Module 5: Economic Studies (Scoping, PFS, DFS)

Why this matters

Economic studies are the company's formal pitch that a deposit can be turned into a profitable mine. They are also where the most consequential lies-by-omission happen — base case prices set 30% above spot, capex estimates that consistently understate by 30–50%, NPV calculations that ignore real-world ramp problems.

Read every study with the assumption that it represents the company's most optimistic internally-defensible case. Then mentally degrade it.

The three studies, in order

Scoping Study (in Canada: PEA — Preliminary Economic Assessment)

PFS (Pre-Feasibility Study)

DFS / BFS (Definitive / Bankable Feasibility Study)

The scoping → PFS resource confidence step-up — why it matters

The progression from Scoping to PFS is not just an accuracy tightening. It's a fundamental change in what categories of resource can carry the economics.

Scoping studies are allowed to use Inferred resources in the production schedule and NPV calculation. This is one reason scoping economics often look better than the equivalent PFS economics on the same deposit — Inferred resources get included in the mine plan that won't survive into the PFS.

PFS and DFS are not allowed to use Inferred resources in reserves or in the economic case (with extremely narrow exceptions). When the project moves from scoping to PFS, all the Inferred tonnage that was carrying production in years 6–15 gets removed, replaced only by what's been upgraded to Indicated or Measured by additional drilling.

The practical consequence is that NPV often falls between scoping and PFS not because the project is worse, but because the rules tightened. A scoping study showing a 15-year mine life on a deposit that's 70% Inferred will become a PFS showing a 6-year mine life on the same deposit unless the company does the infill drilling required to upgrade Inferred → Indicated.

The "PFS-downgraded-to-scoping" tactic

A pattern worth flagging: a company has previously released a scoping study with strong numbers, then quietly re-classifies subsequent work as a "scoping update" rather than progressing to PFS. The reason is usually that the PFS-allowable resource (Indicated + Measured only) wouldn't support the economics the scoping showed.

Another version: a project that has been at PFS-stage in prior announcements gets walked back into a "revised scoping study" without explanation. That's a signal the PFS-grade economics didn't work, and the company is trying to reset to a less rigorous standard.

When you see a study labelled in unusual terms — "preliminary economic update", "scoping refresh", "concept study" — read carefully. The labelling matters because the rules differ. A scoping study with 70% Inferred in the production schedule is a different document from a PFS based only on Indicated and Measured.

Key outputs in every study

NPV (Net Present Value)

The discounted value of all future cash flows from the project, minus initial capex.

Rule of thumb: project NPV should be at least 2–3x capex for a developer-stage company. NPV = capex means barely worth building.

IRR (Internal Rate of Return)

The discount rate at which NPV = 0. Measures capital efficiency.

Capex

Initial capital expenditure to build the project.

Always check what's included. Some studies exclude:

Opex (Operating Cost)

Cost per tonne of ore processed or per unit of metal produced. Usually presented as:

AISC (All-In Sustaining Cost)

Originally a World Gold Council metric (2013), now used loosely across commodities. Includes:

It does NOT include:

Different companies calculate AISC differently. Compare AISC across companies with caution.

For a project to be robust, AISC should sit comfortably below the long-term commodity price. AISC at 80% of spot = healthy margin. AISC at 95% of spot = no margin, no resilience.

Payback Period

Years until cumulative cash flow recovers initial capex.

Mine Life (LOM — Life of Mine)

Years of production at planned throughput based on current reserves.

LOM extends if exploration adds resources and conversion to reserves continues.

Natural run rate — what plants actually do

A concept that doesn't appear in most studies but matters enormously for how you read them.

Natural run rate is the throughput a plant actually achieves in steady-state operation, independent of nameplate. It's almost always different from nameplate, and the direction of the difference depends on the plant's history.

Below nameplate (most plants in the first 1–3 years):

At nameplate (well-engineered plants reaching design after 12–24 months):

Above nameplate (mature operations with optimisation):

The Bellevue Gold case is the canonical example of a plant that operated materially below nameplate for an extended period — design said one tonnes-per-year, actual was meaningfully lower. This delta drives everything: AISC rises (fixed costs across less production), revenue falls, payback extends, dilution risk increases.

