Investing in Undervalued Stocks

Mine Life Cycle - How Accurate are the Resources Reported in Each Project Phase

A typical mining project goes through different phases which are collectively referred to as the mine life cycle. In the following table1 you see a detailed description of the mine life cycle.

Mine Life Cycle - How Accurate are the Resources Reported in Each Project Phase

First, an exploration program is initiated to gather information about the potential presence of a mineable orebody. Exploration information is defined according to the CIM standards2 as follows:

Exploration information means geological, geophysical, geochemical, sampling, drilling, trenching, analytical testing, assaying, mineralogical, metallurgical and other similar information concerning a particular property that is derived from activities undertaken to locate, investigate, define or delineate a mineral prospect or mineral deposit.

In the exploration phase, the results of a drill program are reported under supervision of a qualified person2 who will publish the first (and future) mineral resource estimate(s).

If the preliminary economic assessment indicates that the project could be economically viable, management will hire a consulting firm who will start with the preliminary feasibility study2. Well-known consulting firms are: SRK Consulting, Tetra Tech, and Behre Dolbear.

When management concludes - based on the outcome of the preliminary feasibility study - that the resource has the potential to be extracted from the ore in a profitable manner, a consulting firm will be hired to complete the (bankable) feasibility study2. This final feasibility study will include the engineering design.

After receiving the bankable feasibility study, management has to arrange the best possible project financing: this is one of the hardest tasks for management to complete. Therefore, I always prefer to see a financial specialist in the management team, who already has raised significant amounts of money in the past (although this is not a guarantee that the financing will be completed without any problems).

Finally, when management has secured the project financing, the company can start with the construction phase. There is a lot of uncertainty during the construction phase, which can have a negative impact on share prices. Declining share prices in the construction phase are often caused by costs over running from the original estimates from the bankable feasibility study. As estimating is not an exact science, keep the accuracy levels from the table below in mind! When (you suspect) additional financing is necessary, always be very careful when holding these stocks, as their share prices often decline very fast. Alternatively however, these situations of very fast declining share prices could lead to ideal buying opportunities too.

If you are interested to find out how I use the accuracy levels from the table below for my own investment analysis, I refer you to the note at the bottom of this page.

As soon as the construction phase is over, the mine will be taken into production. This phase has to lead to one goal: profit from operations! Brownfield exploration can lead to an extended mine life.

Finally, the mine will be closed and the land must be returned to its pre-disturbance condition.

The Accuracy Level of the Resources Reported in Each Project Phase of the Mine Life Cycle

Project Phase 

Accuracy of Reported Resources 



Preliminary Economic Assessment (PEA)
(also referred to as Economic Analysis


Preliminary Feasibility Study (PFS)
(also referred to as Pre-Feasibility Study


Bankable Feasibility Study (BFS)
(also referred to as Final Feasibility Study or Feasibility Study


Construction Phase 







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Note: In order to valuate a typical mining project which is not in production, I subtract a percentage of the reported mineral resources depending on the project phase the company finds itself in. For the PEA, PFS and BFS I deduct 35%, 25% and 15% respectively.


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1 Image Source: http://www.gardguide.com/index.php/Chapter_4

2 CIM Definition Standards

About Jeroen Snoeks

Jeroen Snoeks - UndervaluedEquity.com

Jeroen Snoeks is the founder of UndervaluedEquity.com, a website for investors passionate about investing in undervalued stocks. Through UndervaluedEquity.com, he shares his experience and knowledge and will soon reveal his personal stock portfolio.

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