EDITOR’S NOTE: When we started Equity.Guru, we wanted to open up the financial markets to a new audience, because the markets can’t thrive without new money entering the space, and younger, newer investors from different background and demographics are fueling everything right now.
That’s been great for weed as a sector, because younger investors understand that product. And it’s been great for blockchain/crypto, because they live there. And it’s been great for energy metals, because nobody understands the need for MOAR BATTERY like millennials.
But what about industrial and precious metals?
The old guys who have been investing in mining since the 80’s, they know what a PEA is and an NI 43-101, they understand grades and recovery rates, and they invest accordingly.
But our readers? They’re not entirely knowledge-based in their metals moves, as a general rule.
So this is the first in a new series, Mining 101, where our guys will get a little deeper into what happens when a mining explorer wants to move towards mine production. What permits do they need, and what are the stages of progression, and – in this instance – what makes for a good PEA?
Preliminary economic assessments, or PEAs, are an early report a company can put out on a piece of land under their control, to help investors understand whether the plot is likely to move to an economically feasible producing mine down the road.
Due to the Canada Security Agency’s (CSA) strict policies on mineral disclosures, they’re also a rare opportunity to promote the potential profit from a mineral site to investors before more scientific exploration starts, triggering a whole whack of regulations designed to prevent, well, this:
To communicate with investors, mining companies have to follow a very specific path with pre-feasibility studies, feasibility studies, and on and on. In each of these steps, companies have to stick with a ‘just the facts’ approach. Even if they KNOW they are sitting on a mother lode, they generally can’t make any projections or estimates public, just the qualified results of the actual holes drilled in the ground, assessed by an independent party.
Generally, exploration involves a geologist finding a piece of ground that has indicators there may be something special beneath (or on) the surface. An explorer will take steps from flying over the property with magnetic imaging cameras to taking ground samples to going through prior data from other prospectors. When they’re satisfied there’s reason to get underground, they’ll start drilling.
The data from the drill cores helps to make up a resource estimate, otherwise known as an NI 43-101. If that resource is sizable enough, the next step is to do a Preliminary Resource Estimate (PEA), to show whether it would make economic sense to move beyond testing and prepare for actual mining.
PEAs allow a company to make economic analysis results available to the public based on ‘inferred mineral resources’. They are more than simply putting up stakes and saying ‘Thar be gold here’ – they tell a story of how much gold (or zinc, what it might cost to get at and process, what the market is likely to pay for it, and whether it would make sense to do all the work needed to get there, financially.
When mining companies survey their claims, there are very good techniques for taking sample data and extrapolating the size and yield of the resources… Assuming you tell the truth and don’t massage the data.
Some big scandals in this area (see: BRE-X) tightened up the regulations. Now if you want to talk about your mineral finds, you can’t make projections on what you think you have, you can only report on the stuff you actually pulled up out of the dirt.
The downside for companies is they can’t advertise what they think they have unless it’s been verified by an independent tester, and assessed by a Qualified Person ons staff. They publish their samples, and potential investors (you guys) will use that data to run the numbers on your own.
You don’t have to be a geologist to parse these numbers. But it doesn’t hurt.
PEAs in a pod
PEAs are the one way a company can make projections about the economic value of their asset. By putting in the CYA-est of CYA disclosures and disclaimers, a company has the opportunity to show off what it thinks the property can do.
PEA in the mining pool
PEAs are the sales brochure. They are a way for a company to say “We have this land. We’re about to seriously start surveying, because our super-preliminary data says there’s X of Y here worth Z”. The second the real work starts, the heavy-duty regulations kick in, and the only data the company can release is very circumscribed.
Some companies will go all the way up to a Pre-Feasibility study but not pull the trigger on actual sample data. They release their study as a PEA and will refile the exact same thing but with mineral data salted in to move to the next step.
Big Brother watches your PEA
The CSA still monitors PEAs. They are *very* squirelly when it comes to shall we say, over-agressive predictions. If you submit or see a very optimistic PEA, you can be sure the CSA will want the company to prove where it gets it’s results.
The PEA also has looser requirements for a ‘competent person’ – i.e. a general geologist may be good enough for a PEA, whereas you would need a specialist for anything further. However, the CSA will still be watching, and if you put Doris from HR in a PEA, she will have to prove she has the relevant skills or you will be in trouble.
PEAce in our time.
A PEA is a great way to see what a company’s best, earliest case scenarios are. Since they don’t have the same straitjackets as a regular disclosure the company can be more frank about what they think they are sitting on.
Conversely, you have to trust their numbers, and their number crunchers. PEAs are best treated like car dealer brochures. Everything is presented in the best possible light, but do some research and have a test drive too.
You can read more dry and detailed information in CSA Staff Notice 43-307 Mining Technical Reports – Preliminary Economic Assessments