date. Often the site visit produces the critical
data sought, however due to bureaucratic protocols, there may
be delays, some of which can be a strategy employed by the
target company. Both of these approaches were experienced
in a previously mentioned technical due diligence.
While site personnel tend to be knowledgeable, helpful and
communicative, this is not always the case. A relatively recent
technical due diligence site visit to a moderately large eastern
Australian copper operation revealed that a complete turnover
of technical staff had occurred within the previous nine months
or so and that site personnel had limited detailed knowledge.
Generic flaws, which often prove fatal, result from:
•• insufficient or unavailability of supporting data
(eg geological data, metallurgical samples etc)
•• optimistic, incorrect or poorly based interpretations
of data (eg geological data, future metal prices, metal
recoveries etc)
•• proposed levels of accuracy not achieved (eg capital and
operating costs).
A processing technical due diligence checklist has been
provided in Appendix 2 highlighting the many elements that
need to be considered. For a project, it is also a guide to what
a successful Feasibility Study should be addressing.
PROCESSING FLAWS
The most commonly encountered processing flaws are related
to the flow sheet. The flow sheet attracts much attention
because it is the basis for the processing plant design through
the mass and water balance, design criteria, equipment sizing
and selection as well as the determination of consumable and
labour requirements and finally operating and capital costs.
A flow sheet is based on test work samples, mineralogy
and the test work program. If any of these tasks are poorly
we are metallurgists, not magicians
Fatal flaws in technical due diligences
executed, then the flow sheet may be fatally compromised and,
as a consequence, the process design and associated costs.
•• Test work sample issues
•• samples for separation test work not being representative
•• limited range of samples used to conduct
comminution testing
•• suitable test work sample locations for bench scale,
locked cycle and pilot plant test work
•• Limited mineralogical studies
•• particularly for more complex ores and subsequent
test work
•• Limited comminution test work
•• none – common in Russian and Chinese work
•• only Bond Ball Mill Work Index (BBMWi) and Ai
•• poor understanding of liberation requirements
•• No preconcentration test work (potential not identified)
•• Poor understanding of metallurgical losses
•• Limited amount of separation test work
•• insufficient amount of test work to convincingly support
flow sheet interpretation and metallurgical response
•• bench scale flotation test work – no locked cycle test
work (LCT)
•• no reproducibility studies, particularly when results
are variable – test work and thus flow sheet decisions
being made based on one result
•• no establishment of feed grade-recovery relationships
(important for financial model)
•• Limited amount of dewatering test work
•• insufficient body of data to convincingly size and
select dewatering equipment
•• where concentrates are produced, no transportable
moisture limit (TML) studies
•• where ‘dry stacking’ is selected for the tailings, a range
of tailings samples reflecting the likely range in the
quantity of fines needs to be tested.
•• Flow sheet
•• not finalised
•• unresolved technical issues
•• insufficient test work to support flow sheet selection
•• not suitable for all ore types/blends that would be
presented to the plant
•• insufficient flexibility
•• ‘novel’ flow sheets
•• not been proven on a demonstration scale (cf. pilot
plant and bench scale tests).
Other areas that are often flawed include:
•• Metallurgical recoveries
•• limited understanding of sample or test work error
(reproducibility)
•• no establishment of feed grade-recovery relationships
•• no allowance for scale-up
•• Plant design
•• design criteria does not allow for the full range of
processing requirements over the life-of-mine (LOM)
and may require a later expansion
•• equipment selection and sizing unsatisfactory and not
well supported
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A J H Newell
•• limited or lack of modelling particularly for milling
circuits; eg transfer sizing (SAB/ball mill circuits)
•• Operating costs
•• consumable estimates not based on first principles
(eg test work or simulation results), however not
always an issue, benchmarking may be acceptable
•• no current consumable unit cost quotations including
power
•• proposed levels of costing accuracy not achieved
•• no personnel list (employees and on-site contractors).
‘SHOW STOPPER’ PROCESSING CASE STUDIES
Three case studies are presented based on process development
issues concerning flow sheet design and equipment selection.
Each technical due diligences found a ‘show stopper’ that
was caused by the equipment vendor being involved in test
work and the flow sheet selection. Notably, the test work was
designed around the equipment proposed to be supplied. As a
result of the due diligence findings, the interest of the investor
waned and in two cases, the projects were not developed.
