Acquiring Cost Data for

Prefeasibility Studies // by Brad Terhune

Costs are an inherent aspect of any mining property, from acquisition

and exploration through development, operations, and beyond. They
often make or break projects and are typically the final stop before
“go/no go” development decisions are made. As such, I’m sure I
wouldn’t be venturing too far out on a limb to suggest that costs, in
some form or another, are one of the biggest topics of discussion in
the mining industry. And while it may be contrary to what one might
think, I might also suggest that the process for obtaining costs is one
of the least discussed topics in our industry.

As the title of this article implies, this editorial focusses heavily on the process of obtaining cost data for early
stage (pre-feasibility level) mine development projects. It attempts to address several questions that are
worthy of discussion between mine cost estimators. For example:

»» When should costs be obtained/considered?

»» How is the cost data to be utilized?
»» What costs are needed?
»» What accuracy is needed for costs to be useful to the estimator?
»» What hurdles must be overcome to obtain costs?
»» Are there specific strategies for obtaining cost data?

Note: a cost estimator may be someone dedicated to the task or it may be a mining engineer or
geologist responsible for development decisions related to the property.

how much will it cost? // brad terhune www.miningintelligence.com

Understand What Pre-feasibility Means
An obvious generic answer to when costs should be
obtained and considered might be “on-going”, but for
pre-feasibility costing the true answer is “when you
have a measured and indicated resource”. Exploration
stage properties or properties with only an inferred
resource do require cost considerations (Scoping or
Preliminary Economic Analysis (PEA)) but they are
still too speculative and provide only a hint of what
PRE-FEASIBILITY INPUT VS OUTPUT
INPUT
Mineral Maybe a little
resource metallurgy?
OUTPUT
Mining method and pro-
Reserves
duction levels estimated
calculated
(trade-off studies)
Recommendations for further resource
Estimated development costs based on
driling to better understand the deposit
the above
and to upgrade resource categories
FIGURE 1
While the comments above may seem rudimentary
or common knowledge, the reality is that many in our
industry do not fully understand the concept of pre-
feasibility. It is the Author’s opinion that pre-feasibility
is the point at which you have enough scientific
data in hand that you can safely say “I’ve really got
something here!”
how much will it cost? // brad terhune
could be. Similarly, if much of your engineering work
is complete and of final feasibility detail (Feasibility
Study, (FS)), you’ve waited too long and possibly sunk
unnecessary costs into the project. Figure 1, taken
from a March 2015 PDAC presentation by the Ontario
Securities Commission and the TSX, highlights the
parameters for each study level.
Expectation for Other misc. information
surface/UG operation (power supply, etc.)
Generalized processing
Preliminary equipment and
methods chosen
labour levels
(trade-off studies)
Recommendations for further mineral
exploration to increase resources on the
whole
If you will notice, I have indicated that pre-feasibility
is contingent upon the amount of scientific data in
hand, not engineering data. Generally speaking, when
entering a pre-feasibility level study, your project will
have had very little engineering completed. This is
important to remember because the input data is all
you will have to work with when we talk about the
hurdles that must be overcome to obtain costs.
www.miningintelligence.com
 CRITERIA TECHNICAL & ECONOMIC STUDIES FIGURE 2

Study Preliminary Economic Prefeasibility Study Feasibility Study

Assessment (PEA) (PFS) (FS)

Concept WHAT IT COULD BE WHAT IT SHOULD BE WHAT IT WILL BE

Objective Early stage conceptual Realistic economic and Detailed study of how the mine
assessment of the potential engineering studies sufficient to will be built, used as the basis for
economic viability of mineral demonstrate economic viability a production decision
resources and establish mineral reserves

Cost Accuracy +/- 50% +/- 25% +/- 15%

Engineering <1% 1–5% 5–25%

Mineral Estimate Inputs Inferred/Indicated/Measured

Indicated & measured resources
Resources

Mineral Estimate Inferred/Indicated/Measured

Probable & Proven Reserves
Outputs Resources

Adapted from a March 2015 PDAC presentation by the Ontario Securities Commission and the TSX.