How to read announcements about run rate

When a producer or commissioning project reports actual throughput vs nameplate, what you're looking for is:

  1. The trajectory. Is throughput improving quarter-on-quarter, or stuck below nameplate?
  2. The reason. "Plant down for scheduled maintenance" vs "ongoing recovery optimisation" vs "ore characteristics different from design" — each implies a different fix and a different timeline.
  3. The forward guidance. Has management revised guidance down? Multiple guidance revisions in the same direction is a tell.
  4. The cash flow consequence. AISC at actual throughput vs design is the real margin you can model.

Studies typically don't quantify natural run rate explicitly. You back it out from the production guidance and the historical achievement vs guidance. A project guiding 5 ktpa nameplate but historically achieving 4 ktpa has a natural run rate around 4 ktpa, and the economics need to be re-cut at that level.

Sensitivity tables — where to focus

Every study includes a sensitivity table showing how NPV/IRR changes with input changes:

Sensitivity -20% Base +20%
Commodity price $X $Y $Z
Capex
Opex
FX rate
Discount rate

Where to focus:

  1. Commodity price assumption. What price did they use? If the base case price is above current spot, the project is more sensitive than it appears at first glance. Recalculate NPV at current spot prices.
  2. Capex sensitivity. A project with NPV that flips negative on +20% capex is a very fragile project, given that 30–50% capex blowouts are normal.
  3. Discount rate. Most companies use 5–8%. Use 10% as a stress test for junior/risky projects.

Capex blowout — the pattern that always repeats

Capex estimates almost always rise from study to study, then again from DFS to actual build:

Stage Typical capex vs final actual
Scoping 40–70% of final actual
PFS 60–85% of final actual
DFS 75–95% of final actual
Final actual 100% (often more)

This is not because companies are stupid. It's because:

Stress-test every DFS by adding 25–35% to capex and see if the project still works at current spot commodity prices.

Capex tactics worth recognising

Plant relocation / refurb capex savings — usually less than advertised

A company acquires a second-hand processing plant from a closed operation, plans to disassemble, transport, and re-erect it on their site, and headlines a major capex saving versus building new.

The reality is usually:

The BML (Bellevue Gold's predecessor approach for some assets) and similar refurb projects in the gold and base metals sector have had mixed track records. Some saved money. Several didn't. The pattern is that the headline saving is usually 60–70% of the eventual reality after refurbishment.

If a company headlines significant capex savings via a refurb, ask:

  1. Where was the plant before? What condition?
  2. What's the refurbishment scope and budget? Is it included in the headline capex?
  3. What's the lead time from acquisition to first ore — and is that realistic?
  4. Has the company done this before? What was their track record?

Staged capex deferral

A company splits the project into Phase 1 (low capex) and Phase 2 (higher capex, deferred to later years and supposedly funded from Phase 1 cash flow). The headline NPV often combines both phases.

This looks fundable. In reality:

The Santana Minerals (SMI) staged approach to its Bendigo-Ophir gold project is a recent example of staged development being announced with the intent to fund expansion from operating cash flow. The honest read on staged capex deferral is: model Phase 1 standalone and treat Phase 2 as optionality, not part of the base case. If Phase 1 NPV alone doesn't justify the build, the headline phased NPV is doing more work than it should be.

Stockpile inclusion in mine plan

Some studies fold low-grade stockpile (rock that's been mined but not processed because it's below cut-off grade for current operations) into the production schedule for late mine life. The rationale is that as commodity prices rise or processing costs fall, the stockpile becomes economic to process.

This can be legitimate. It can also be padding to extend headline mine life and total contained metal. Tells:

The LGM (an example flagged in industry commentary) included stockpile material in their mine plan in a way that materially extended LOM headlines. When the stockpile was excluded, the project mine life was meaningfully shorter and the economics weaker.

If a study includes a stockpile in the production schedule, ask:

  1. What % of total contained metal comes from stockpile vs fresh ore?
  2. What recovery is assumed on the stockpile?
  3. What commodity price is required for stockpile processing to be economic?
  4. Is the stockpile in the Reserve, or is it sitting outside the Reserve as a notional add-on?

Permitting and environmental — what timelines are normal

A common misread: a "two-year environmental permitting process" gets framed as a delay or a problem.