The key issues found were:
•• some misrepresentation about the capability of the
equipment
•• some misinterpretation of the test work results
•• metallurgical ignorance by the project owners (no
technical competency).
Case study 1
The Chinese client (an investor without any technical
personnel) was proposing to invest in an iron ore project in
Australia (hematite property in Western Australia). Initial
test work had been conducted with known equipment (Eriez
WHIMS) with positive results; however, these units have
high unit capital costs, high power requirements and low
unit capacities. The equipment vendor proposed to change
the equipment to conventional drum wet magnetic separators
with rare earth magnets, which would have significantly
lower unit capital and operating costs. However, they would
be unable to generate the magnetic forces required to recover
the hematite. The proposed equipment was not tested and
the metallurgy generated with the WHIMS test work was
adopted for the proposed equipment which indicated a very
robust project value (NPV) for the project.
Case study 2
A major Western gold producer allowed geological staff
to conduct a metallurgical study without metallurgical
staff input. An equipment vendor conducted the test work
(centrifugal concentrator). While the gravity concentration
stage was investigated, the remainder of the proposed flow
sheet, namely crushing, grinding, gravity concentration, direct
smelting of gravity concentrate and cyanidation of gravity
tailings, was not tested. Furthermore, no mineralogical studies
were undertaken on feed samples or intermediate products
eg gravity concentrate. In a subsequent study, it was assumed
that it would be technically and economically possible to
direct smelt the gravity concentrate with 100 per cent gold
recovery. When the technical due diligence challenged this
assumption, further test work was undertaken and it was
discovered that the gravity concentrate:
•• was mainly pyrite, assaying only 30 to 80 g/t Au when
5000 to 8000 g/t (0.5–0.8 per cent Au) is the threshold for
direct smelting
4 we are metallurgists, not magicians
•• could not be easily upgraded
•• had poor gold recovery downstream (low gold
recoveries found with intensive leaching).
Case study 3
The project assessed was a multibase metal deposit (Cu-Pb-
Zn-Ag-Au) in Peru. The gravity concentration vendor had
taken over the test work program and not surprisingly, the
proposed flow sheet had eight stages of gravity separation,
some differential flotation and no tailings stream. Needless
to say, this flow sheet was fatally flawed and completely
undermined the Feasibility Study.
CONCLUSIONS
Technical due diligences are often challenging experiences
that generally reveal flaws, sometimes fatal, that justify the
expense of conducting such investigations. ‘Forearmed is
forewarned’ and identifying fatal flaws or ‘show-stoppers’
provides the investor or potential owner with the opportunity
to either walk away from the project or become involved
by applying a new approach to the project development or
operation.
While it is difficult to predict general fatal flaws or ‘show-
stoppers’ for specific projects, they typically arise from:
•• insufficient or lack of supporting data
•• optimistic, incorrect or poorly based interpretations of
data
•• poor costing methodologies
•• proposed levels of study accuracy not being achieved.
For processing, when assessing a project, the primary source
of potentially fatal flaws is associated with the development
and interpretation of the flow sheet, which is in turn based on
the nature of samples and the adequacy of test work.
Process design including equipment selection and sizing
and the development of capital and operating costs represent
two other areas where potential flaws may be found.
It is important that technically competent people manage
the test work program and subsequent process design and
study.
In the case of existing operations, the availability of records
and the ability to inspect the operation makes conducting a
technical due diligence relatively straightforward. Potential
flaws may arise through current or potential bottlenecks, the
quality of operational staff, the condition of the plant and the
ability of the plant to handle future ore types.
REFERENCES
Pincock (now RPM), 2011. Independent engineer/due diligence
reviews, Perspectives, 111(November).
ACKNOWLEDGEMENTS
The author wishes to acknowledge assistance and input
from RPM colleagues namely Dick Addison and Don Larsen
(Principal Metallurgical Engineers, Denver) as well as Bob
Denis (Executive Geological Consultant, Brisbane).
APPENDIX 1 – FEASIBILITY STUDY
A Feasibility Study, whether claimed to be Bankable,
Definitive or some other rarely met descriptor, is the
culmination of a series of studies, typically starting with
Conceptual and progressing through Scoping and Pre-
Feasibility. The intent of the study process is to decrease the

project risk with increasingly thorough technical studies that
define an optimal project development with accurate costings
and financial evaluation.
