Many investors who are new to investing in minerals exploration and mine development may be confused by the types of studies done by these companies and their importance. Endeavour Silver (EXK)(EDR.TO), which is a holding of mine, does a good job in explaining them.
These three types of studies (PEA, PFS, and FFS) simply reflect different confidence levels of evaluating a mining project. The confidence levels relate to geological knowledge about the deposit as well as the economic estimates such as capital and operating costs that are required to exploit the deposit. After the initial discovery, a mineral deposit is usually delineated by exploration drilling to provide an understanding of its geometry, resources, tonnes, grades and recoveries.
The first study is a conceptual PEA, also called a scoping study, to define the scope of the project, including preliminary engineering alternatives for developing the mine and processing the ore, broad estimates of capital and operating costs, and other economic parameters.
A PEA tries to answer the question, “how best can this deposit be exploited to maximize its economic returns?” Unlike more advanced studies, a PEA can use inferred resources for its operational and financial modeling so long as one has a reasonable expectation the outcome will be a profitable mine. A PEA is normally followed by a PFS and, if financing with debt, a FFS. A PEA rarely forms the basis for a production decision because of the higher degree of unknown risks and costs and timelines.
A PFS is a more advanced study that uses only reserves and measured and indicated resources and involves more detailed engineering in order to optimize the alternatives for developing the mine and processing the ore. It also uses tighter estimates of capital and operating costs and other economic parameters by comparing them to recent examples. A PFS is usually followed by a Final Feasibilty Study (FFS), but if financing with equity, can sometimes be used as the basis for a production decision if the economics are particularly robust or the costing is at a FFS level.
A FFS is the most advanced study that typically only uses reserves and involves definitive engineering and detailed costing based on actual bids where possible instead of estimates. An FFS is considered essential in order to finance larger, more complex, capital intensive, lower return mining projects, or if financing with banks, in which case it is often called a bankable feasibility study (BFS).