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What is a Preliminary Economic Assessment?

What is a preliminary economic assessment? Here’s a look at the information they include and why they’re a crucial part of the mining process.
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This article was originally published by Investing News Network

Knowing what a preliminary economic assessment is will help new market participants better understand news from mineral resource issuers and mining projects.

A preliminary economic assessment, sometimes abbreviated as PEA, is defined as a study that includes an economic analysis of the potential viability of a project’s mineral resources. Preliminary economic assessments are completed before prefeasibility and feasibility studies, and are an important step in determining whether a company should develop a mineral resource project.

Read on for a more in-depth look at the information preliminary economic assessments include and why they are a crucial part of the mineral resource exploration and mining process.

 

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What is a preliminary economic assessment?

Before a mineral resource project becomes a mine, several technical studies must be completed on a deposit to ensure its economic viability. As mentioned, putting a PEA together is one of the first steps in the process, with prefeasibility and feasibility studies following.

All of these studies analyze and assess the same geological, engineering and economic factors; however, they include significantly different levels of detail and precision. For example, unlike a prefeasibility or feasibility study, PEAs may contain results of metallurgical testing that are based on an inferred mineral resource. That means the mineral resource estimate that they include may be based on limited information and sampling of the mineralization.

PEAs must either be presented in the form of a technical report, or supported by a technical report. In some cases, the technical report must be independent. PEAs are sometimes called scoping studies.

What’s in a preliminary economic assessment?

As noted, the purpose of a PEA is to evaluate a mineral project’s economic viability.

Generally, PEAs will include base case information on the capital costs associated with bringing a project into production, an estimate of how the mine will operate once it is built, how much metal and money it will produce and at what operating cost. The PEA helps mining companies understand risks and uncertainties associated with a project. The study can be part of exploration with both open-pit mining and underground mining, and should include a mine plan.

More specifically, a PEA tends to have information on pre-production capital costs, life-of-mine sustaining capital, mine life and cash flow, as well as details on processing and production methods and rates.

 

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PEAs also include information on mineral project economics at various metal prices. For example,  the PEA for the Séguéla gold project in Côte d’Ivoire, then owned by Roxgold and now held by Fortuna Silver Mines (TSX:FVI,NYSE:FSM), outlines how the project will perform before and after tax in two different gold price scenarios:

metrics from roxgold's PEA

Chart via Business Wire.

What comes after a preliminary economic assessment?

After producing a positive PEA, a company can then move on to prefeasibility and feasibility studies. As explained, these studies look at the same geological, engineering and economic factors, but at a higher level of detail and precision.

These studies can help determine factors such as operating costs and potential tonnes to be mined for commodities such as precious metals and base metals. They can also offer insight into the average grade of the resources that will eventually be mined or how many ounces or tonnes per day could come from the asset and at what metal prices.

Additionally, prefeasibility studies take into account other key future events that could impact a project, such as community issues, geographic obstacles and permit challenges. They should include multiple options for tackling different issues.

Once a prefeasability study has been reviewed and approved, companies then move onto the feasibility study, which includes fewer assumptions and harder facts.

Feasibility studies contain similar content, but are much more accurate than prefeasibility studies in their assumptions and require more resources to conduct. These studies are intended to evaluate if a mineral reserve can be mined effectively and if it will be profitable.

Detailed mining feasibility studies are also used as the basis for a project’s capital estimates, operating costs and overall economic viability.

To learn more about how issuers determine potential viability for their assets, click here to learn more about prefeasibility and feasibility studies and here for more on the full lifecycle of mining.

This is an updated version of an article first published by the Investing News Network in 2019.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

 

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The post What is a Preliminary Economic Assessment? appeared first on Investing News Network.

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Wall Street ends higher as financials, consumer stocks lead gains

Benchmark US indices closed higher for the second consecutive day on Friday October 15 buoyed by robust quarterly results of financial majors Goldman…

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Benchmark US indices closed higher for the second consecutive day on Friday, October 15, buoyed by robust quarterly results of financial majors Goldman Sachs and Charles Schwab and others.

The S&P 500 rose 0.75% to 4471.37. The Dow Jones rose 1.09% to 35294.76. The NASDAQ Composite rose 0.50% to 14897.34, and the small-cap Russell 2000 fell 0.37% to 2265.65.

The S&P 500 advanced 1.9% this week and is on course for its best monthly performance since July.

Markets were upbeat after solid quarterly results of companies. In addition, Friday's positive retail sales data helped reassure investors about the growth outlook. Retail sales rose in September despite concerns over the Delta variant and the culmination of the government unemployment benefits.

The Commerce Department said on Friday retail sales rose by 0.7% in September on a seasonally adjusted basis from August, reflecting strong demand and higher consumer prices.

Financials, consumer cyclicals, industrials, and energy stocks were the top gainers on S&P 500. Utility stocks were the bottom movers. Ten of the 11 index segments were in the positive territory.

Stocks of financial major Charles Schwab Corporation (SCHW) jumped over 3% after reporting a 119% YoY increase in profits for the third quarter. Its net income rose to US$1.5 billion from US$0.698 million a year ago. Also, its net revenue increased by 87% YoY to US$4.57 billion.

