Feasibility studies are often at the heart of disputes in the mining and mineral processing industries. Conflicts often arise when the actual execution of a mining project differs from what was anticipated in the feasibility study. In many cases, these conflicts have resulted in international arbitration proceedings between the parties. In this article, we review a number of the key sources of disagreement, and discuss means by which negotiating parties can seek to minimise and control the effects of project uncertainties stemming from the feasibility study phase.

 What is a feasibility study?

According to the Canadian Institute of Mining, Metallurgy and Petroleum, a feasibility study is “a comprehensive study of a deposit in which all geological, engineering, operating, economic and other relevant factors are considered in sufficient detail that it could reasonably serve as the basis for a final decision by a financial institution to finance the development of the deposit for mineral production[.]” (‘Standards and Guidelines for Valuation of Mineral Properties’, Special Committee of the Canadian Institute of Mining, Metallurgy and Petroleum on Valuation of Mineral Properties (CIMVAL), February 2003, p. 9.) The principal purpose of a feasibility study is to demonstrate the technical and economic viability of a proposed project to expert third parties for the purpose of obtaining financing for the project. If a feasibility study demonstrates that a project is technically and economically viable, and its sponsors are successful in securing financing (either from internal corporate sources or external parties), a project will then typically proceed to a definitive engineering and cost estimate stage.

Jan-Mar 2014 issue

Charles River Associates