A two-year environmental baseline study and approval process is normal in Australia for any new mining project of meaningful scale. It is not a delay caused by activism, government incompetence, or company failure. It's the standard regulatory timeline for:

Examples like ALM (Alma Metals) and JJ-style projects through the standard permitting cycle take 18–30 months as a matter of course, not as exceptions. The right question isn't "why is permitting taking so long" — it's "is permitting on schedule for a normal Australian permitting timeline?"

When a company guides "first production 2027" for a project that hasn't started baseline environmental work yet in 2026, that timeline is unrealistic regardless of how confident the company sounds. The regulator dictates the floor on this timeline, not the company. Be sceptical of any project guidance that compresses the environmental timeline below 18 months from baseline start to approval.

Hidden games to watch for

1. Optimistic commodity price deck

The most common manipulation. Industry-standard practice is to use the consensus 5-year forward curve or current spot, whichever is more conservative. Some studies use:

Always recalculate NPV at current spot. If the project doesn't work, the study is selling you a price view, not a project.

2. Aggressive recovery rates

Met testwork on a few drill samples extrapolated to 90%+ recovery. Real plants typically achieve 5–10% below pilot test rates in early years, sometimes never reach pilot rates.

3. Optimistic ramp profile

Assuming nameplate capacity in Year 1 or even Year 2. Most plants ramp slower — especially complex flowsheets. Stress test with a 12–24 month ramp.

4. Excluding pre-production capitalised costs

Owner's team costs during construction, working capital, financing fees can add 10–20% to total capital required to first cash flow.

5. Cherry-picking the best mine plan years for production guidance

"Average annual production: 200 koz Au" might be true over 10 years but Year 1–3 might be 280 koz (high-grade core mined first) and Year 8–10 might be 130 koz. Most analyst valuations rely on the headline number.

6. Single-product NPV when by-products are required

A copper project with by-product gold credits often shows two NPVs — copper-only and copper+gold. The copper+gold NPV is usually headlined. If the gold credit doesn't materialise (lower grade than predicted, lower recovery), the project economics collapse.

7. "Phased development"

Splitting the project into Phase 1 (small, low-capex) and Phase 2 (larger, capex deferred to later years from operating cash flow). Looks fundable. In reality, Phase 2 often gets indefinitely deferred when commodity prices fall, leaving a sub-scale operation. (Covered in detail above.)

What a good study looks like

Green flags:

When you see all of that, the study is being run as engineering, not marketing.

How to read a study in 30 minutes

  1. Read the announcement headline numbers (NPV, IRR, capex, AISC, LOM)
  2. Find the commodity price assumption. Compare to current spot.
  3. Find the discount rate. Re-mentally apply 10% if 5–8% used.
  4. Read the capex breakdown. Note contingency level and what's excluded.
  5. Read the sensitivity table. Stress to -20% commodity price and +25% capex simultaneously. Does NPV survive?
  6. Read the production schedule. Is Year 1 production materially higher than LOM average? (High-grading early years.)
  7. Compare PFS → DFS capex if both are out. What was the blowout?
  8. Check who did the study. Tier-1 consultancy (SRK, AMC, Lycopodium, GR Engineering, etc.) carries more weight than in-house or unknown consultants.
  9. Check the resource categories used. Scoping using Inferred — flag. PFS/DFS using only Indicated/Measured — correct.
  10. Check for stockpile contribution and refurb plant elements in the mine plan and capex.

Practical exercise

For any study published on a stock you follow, answer:

  1. What commodity price was used vs current spot?
  2. What's the NPV/capex ratio?
  3. What's the IRR pre-tax and post-tax?
  4. What contingency was applied to capex?
  5. If you stress capex +25% and price -20%, does NPV stay positive?
  6. What's the AISC vs current commodity price?
  7. What % of contained metal in the mine plan comes from Inferred (scoping only) or stockpile?
  8. What's the natural run rate assumption — does the production schedule assume nameplate in Year 1, or a graduated ramp?

If those answers don't make the project look investable, the company will need either a commodity price tailwind or an M&A bid to make money for shareholders.

What I'm uncertain about

Revision #2
Created 22 April 2026 02:17:35 by Conor
Updated 25 April 2026 02:30:40 by Conor