Note that the major mining houses, which typically conduct
these studies in-house, use different terminologies for
these study phases however employ the same processes in
determining the optimum project solution. Some companies
(eg Vale) have a preference for the front end engineering
design, which typically involves three front end loading (FEL)
stages (FEL 1, FEL 2 and FEL 3). This approach has a primary
focus on establishing the engineering design and subsequent
capital and operating costs; it relies on a body of information
(eg metallurgical test work) of Feasibility Study standard
that needs to be completed before the preliminary study
(FEL 1) commences. FEL 1 typically consists of a mass, water
and energy balance while FEL 2 prepares the preliminary
equipment design, layout, schedule and cost estimates. FEL 3
is more akin to the final design phase (the EPCM stage in
Figure 1), where major equipment specifications are prepared,
definitive estimates are prepared as well as electrical
equipment, line and instrument lists, preliminary 3D model
and project execution plan. Unlike a Feasibility Study, where
all of the project information is located in one document, this
body of information is separate to the FEL study process and
generally not readily accessible.
For the assessment of projects, Feasibility Studies are the
main source of information while supplemented by site visits,
other documentation as well as meetings with managers
and subject experts, the outcome of a technical due diligence
depends heavily on the quality and accuracy of the associated
Feasibility Study.
FIG 1 – Relationship between project studies and project development cycle.
we are metallurgists, not magicians
Fatal flaws in technical due diligences
Table 1 presents a summary of the study progress, showing
the decreasing level of risk and increasing level of detail
and accuracy by decreasing the number of options through
trade-off studies, particularly in mining, processing and
infrastructure.
As in a technical due diligence, a Feasibility Study address
each major study discipline, that is geology, mining,
processing, infrastructure, social/indigenous, environmental
and financial analysis, except that in a technical due diligence,
it tends to be undertaken by individual subject experts rather
than a team.
The relationship between studies, with a metallurgical
flavour, and the project development cycle is presented in
Figure 1.
A number of projects experience problems when a study
stage is bypassed, for example jumping from a Scoping Study
to Feasibility Study or from a Conceptual Study to a Pre-
Feasibility Study. This occurrence lies almost exclusively in the
domain of junior mining companies and appears to occur due
to a combination of inexperience, attempts to save money and
decrease the project development period. In fact it rarely does
and often substantially increases both costs and the chances of
project failure. Moreover, this approach assumes that the project
is technically and economically viable, which undermines
the purpose of the study process. The Pre-Feasibility Study,
for example, serves a very important role and represents a
critical stage where the options are investigated, tested and
resolved (so-called trade-off studies), allowing a single project
development pathway to be interrogated in greater depth with
regards to costs during the Feasibility Study.
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A J H Newell

TABLE 1
Project studies.

Project stage Conceptual Study Scoping Study Pre-Feasibility Study Feasibility Study EPCM
Activity Examine concept Examine options Trade-off studies One option Construction
Resource Internal Internal/consultants Internal/consultants/EPCM Internal/consultants/EPCM EPCM contractor
contractor contractor
Basis Comparable projects Database Fixed flow sheet 20% of the engineering 100% of the
Experience Probable flow sheet Layout drawings Engineering drawings engineering
Benchmarked costs Estimate based on data from Preliminary process and Process and Engineering
similar projects information drawings information drawings drawings
Some cost factoring Some estimates based Material take-offs Material take-offs
on similar projects Firm quotations (most Contracts
Budget quotations (key equipment equipment, all consumables and
and consumables and contract rates) contract rates)
Capex accuracy ±100 ±50 ±25 ±15 ±5
Contingency ±50 ±20 ±15 ±10 ±10
Opex accuracy ±50 ±40 ±20 to ±25 ±10 to ±15 ±5
Study/activity 12.5–25 k 125–250 k 625 k–1500 k 2.5–5 million 25–50 million
costs
Duration 4 weeks 3–6 months 6–12 months 12–18 months 18–36 months
Geology Limited drilling More drilling Infill drilling Infill drilling Drilling
Geological Develop resource model Indicated Resources Resource model Continue to upgrade
understanding Ore types Inferred Resources Condemnation drilling resources
Inferred Resources Exploration potential Measured and Indicated
Geotechnical and hydrological Geotechnical and hydrological Resources
studies studies Geotechnical and hydrological
studies
Mining Desktop study Whittle Studies Whittle Studies Mine design Prestripping
