after the 1997 Bre-X scandal , recognises PEAs as one type of economic analysis of a mineral resource ’ s potential viability .
“ Regulators highlight , however , that PEAs have severe limitations ,” he said . “ For instance , they tend to be overly reliant on converting Inferred Resources to Indicated Resources ; they may also be misleading if they treat Inferred Resources as Mineral Reserves .”
Inferred Resources represent the lowest level of confidence in geological estimation . Reading media reports of mining project PEAs brings home this risk , he says , with some projects showing that a third or more of the mineralised material they employ in their models is in the Inferred Resource category . The NI 43-101 requires that a PEA that includes Inferred Resources in its modelling must have a qualifying statement to clarify that these are too speculative geologically to have economic considerations applied to them . “ PEAs also tend to underestimate the costs and complexities of a project , and create expectations for indicators like NPV and IRR that may not be achieved in later studies – such as Prefeasibility and Feasibility studies ,” said Dixon . “ They also often use overly optimistic metal recoveries and metal price assumptions .”
He warned that PEAs were not intended to be the basis for production or investment decisions , but rather to be stepping stones in a much longer and more focused scientific and engineering process .
“ The way that PEAs are reported in the media – where there is seldom space for all the necessary disclaimers – can also make a project appear more attractive than it should ,” he said . “ In reality , a PEA does little to demonstrate economic viability , and projects at this stage of development typically have a high risk of economic or technical failure .”
He highlighted that there is a wide range of modifying factors – including increasingly important social and environmental impacts – that mining projects had to explore and mitigate before a mine ’ s viability could be fully assessed .