A feasibility study is what a company needs to produce to determine if a deposit is profitable to become a mine.
This intensive study combines all they know of the deposit they have found – its size and quality (measured by the “grade” of the ore body), the metallurgy (how much of the metal can be recovered), current and future market prices for the commodity, or commodities, to be mined, labour and material costs, the size and type of mine being proposed, environmental and community considerations, and projected operating costs. Other factors will be studies including global supply and demand, political stability of the jurisdiction, regulatory complexity, labour availability, community support. These can be broadly described as the risks and rewards.
Key questions and answers in feasibility are how much it will cost to build and operate and what is the payback period. Payback is how long it takes the mine’s profits to pay off the initial capital, which includes the exploration, environmental assessment and construction, investment.
To determine the size and grade, a deposit is sampled extensively to calculate the amount of material in a mineral deposit. This is known as the resource. The resource data is classified as measured, indicated, or inferred, based on the amount of drill samples. Additionally, the deposit’s reserve – valuable mineralization with the potential to be promoted to resources if sampled more – is also calculated.
The feasibility process is not cheap, and companies spend tens of millions of dollars to cover associated costs. They will not get any revenue from the deposit until mining starts, and even then, the profits from the first few years of mining are used to pay off the debt of constructing the mine.
If the feasibility study and its many factors project that mining will be profitable, the project can be advanced to the regulatory and permitting phases. Ultimately, the project owners decide if they want to commit funding to build the mine. Northern mines can cost C$1 billion, or more, to construct.