Probable production rate Mining options Optimum production rate Schedules Developing audits
Probable mining Mine scheduling studies Mine scheduling studies Mining fleet and drives/
method Capex and opex Reserves Reserves Shafts
Equipment and labour Blast fragmentation studies Detailed capex and opex Purchase
requirements Capex and opex equipment/hire
Typical capex and opex contractor
Processing Desktop study Mineralogy Bench-scale testing Pilot plant (if required) Site preparation
Typical flow sheet and Limited bench-scale testing Variability testing Detailed comminution testing Source equipment/
plant Ore characterisation Comminution testing Comminution and process Installing
Product volumes Basic comminution data Dewatering testing modelling equipment/
Typical flow sheet Process options Flow sheet fixed Mass and water balance Building and
Mass and water balance Probable flow sheet Mass and water balance Equipment selection and sizing commissioning
Typical capex and opex Mass and water balance Equipment selection and sizing Power and water requirements plant
Equipment selection and sizing Power and water requirements Detailed capex and opex Training operators
Power and water requirements Develop capex and opex: budget firm quotations: equipment,
Develop capex and opex: budget quotations for key equipment and consumables)
quotations for key equipment and consumables, labour
consumables, labour
Infrastructure Review Infrastructure requirements: Infrastructure options Infrastructure design Install infrastructure
Outline sources of power and water Indicative contracts for power (tailings dam)
Roads, accommodation, logistics and water (if appropriate)
Environmental Regulatory requirements Data collection and baseline Prepare and submit Monitoring
studies (usually takes two years) environmental impact statement programs
Social and Review Discussions with locals Develop strategy and Continued negotiations
Indigenous Establish needs initiate negotiations Signed agreements
Marketing Desktop study Product uses / Discussions with potential buyers Product samples for buyers Off-take agreements
potential for substitution Refine study Negotiations
Identify market and buyers
Existing and future market size
Competitors – existing producers
and future projects
Future prices

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 Fatal flaws in technical due diligences

TABLE 1 cont ...

Project stage Conceptual Study Scoping Study Pre-Feasibility Study Feasibility Study EPCM
Financial analyses Assumed values Exchange rates Exchange rates Detailed NPV analysis –
High level analysis Discount rate Discount rate various scenarios
NPV – used to compare options (trade- NPV – used to compare options (trade-
off studies) and sensitivity analysis off studies) and sensitivity analysis
Risk and mitigation analysis Identify Preliminary Detailed Review
Based on Pincock (now RPM) 2007; 2009. EPCM – engineering procurement construction management; NPV – net present value.

A problem often encountered with studies conducted by •• Limited mine planning and lack of detailed mining
junior mining companies is that they have been conducted schedules
in a haphazard fashion, typically by different groups of •• Source of samples not always revealed and often some
consultants assigned with a particular section obviously uncertainty about representativity
working in isolation. This is typically driven by ‘the rush to
•• where samples cannot be obtained for test work
market’ syndrome, where attracting finance overshadows
(mainly occurs earlier study phases examining
the need for a thorough understanding and study of the
underground deposits), metallurgical responses are
project. This approach is often characterised by the presence
based either on local, provincial or country metallurgy
of conflicting data indifferent parts of the study as well as
for that deposit type
limited test work, general lack of supporting detail, optimistic
capital and operating cost estimates and the use of current •• No comminution (also with Russian TEOs) or dewatering
and unrealistic metal prices for revenue calculations. test work conducted
Employing adjectives such as Definitive (should be by •• Equipment sizes are generally much smaller in size and
definition) or Bankable (confirmed by a bank?) to a Feasibility more numerous
Study does sound warning bells, suggesting a marketing •• spiral classifiers commonly used; unusual to see
rather than a study document. hydrocyclones
Often significant differences in critical numbers are found in •• thickeners are rarely used
various parts of the study and other supporting documents, •• Marketable product grades are lower with higher
making it difficult to form an opinion. In these cases, there levels of penalty elements accepted (eg 18 per cent Cu,
would not appear to have been a study manager controlling 40 per cent Zn and 55 per cent Pb)
and integrating the overall study process, resulting in little
•• Rarely issues with infrastructure – sources power and
or no communication occurring between the disciplines.
