Technical and Economic Evaluations of Mining Projects for Bank Financing

It is important to realize that lending institutions have a very different risk-profile from that of an equity investor. For bank financing, a feasibility study must address the concerns of the lender and these can be summarized under the four 'PI Is: Project, Performance, Product and People. Generally, feasibility studies focus on the measurable project risks associated with a new venture, but frequently insufficient emphasis is placed on key risk areas such as ore grade and metallurgical recovery. Before accepting full or even partial non-recourse risk, financial institutions will demand evidence that the project was constructed according to specifications and within budget and that its Performance within agreed limits has been demonstrated. Product risk should be discussed in detail in any feasibility study. For industrial minerals, penetration of the market can be critical to success and for commodities with volatile prices, the sensitivity of the cash flow to a range of prices should be carried out. Methods of reducing price risk such as long term contracts or, in the case of gold, forward selling should be carefully evaluated. The People risk is rarely discussed in feasibility studies, but can be a key element. Few projects turn out to be faithful copies of the study and the ability of the operator to identify