Goldman Sachs Group, Inc. (GS) stock rose over 2% in intraday trading after reporting its Q3 profit of US$5.38 billion, an increase of 60% YoY. Its revenue was up 26% YoY to US$13.61 billion.

On the previous day, several major financial companies, including Morgan Stanley, Bank of America, and Citigroup, reported significant profits in the third quarter. According to Wall Street analysts, some 80% of the S&P 500 companies have beat their Q3 estimates so far.

Logistics company J.B. Hunt Transport Services' stock rose 9% after reporting profit growth in the third quarter. Metal producer Alcoa Corporation (AA) stock climbed 15% on Friday, a day after posting higher third-quarter sales, boosted by higher aluminum prices.

Moderna Inc (MRNA) stock slipped nearly 3% in intraday trading after the Wall Street Journal reported a delay in the FDA decision on approving its Covid-19 vaccine for teenagers.

Overall, the US market is seeing substantial gains in October, boosted by strong quarterly results. However, supply chain and inflation worry continue to dog investors. They fear that supply snarls and a sharp rise in energy prices might further worsen inflation.

Wednesday's CPI figures showed US inflation rose 0.4% in September after climbing 0.3% in August. Food and rent costs contributed nearly half of the September inflation rise. Meanwhile, the fed said it is considering withdrawing its crisis-era monetary policy later this year to curb price rise.

On Friday, the 10-year Treasury bond yields rose for the second consecutive day. It rose to 1.578% from 1.519% on Thursday. Treasury yields rise when the bond prices fall.

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Financials, consumer cyclicals, industrials, and energy stocks were the top gainers on S&P 500. Utility stocks were the bottom movers.

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Ten of the 11 S&P 500 segments were in the positive territory.

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Futures & Commodities

Gold futures were down 1.65% to US$1,768.20 per ounce. Silver declined 0.53% to US$23.352 per ounce, while copper rose 1.91% to US$4.7200.

Brent oil futures increased by 1.00% to US$84.84 per barrel and WTI crude was up 1.50% to US$82.53.

Bond Market

The 30-year Treasury bond yields rose 1.02% to 2.046, while the 10-year bond yields rose 3.61% to 1.574.

US Dollar Futures Index fell 0.00% to US$93.960.

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Articles

Stocks, Bonds, Crypto, & Copper Soar As Confidence Crashes Near Decade-Lows

Stocks, Bonds, Crypto, & Copper Soar As Confidence Crashes Near Decade-Lows

This week was a tale of two halves. Stonks chopped lower into…

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Stocks, Bonds, Crypto, & Copper Soar As Confidence Crashes Near Decade-Lows

This week was a tale of two halves. Stonks chopped lower into Wednesday morning, bounced off an opening dump then accelerated (despite The Fed Minutes signaled considerably more hawkish taper and rate-trajectory expectations). Nasdaq was the week's biggest gainer (thanks to Small Caps puke today) and The Dow underperformed but only modestly...

That was the S&P's best week since July.

Major reversal in Small Caps today however from the cash open, as the rest of the majors rallied divergently...

This week's panic-buying has reduced the drawdown from record highs (for the S&P) to just 1.5%...

Source: Bloomberg

After Monday's dump, every day this week has opened with a panicky short-squeeze to ignite momentum...

Source: Bloomberg

But as today's OpEx struck early, the short-squeezers ran out of ammo...

Source: Bloomberg

Both Defensives and Cyclicals were bid this week but the latter outperformed today to win the week...

Source: Bloomberg

Sectors were all higher on the week but Utes lagged and Materials led the gains. Financials were towards the lower end of the overall performance...

Source: Bloomberg

In bank-land, earnings have sparked a notable divergence with MS leading and JPM lagging (after a buying panic renewed in WFC today)...

Source: Bloomberg

VIX was clubbed like a baby seal this week, hitting a 15 handle briefly today...Tough to see much downside for vol from here (especially given the typical post-opex bounce)

Bonds were very mixed this week with the short-end dumped and long-end well bid (2Y +8bps, 30Y -12bps)...

Source: Bloomberg

2Y yields pushed up to their highest since March 2020 and 5Y at its highest since Feb 2020...

Source: Bloomberg

The yield curve flattened dramatically this week (the biggest curve flattening week since June) with the 5s30s spread at its lowest since May 2020 as traders signaled expectations for a Fed policy error...

Source: Bloomberg

The very-short-end of the curve repriced dramatically this week - in a hawkish manner - with a full rate-hike now priced in for September 2022 (with expectations that The Fed's taper will start in Dec and end in July 2022)...

Source: Bloomberg

And on a side note, the 'kink' is back and building in the T-Bill curve as the odds of a clean debt-ceiling extension in December slide...

The dollar fell for the 3rd straight day today and suffered the broke a 5-week winning streak.  The dollar has traded in a tight range for the last 3 weeks though...

Source: Bloomberg

Crypto soared higher, rising for 3rd straight week, led by Bitcoin...