water are typically provided by the state
Studies are an iterative process and require integration
through review and communication by all disciplines. For a •• Different methodology for calculating operating costs
processing engineer, knowledge of the geological (or block) •• the value of the mined material is included in the
model, the mining schedule as well as what constitutes a mining operating cost, which is included as a cost in
marketable product are critical elements in developing and the processing operating cost
designing a flow sheet that would successfully process LOM •• depreciation is included as an operating cost which
feed and thus maximise the project value. is normally considered as a separate cost in typical
Note that there are so-called Western and non-Western type Western financial analyses
Feasibility Studies; in most cases, non-Western Feasibility •• product transport costs for projects located in
Studies, with the general exception of the Russian Technio- development regions are typically subsidised by the
Economicheskiye Obosnovaniye (TEO), do not meet the buyer.
standards of a Western Scoping Study let alone a Western type
A Feasibility Study considers the following disciplines,
Pre-Feasibility Study. They tend to follow a formulaic approach
which parallel the technical due diligence assessment process:
as prescribed by guidelines held by the Design Institutes.
•• Geology – ownership of tenures; regional and deposit
The main differences encountered with non-Western descriptions; geological or block model; data acquisition
Feasibility Studies are: (drilling methods, core recovery, logging, sampling,
•• Often a geological model may not exist (except Russian assaying, twinning etc); density determinations; quality
TEOs) of the resource estimate (inferred and indicated – data
•• does not include ore types validation, modelling method, QA/QC, interpretation
•• issues with quality assurance / quality control (QA/ (‘geo-imaginitus’), grade/tonnage relationships etc),
exploration history and upside.
QC) procedures as well as assaying methods
•• Mining – open cut relatively straightforward,
•• Resources are not JORC compliant; while other
underground more complicated and depends
methods of estimating resource are reasonable (for
upon the deposit style (cf thin veins and need for
example, Russian), they cannot be simply ‘converted’
backfilling), mining permits, mining design, waste
into a JORC classification without undertaking a full
dumps and stockpiles, trade-off studies, mine schedule
review, which is very difficult to do when:
and production plans, pit wall slope, rock stability
•• the drill core has been destroyed or lost (cf when the and strength (geotechnical studies), dewatering
metal is classified by a country as strategic eg uranium requirements (hydrogeology), equipment, capital and
in the USSR or tungsten and rare earths in China) operating costs (methodology, budget quotations,
•• the actual coordinate system used to locate drill holes quantity take-offs, consumable and personnel estimates,
is not known accuracy, contingencies, equipment/services sources

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A J H Newell
(currency), transport and insurance, dewatering and
reserves (proven and probable)).
•• Metallurgy – location and nature of samples, test
work program – mineralogy, preconcentration,
comminution parameters, separation and dewatering;
water quality; technical management of waste streams
(eg detoxification); flow sheet; mass and water balances;
design criteria; equipment selection, sizing and list;
comminution and preferably flow sheet modelling;
process description; drawings – general arrangement,
PFD, P&IDs and one-line electrical; consumable
requirements (power, water, labour, milling media
etc); capital and operating costs (methodology, budget
quotations, quantity take-offs, factoring, accuracy,
contingencies, mobile equipment, equipment/services
sources (currency), transport and insurance etc); product
schedule.
•• Environmental – suitable and sufficient baseline studies
have been conducted; appropriate regulatory approvals,
permitting and licences eg details of environmental
impact assessment or statement (EIA/EIS); stakeholder
engagement, environmental management systems
(EMS) and environmental/social management plans
(EMP) completed; reclamation and closure plan;
operating costs; closure costs.
•• Infrastructure – requirements/sources/distribution/
reticulation of power and water; if connected to grid
power, route map; logistics (roads, rail, airports,
ports etc – getting equipment, consumables and
personnel to site; getting product to market); buildings
(offices, warehouses, maintenance/repair shops,
accommodation); allowance for location, climate and
seismicity (buildings); construction schedule.
•• Social/indigenous – needs to demonstrate a good
relationship with local people; support for the project,
program of assistance and ongoing interaction.
•• Marketing – suitability of product and product
specifications, size of market, future of market
(competition, growth, substitution etc), product terms
(penalties, credits etc), smelting and refining terms,
future product prices, product transport route map,
arrangements and costs etc.
•• Financial evaluation – typically based on discounted cash
flow methodology, with NPV used as the measure;
only as good as the quality and reliability of the inputs:
capital and operating costs (eg estimate basis, nature of
the contingencies), future metal prices, exchange rates,
inflation rates, discount factor etc). Any NPV must be
based on at least Indicated Reserves if a public document
and for a Feasibility Study bankers like to generally see
at least six years of reserves.