Hurdles to Obtaining Cost Data

The output side of a pre-feasibility level project
provides insight as to what costs are needed and how
the costing data is utilized…i.e. for a pre-feasibility level
project, preliminary equipment lists and subsequent
development costs are derived based on the results of
trade-off studies for proposed mining and processing
methods. (refer to Figure 2) Unfortunately, one of
the larger tasks encountered during a pre-feasibility
study is related to the process of obtaining costs for
the needed equipment.

What hurdles exist for obtaining cost data?

The three largest hurdles for the cost estimator in an exploration or mining company are:

01. A lack of data to obtain a 02. Highly engineered and 03. The time involved to
reasonable quote. integrated systems. obtain the cost data.

As noted earlier, it is typical at the pre-feasibility level overall costs from ‘off-the-shelf’ component prices.
to have very little engineering data available. For In fact, most manufacturers of complex processing
example, while you may know that you have a surface equipment will not provide component costs at the
copper project that requires loaders and trucks pre-feasibility level.
followed by crushing, milling and flotation, you may
not have enough metallurgical work completed to
The time involved to obtain cost data can be
know how fine the material must be ground or how
substantial…on the order of weeks and months given
the flotation circuit needs to be configured for the best
the strategies that must be employed to mitigate the
recovery of all by-products. This lack of data becomes
first two hurdles noted earlier. The more complex the
an issue when you call equipment manufactures to
project, the more time is needed to prepare quote
obtain budget quotes for their products.
requests and gather quotes. Time is money.

This issue of a general lack of data is compounded

by the highly engineered and integrated systems we
have in the mining industry today. This is particularly
true for the processing side of the equation where the
cost estimator may no longer be able to simply derive

how much will it cost? // brad terhune www.miningintelligence.com

Procurement Strategy
Given the hurdles outlined above, the best procurement strategy is one that aims to simplify quotes and to
mitigate the general lack of data available to you at the pre-feasibility stage. Simply put…

»» The overall cost accuracy
of pre-feasibility level
development projects is
typically +/- 25%. This is
an important aspect to
consider when contacting
manufactures and suppliers
for equipment pricing because
firm, detailed quotes are not
needed. Budget or list pricing
is adequate. For example,
it is satisfactory to receive a
quote of $9,500,000.00 for a
complete ball mill. A price of
$9,620,423.25 is not necessary.
»» If possible, request ‘base’
machine pricing or pricing that
reflects commonly configured
pieces. Consider which specs
are most important to you
and eliminate other options.
Base machine pricing levels
the playing field between
competing suppliers and
simplifies the quote. The
number you receive will be
more than sufficient for pre-
feasibility work.
»» Manufacturers and suppliers »» Included ancillary equipment
may often request a long may be handled in a manner
list of engineering or similar to installation costs.
material specifications in »» To minimize the time required
order to provide a quote. to obtain cost data, the cost
In the absence of detailed estimator may need to enlist
metallurgical and/or co-workers to process quote
engineering data for early pre- requests or to subscribe to
feasibility stage projects, the mining cost databases. Mining
cost estimator may be required Intelligence’s cost estimating
to make assumptions to fill tools and data can greatly
in any information gaps…e.g. reduce the amount of time
feed and outflow particle required to obtain costing
sizes for a ball mill or conveyor information.
length from the in- pit primary
crusher to the secondary
crusher at another location.
»» Installation costs may be
included in the pricing, but it
is often preferred that these
costs be provided as a separate
line-item or as a function of
the capital investment…e.g.
installation costs are 10% of
capital or installation costs are
2x capital.

Summary
The acquisition of cost data for pre-feasibility
level mine development studies is not simple.
A thorough understanding of the three primary
study levels, PEA, Pre-Feasibility, and Feasibility,
is required to identify the types and accuracy of
costing data that are appropriate for the study
level. Moreover, a well identified procurement
strategy is recommended to overcome the
hurdles associated with the acquisition of costs,
namely the general lack of project specific data,
the highly complex nature of modern mining and
processing systems, and time.

costs@miningintelligence.com +1 509 328 8023

how much will it cost? // brad terhune www.miningintelligence.com