PEA vs PFS vs Feasibility Study: What Each Stage Proves and What It Doesn't

Summary box

• The study ladder runs: scoping study → Preliminary Economic Assessment → Pre-Feasibility Study → Feasibility Study.
• A Pre-Feasibility Study is the minimum prerequisite for converting Mineral Resources into Mineral Reserves. A PEA cannot do it.
• A PEA may include Inferred Mineral Resources. A PFS or FS reserve statement may not.
• Cost-estimate accuracy tightens as you climb: roughly ±30–50% at PEA, ±20–30% at PFS, ±10–15% at FS. Those bands are engineering convention, not regulation.
• Comparing a PEA NPV to a feasibility NPV without adjusting for the accuracy band and the resource categories underneath is the most common way to overpay for a development-stage asset.

The ladder

Mining projects advance through a sequence of studies, each more expensive, more detailed and more binding than the last. The purpose is to spend money on engineering in proportion to the confidence you have that the deposit is worth engineering.

Scoping study. Order-of-magnitude. Often internal, often never published. Establishes whether the project is worth a real study.

Preliminary Economic Assessment (PEA). The first study that can be publicly disclosed with an NPV attached. In Canada, a PEA is formally defined in NI 43-101 and is understood as a study, other than a pre-feasibility or feasibility study, that includes an economic analysis of the potential viability of mineral resources.

Pre-Feasibility Study (PFS). The CIM Definition Standards describe it as "a comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, is established and an effective method of mineral processing is determined. It includes a financial analysis based on reasonable assumptions."

Feasibility Study (FS), sometimes Definitive or Bankable. The most detailed. Single selected option, engineered to a level that supports a construction decision and, usually, project debt.

The rule that separates PEA from everything above it

CIM is explicit: the standards require "the completion of a Pre-Feasibility Study as the minimum prerequisite for the conversion of Mineral Resources to Mineral Reserves."

This single sentence explains most of what matters:

• A project with a PEA has no reserves, however impressive its NPV.
• A PEA may include Inferred Mineral Resources in its mine plan. A reserve statement may not — an Inferred Mineral Resource "must not be converted to a Mineral Reserve."
• Therefore a PEA NPV can be calculated on tonnes whose geological continuity is implied but not verified, while a feasibility NPV rests on tonnes whose continuity is assumed or confirmed.

Canadian regulators require PEA disclosure to carry a cautionary statement to that effect. When you see it, do not skim it. It is the most important sentence in the release.

Accuracy bands

Study accuracy is an engineering convention, not a legal definition, but the industry works to broadly consistent ranges for capital cost estimates:

Two implications people miss.

First, the band is asymmetric in practice. Capital cost estimates historically overrun more often than they underrun, because the unknowns discovered during detailed engineering are usually costs, not savings. A ±30% band around a PEA capex figure is better read as a distribution skewed to the upside.

Second, the band should be compared to the NPV margin. If a project's NPV is $400 million on $900 million of initial capex, a 30% capex overrun of $270 million consumes most of the value. The study has established that the project is viable if the estimate is right, which at PEA level is precisely the open question.

How to compare studies across projects

Two NPVs are comparable only after normalising four things.

1. Metal price deck. A gold project modelled at $2,600/oz and one at $2,000/oz are not describing the same world. Rebuild both at a common price if the sensitivity table allows, or at minimum note the gap versus spot.

2. Discount rate. 5% for precious metals and 8% for base metals are common conventions, but the choice is discretionary. Lower discount rates flatter long-life projects disproportionately. A 30-year mine looks very different at 5% than at 8%.

3. Pre-tax versus post-tax. Pre-tax NPV is always larger and almost never the relevant number. Headlines frequently quote pre-tax; the table usually gives both.

4. Study stage and resource category. Adjust for the accuracy band and check what share of the mine plan is Inferred material. A PEA that is 40% Inferred by tonnes is a very different proposition from one that is 5%.

What actually changes between PFS and FS

The jump from pre-feasibility to feasibility is where a lot of projects lose value quietly. The typical sources:

• Metallurgy. Variability testwork on samples from across the deposit, rather than a favourable composite, often lowers the recovery assumption.
• Geotechnical. Detailed pit slope or ground-support design can flatten pit walls, increasing strip ratio, or require more support underground.
• Dilution and mining recovery. Detailed mine design applies real dilution to real stope shapes. Planned dilution usually rises.
• Infrastructure. Power, water and access get costed properly, often for the first time.
• Vendor quotes. Factored costs are replaced by actual quotations, and contingency is rebased.
• Permitting and closure. Environmental studies mature, closure and reclamation liabilities get quantified.

None of these are failures. They are the study doing its job. But they mean the honest prior on a PFS-to-FS transition is a modest deterioration in headline economics, offset in good cases by optimisation and resource growth.

Red flags at each stage

At PEA:

• A high proportion of Inferred material in the mine plan, without a stated conversion assumption
• Recovery assumed from a single composite sample
• Contingency under 15%
• No sensitivity table, or sensitivities run only on metal price and not on capex and opex
• A price deck materially above spot and consensus

At PFS:

• Reserve statement present but the resource is largely Inferred, implying a very small reserve carved from a large resource
• Metallurgical recovery unchanged from PEA despite more testwork — either genuinely robust or not re-tested
• Strip ratio unchanged from PEA after geotechnical work

At FS:

• Contingency below 10%
• Schedule assuming no permitting delay in a jurisdiction with a history of them
• Owner's costs absent or nominal
• Working capital not funded in the initial capital estimate
• No comparison table against the preceding PFS explaining what changed and why

That last one is the most useful document a developer can publish and the one most often omitted.

The equivalents in other codes

The JORC Code 2012 uses Scoping Study, Pre-Feasibility Study and Feasibility Study, with the same principle that a Pre-Feasibility Study is the minimum basis for converting Mineral Resources to Ore Reserves. Australian practice does not use the term "PEA"; the nearest analogue is a Scoping Study, and JORC places specific restrictions on publishing production targets and forecast financial information derived from Scoping Studies or from Inferred Resources.

Under US Regulation S-K subpart 1300, the corresponding documents are the initial assessment, the pre-feasibility study and the feasibility study, delivered as a Technical Report Summary.

Cross-listed issuers frequently publish under two codes at once. Where the numbers differ, the difference is usually definitional rather than substantive — but you should know which one you are reading.

How Mining Terminal handles study data

Mining Terminal extracts project economics — NPV by discount rate and tax basis, IRR, initial and sustaining capex, AISC, mine life, throughput, recovery, and the metal price deck — from technical reports and tags each record with its study type: PEA, PFS, FS or other. Study stage is a first-class filter, not a footnote, because comparing across stages without it produces nonsense.

Where a filing discloses only a pre-tax NPV, we do not synthesise a post-tax figure. Where the study type is not stated unambiguously in the document, the record is not stamped with a guess.

To compare project economics by stage, commodity or jurisdiction, get in touch or ask Nara.

Sources

• CIM Definition Standards for Mineral Resources and Mineral Reserves, 10 May 2014 — BCSC-hosted copy
• National Instrument 43-101 Standards of Disclosure for Mineral Projects — Ontario Securities Commission
• The JORC Code, 2012 Edition — jorc.org
• Regulation S-K subpart 1300 compliance guide — U.S. SEC

This article is educational and is not investment advice. Mining Terminal is a data platform, not a broker, dealer or investment adviser.