•• Project execution – management plan and procedures
(owner/EPCM structure and organisation, key
personnel and qualifications, project responsibility list
(owner-managed and EPCM-managed projects), EPCM
contractor procedures (engineering, procurement,
construction and reporting etc)), implementation
schedule, list of probable contracts and facilities, likely-
qualified contractor listings, equipment delivery (long
lead items, logistical plans etc).
In addition, bankers considering projects in non-Western
parts of the world also like to know that the project would
meet the Equator Principles (Equator Principles Association,
2011). These are series of guidelines adopted by financial
8 we are metallurgists, not magicians
institutions for determining, assessing and managing
environmental and social risks.
REFERENCES
Equator Principles Association, 2011. Equator Principles [online].
Available from: <http://www.equator-principles.com/>.
Pincock (now RPM), 2007. Minimum report contents for engineering
studies, Perspectives, 70 (December).
Pincock (now RPM), 2009. Minimum engineering study requirements,
Perspectives, 95 (March).
APPENDIX 2 – PROCESSING DUE DILIGENCE CHECKLIST
Existing operation
Historical and current records – production, operating costs,
recoveries, product grades etc.
Site inspection
Operation
•• how the plant is being operated – number of operators,
operator activity, housekeeping etc
•• condition of the plant – need for equipment replacement,
nature and magnitude of maintenance costs
•• process bottlenecks
•• review sample collection including final concentrates,
assay facility, laboratory (routine and future ore testing).
Future plans – ore sources, grades, ore types, mineralogy etc
•• Will future ores have different characteristics or grades
that will affect the metallurgical performance in terms:
•• throughput
•• recoveries
•• product grades
•• What procedures are in place to measure and record any
changes in ore types? For instance:
•• weekly testing on site
•• off-site testing
•• frequency
•• How would the current flow sheet and equipment
handle any changes in ore characteristics?
•• Any potential bottlenecks?
•• increased hardness – comminution circuits
•• grade changes – separation and dewatering circuits
•• Flow sheet changes required?
•• potential costs
•• downtime for installation
•• Equipment changes or upgrades required?
•• potential costs
•• downtime for installation.
Future water and power supplies – quantities, availability,
supply agreements
Reconciliation between mine and plant
Tailings Storage Facility (TSF) capacity – need for another TSF
Future costs – basis for sustaining capital, any capital
upgrades/expansions, supporting studies, production and
revenue forecasts etc.
Project (largely based on a Feasibility Study)
Nature of Feasibility Study
•• internal or external?

•• where they suitably competent to conduct or manage
the Feasibility Study?
Ore types
•• have they been identified?
•• reasonableness of classification (degree of oxidation,
degree of alteration, mineral gangue ratios
(eg chalcopyrite/pyrite ratio), mineral/mineral ratios,
impurity or gangue mineral (eg As level))
•• included the geological model (and thus the mine
schedule)?
Samples – nature of samples and composites: number, type
(drill core, air core etc), location, representative in nature,
mining year etc
Mineralogy – conducted for all ore types and composites;
identified economic and impurity types, associations, grain
size and rock types; degree of liberation
Test work program
•• undertaken by reputable and independent test
work provider (cf equipment vendor – under some
circumstances)
•• conventional or ‘novel’ or using ‘novel’ equipment
•• if ‘novel’, a pilot plant or pilot scale test and
demonstration plant required
•• has addressed the obvious flow sheet options
•• sufficient test work has been conducted on an
appropriate range and number of samples
•• has preconcentration been examined
•• has site water or synthetic water been used in test work
•• ore variability test work been conducted
•• material handling – flow, rill angles, abrasiveness, slurry
viscosity etc
•• other characteristics: oxygen demand etc
•• feed grade-recovery relationship been established for
each ore type and mining composite
•• has the product been satisfactorily characterised in
terms of:
•• full assay – credit and penalty elements
•• dewatering requirements and equipment requirements
•• if a concentrate, TML
•• other properties such as size range, friability etc
•• have the tailings been satisfactorily characterised for
range of ore types and blends in terms of:
•• mineralogical characteristics
•• potential for pollution and acid generation
•• dewatering properties
•• backfill and ‘dry stacking’ (where the size range,
particularly the amount of fines, is important)
•• environmental studies such as detoxification of process
water for release into the environment.
