Reading a Mining Feasibility Study Without Getting Fooled

A feasibility study produces a net present value that promotional material will quote as though it were a valuation. It is a model output, not an appraisal, and the inputs behind that single number are where the real information sits. Two studies on similar deposits can produce wildly different NPVs depending on assumptions that have nothing to do with the rock in the ground. Reading past the headline figure means working backward through the discount rate, the price deck, the capital cost line and, just as importantly, the costs that never made it into the model at all.

The discount rate

Most feasibility studies present economics at a discount rate of five or eight per cent, and the choice is rarely explained in the executive summary. For a diversified major with multiple producing assets, a lower rate might be defensible because company-specific risk is spread across cash flows from several mines. For a single-asset development project — no revenue yet, permits still pending, financing not secured — that same rate understates the risk an investor is actually taking. Recalculating the same cash flow stream at a rate that reflects jurisdictional, permitting and execution risk often cuts the headline NPV by half or more. The company is not lying by publishing the lower rate; it is following an industry convention. The reader's job is to redo the arithmetic before treating the number as comparable across projects.

The commodity price deck

The NPV is only as good as the price assumed for every tonne or ounce sold over the project's life. Studies frequently use long-term price decks that sit near or above the spot price prevailing when the study was published, which flatters the economics precisely when investor attention is highest. A useful discipline is to check the assumed price against a ten-year historical average rather than against the current tape. If the study's price deck sits well above that average, the reported NPV is effectively a bet that today's cycle persists for the life of the mine, which for many projects runs fifteen years or longer. Sensitivity tables in the appendix, which show NPV at a range of prices above and below the base case, are usually more informative than the base case itself, because they show how much of the value depends on the price assumption holding.

Capital cost and the contingency line

Initial capital estimates in mining feasibility studies have a well-documented history of running below actual construction costs, across jurisdictions and across commodity cycles. A contingency allowance of roughly ten per cent is standard, but that figure is more defensible for a conventional flowsheet using proven technology than for a first-of-its-kind process route, an unusual metallurgy, or a remote site with limited infrastructure. Sustaining capital — the ongoing spend required to maintain production once the mine is operating — is often disclosed as a separate, smaller line item lower in the document, and it is where subsequent surprises tend to accumulate once a project is in production and the market is no longer scrutinizing every assumption.

What is not in the model

Some of the largest long-run liabilities in mining barely register in the headline economics. Closure and reclamation costs are typically included, but the assumptions behind them can be dated relative to current regulatory expectations. Water treatment obligations that extend in perpetuity at some sites are a growing category of cost that studies tend to understate or discount so heavily at the model's discount rate that they become nearly invisible in present-value terms despite continuing indefinitely. Community agreements and impact-benefit arrangements negotiated with local and Indigenous communities carry costs and commitments that are not always fully reflected. And the cost of capital required to actually raise the money to build the project — equity dilution, streaming or royalty financing, debt covenants — is a separate question from the project economics and is rarely modelled into the same NPV that gets quoted in headlines.

Reading the study as a whole

None of this means a feasibility study is unreliable; it means the study is an engineering and economic model built on stated assumptions, and the assumptions are the analysis. A reader who accepts the headline NPV without checking the discount rate, the price deck, the contingency and what sits outside the model entirely is accepting someone else's judgment about all four. Comparing studies across companies requires normalizing at least the discount rate and price deck to a common basis before any comparison of project quality is meaningful.

What to watch

Track the discount rate and commodity price deck disclosed in the study's assumptions section, the sensitivity table showing NPV across a range of prices, the contingency percentage relative to the novelty of the process flowsheet, sustaining capital estimates versus initial capital, and any subsequent updates to closure cost or water treatment obligations as permitting proceeds. Watch for a company issuing an updated study with a lower discount rate or higher price deck than the prior version without a corresponding change in project risk — that is a re-rating of assumptions, not of the asset.