Source: Bloomberg

With Bitcoin back above $60k for the first time since April (and in fact reached almost $62k today)...

Source: Bloomberg

Commodities all made gains this week (CRB all comms hit an all-time record high) but copper was the dramatic outperformed while gold lagged...

Source: Bloomberg

WTI rallied for an 8th straight week, its longest winning streak since May 2015, topping $82 for the first time since Oct 2014...

Source: Bloomberg

Copper soared this week (its best week since Nov 2016 and 2nd best week since Oct 2011), back near the May highs, as global inventories plunge...

Source: Bloomberg

Gold tagged $1800 but was unable to hold it...

Finally, you have to laugh really that stocks are surging back towards record highs on a day when consumer sentiment printed at its 2nd lowest level in a decade...

Source: Bloomberg

"Probably nothing..."

Still this chart makes us wonder if a redux is in the cards?

Source: Bloomberg

Tyler Durden Fri, 10/15/2021 - 16:00
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Base Metals

Cleveland-Cliffs Popped on News of a $775 Million Metal Recycling Firm Deal

North America’s largest supplier of flat rolled steel, Cleveland-Cliffs (NYSE:CLF), saw its shares pop on Monday. CLF stock closed on Oct. 8 at $20.63,…

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North America’s largest supplier of flat rolled steel, Cleveland-Cliffs (NYSE:CLF), saw its shares pop on Monday. CLF stock closed on Oct. 8 at $20.63, but ended Monday’s session at $21.46 for a 4% pop.

Source: Pavel Kapysh / Shutterstock.com

The catalyst? On Monday, the company announced it is acquiring Detroit-based Ferrous Processing and Trading Company (FPT). With this move, Cleveland-Cliffs is entering another area of the steel making business. It is now set to supply the industry (and its own production facilities) with both iron ore pellets and scrap metal.

Investors have had a lot to digest in terms of Cleveland-Cliffs in 2021. There are several big, conflicting issues to work through when considering adding this company to your portfolio.

On one hand, there’s the U.S. government’s planned infrastructure spending boom. That’s opportunity knocking for CLF stock. On the other hand, we have China slashing steel production and the resulting collapse of iron ore prices.

Does the FPT deal help to tip the scales back toward a pro-CLF stock view? The immediate market reaction certainly seems to indicate that is the case.

The Ferrous Processing and Trading Company Deal

On Oct. 11, Cleveland-Cliffs announced it will acquire FPT in a deal worth $775 million. The company operates 22 scrap metal processing facilities across the U.S., primarily in the Midwest.

FPT processes approximately 3 million tons of scrap per year, accounting for roughly 15% of the American prime scrap market. The press release also noted that privately-owned FPT generated $100 million in EBITDA in the trailing twelve months ended August 31, 2021.

Besides the additional revenue stream, Cleveland-Cliffs sees the acquisition as a winning part of its vertically-integrated strategy. The company already operates steel mills and produces its own iron ore. Now it will also be able to supply its own scrap.

The company elaborated further in the acquisition announcement:

“…Cleveland-Cliffs is the main source of the steel that generates prime scrap in manufacturing facilities. Furthermore, throughout our entire footprint, Cleveland-Cliffs also consumes a very significant amount of scrap in our EAFs and BOFs. The acquisition of FPT will enhance our ability to buy back prime scrap directly from our clients, cutting the middlemen and improving the margin contribution from scrap…”

How Important Is the Scrap Metal Market?

When looking at steel production, the raw material that most people think of is iron pellets. However, scrap steel is another critical component of the process. This is steel that is recycled (from old cars, for example) or left over as part of the steelmaking process.

According to the World Steel Association, the global steel industry uses 2 billion metric tons of iron ore as well as 575 million metric tons of steel scrap annually.

In addition, plants employing electric arc furnaces (EAF) run using up to 100% scrap steel. Cleveland-Cliffs operates four EAF facilities, and is planning to move its production further in that direction in the future.

The problem with scrap steel is that demand is rising while supply remains relatively static — there is only so much steel available to be recycled every year.  

EAF plants emit far less CO2 than traditional blast furnaces, so the move to EAF adds to Cleveland-Cliffs’ sustainability. The company points out that its acquisition of FPT also secures a “substantial” supply of prime scrap steel, avoiding the supply constraints that other steelmakers will face.

CLF Stock Has a Green Energy Angle

Speaking of sustainability, President Joe Biden’s administration is pushing a zero-emission agenda. Cleveland-Cliffs has already announced a plan to reduce greenhouse gas emissions by 25% by 2030.

As part of that move, the company recently opened a new Direct Reduction Plant in Ohio that’s designed for sustainable steelmaking.

In its FPT acquisition announcement, the company pointed out the fact that use of prime scrap steel helps to lower the carbon intensity of its steelmaking production.

While CLF stock is still down significantly from August levels, it is currently up 44% since the start of the year. While concerns remain — notably the tanking of iron ore prices — the acquisition of FPT added another factor in the “pro” column for a CLF stock investment. 

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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