Flow sheet
•• basis for and reasonableness of flow sheet selection
•• conventional or ‘novel’
•• unnecessarily complex
•• appropriate use of surge capacity within the flow sheet
(eg stockpiles, bins or holding tanks with sufficient
residence to decouple critical parts of the flow sheet)
•• potential bottlenecks.
we are metallurgists, not magicians
Fatal flaws in technical due diligences
Modelling
•• conducted in a satisfactory fashion for the comminution
circuit
•• basis for circuit and equipment sizing and selection?
•• identified behaviour and impact upon design criteria
of different ore types and mine composites
•• where appropriate, for the separation circuit.
Mass, water and energy balance
•• basis: optimum mining rate study, flow sheet, other data
or sources
•• source for values used in calculations (eg ore, water,
product and intermediate stream SGs, mass and metal
stage recoveries)
•• sufficient flexibility to handle potential process
variations (‘average’ and ‘design’ cases).
Metal losses
•• metal losses for each ore type has been satisfactorily
identified
•• addressed the potential for improved recoveries or
concentrate grades
Metal recoveries and product grades
•• demonstrated as a function of ore types, mining
composite types and head grades
•• full analysis of final concentrate (credit and penalty
elements and levels identified).
Design criteria
•• basis and source for selection of Design Criteria; is it
reasonable and supported?
•• transfer sizing for SAG – ball mill circuits
•• circulating loads
•• product and intermediate product per cent solids
•• media and reagent consumption rates
•• scale-up factors used to estimate residence time
(eg conditioning, flotation, heap leaching etc)
•• addresses needs of climatic and operating culture
requirements (eg cold climate, regulated holiday
periods etc)
Equipment
•• basis for selection, number and sizing: reasonable
•• equipment source
•• equipment vendor: reputable, critical spares identified,
process and equipment warranties, availability for
commissioning
•• duty specifications: reasonable.
Mine schedule
•• an optimum mining rate has been determined
•• basis: process capital and operating costs used
•• limited by market
•• includes ore types and thus mining composites.
Water
•• water quality
•• impact upon separation and final product
•• need to wash final product
•• need to produce pure water
•• fresh and process water circuits
•• complexity
•• adequate storage
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A J H Newell
•• recovered water: assumptions, recovery from TSF,
allowances for evaporation losses etc
•• water sources available to sustainability supply
processing water requirements (including mine water).
Power requirements
•• basis (installed equipment, typical operating load,
simulations etc)
Trade-off studies
•• have been applied in a satisfactory manner to select
between processing, flow sheet or equipment options
•• for example, ‘dry’ stacking, finer grind etc
•• comminution circuits.
Product schedule
•• basis:
•• appropriate mine schedule
•• reasonable metal recoveries
•• achievable product grades
•• varies appropriately with ore types or mine blends.
Process description
•• satisfactorily describes the process flow sheet.
Operating cost
•• methodology/basis: reasonableness (benchmark against
similar projects in same operating environment)
•• accuracy (typically ±10 per cent FS): has it been achieved
or demonstrated?
•• cost elements
•• what has been included?
•• quantities reasonable: consumable, labour schedule
•• unit prices reasonable with quotations for key
consumables including power
•• labour costs: salaries and on-cost reasonable
•• maintenance cost basis: factoring, reasonable.
Capital cost
•• methodology/basis: reasonableness (benchmark against
similar projects in same operating environment)
10
•• accuracy (typically ±10 per cent FS): has it been achieved
or demonstrated?
•• cost elements
•• quantities reasonable: consumables, power, water,
labour schedule
•• unit prices reasonable: with quotations for key
equipment; based on data from similar, current projects
•• EPCM costs – reasonable for the location and
complexity of the project
•• what has been factored: piping, installation,
commissioning, first fill etc – reasonable and supported
•• basis for determination of sustaining capital costs and is
it reasonable?
•• contingency: appropriate for commodity, project
complexity and country location.
Marketing
•• has a marketing study been conducted?
•• suitable standard?
•• has it satisfactorily identified:
•• current market, uses and growth
•• potential buyers and actual market size for
proposed product quality and volumes
•• competition
•• other operations (expansions) or projects
starting up
•• potential substitution
•• product specifications and terms (credits, penalties,
size ranges, moisture content, other properties)
•• price history and future prices.
Risks
•• has a risk analysis been conducted?
•• how does it assess the degree of risk?
•• does it identify and rank all potential risks?
•• does it provide any recommended mitigating measures?
•• does it analyse residual risk (after application of the
mitigation)?
we are metallurgists, not magicians