Preliminary economic assessments (PEAs) are no foundation for production decisions in mining projects, and serve little basis for detailed value-creation forecasts, according to a veteran mining consultant.

“The dire state of the global economy may be prompting the considerable number of PEAs being published,” said Roger Dixon, corporate consultant at SRK Consulting. “Investors should be reminded that there is not much value in the detailed value projections that often accompany these assessments.”

Dixon has more than 48 years of experience in the South African mining sector, and currently specializes in reserve and resource reporting to stock exchanges. His resume includes work at Anglo American, Anglovaal and base-metals mining group Metorex.

Preliminary Economic Assessments ‘…tend to underestimate the costs and complexities of a project, and create expectations for indicators like NPV and IRR that may not be achieved in later studies such as Prefeasibility and Feasibility studies,’ says mining consultant Roger Dixon. ‘There are just so many assumptions that are being made at this stage, which have yet to be tested scientifically by technical studies.’

He noted that many PEAs include calculations on envisaged production levels, capital costs, operational costs and even net present values (NPVs) and internal rates of return (IRRs). “Setting out these indicators in exact dollars and cents tends to belie the many assumptions that must be made at this stage in a project,” he said.

“At best, it is a somewhat fruitless exercise to attach such exact numbers to a PEA — while at worst it could be highly misleading. There are just so many assumptions that are being made at this stage in a development, which have yet to be tested scientifically by technical studies.”

He acknowledged that stock exchange regulators do make special provisions for PEAs, and that they do have a role in the project planning pipeline. Canada’s National Instrument 43-101, developed after the 1997 Bre-X scandal, recognizes PEAs as one type of economic analysis of a mineral resource’s potential viability.

“Regulators highlight, however, that PEAs have severe limitations,” he said. “For instance, they tend to be overly reliant on converting Inferred Resources to Indicated Resources; they may also be misleading if they treat Inferred Resources as Mineral Reserves.” Inferred Resources represent the lowest level of confidence in geological estimation.

Reading media reports of mining project PEAs brings home this risk, he said, with some projects showing that a third or more of the mineralized material they employ in their models is in the Inferred Resource category. The NI 43-101 requires that a PEA, which includes Inferred Resources in its modelling, must have a qualifying statement to clarify that these are too speculative geologically to have economic considerations applied to them.

“PEAs also tend to underestimate the costs and complexities of a project, and create expectations for indicators like NPV and IRR that may not be achieved in later studies, such as prefeasibility and feasibility studies,” said Dixon. “They also often use overly optimistic metal recoveries and metal price assumptions.”

He warned that PEAs were not intended to be the basis for production or investment decisions, but rather to be stepping stones in a much longer and more focused scientific and engineering process.

“The way that PEAs are reported in the media — where there is seldom space for all the necessary disclaimers — can also make a project appear more attractive than it should,” he said. “In reality, a PEA does little to demonstrate economic viability, and projects at this stage of development typically have a high risk of economic or technical failure.”

He highlighted that there is a wide range of modifying factors — including increasingly important social and environmental impacts — that mining projects had to explore and mitigate before a mine’s viability could be fully assessed.

Better illumination has proven to decrease workplace accident rates by as much as 60%, according to lighting supplier Dialight.

3 Ways LED Lighting Reduces Mine Hazards
Mining, although admittedly safer today than it was decades ago, has always been a high safety-risk business in which accidents and fatalities can have a devasting social and economic impact on families and be a major financial burden in an industry where margins are already thin. In addition, mining accidents often make national headlines, putting companies and their safety practices in the spotlight and influencing public perception and recruiting efforts.

Luis Ramirez, chief operations officer of industrial LED lighting supplier Dialight, offered a case for implementing improved worker safety through better lighting. “According to U.S. government health and safety regulatory agencies, powered haulage, machinery and electrical accidents are among the leading causes of death in both underground and surface operations, accounting for around 90% of fatalities. In all three of these cases, poor lighting can be a primary contributor: the risk of slips, falls and contact with moving objects, constant noise that forces workers to rely on visual cues, and an inability to distinguish colors on warning placards and electrical wiring due to poor lighting all factor into these risks.”

Better illumination has proven to decrease workplace accident rates by as much as 60%. In fact, upgrading mine-site lighting to LED fixtures substantially reduces the risk of these preventable accidents, said Ramirez, who goes on to explain how modern LED lighting can improve mine safety to lower the risk and cost of accidents, injuries and fatalities in mining facilities:

  • Brighter environment – High-quality LED lighting provides crisp, clear light that’s the nearest artificial source to natural daylight. This uniform and bright light reduces shadows, improves visibility and even enhances workers’ alertness, especially in dark areas such as underground facilities and at night in 24/7 surface operations. Enhanced visual acuity has been shown to improve trip-hazard detection by 94% and peripheral-motion detection by 79%, which could go a long way toward reducing powered haulage and machinery-related accidents.
  • Improved color rendering – Conventional lighting such as high-pressure sodium (HPS) is known for its dingy, orange hue that makes colors difficult to distinguish. This can lead to safety issues when workers must interpret warning signs and wiring colors and puts them at risk of misunderstandings that can lead to serious accidents. LEDs, on the other hand, have the highest CRI (color rendering index) of any artificial light source — in the range of 80-90 CRI, with natural daylight at 100. This means that colors are easier to distinguish. It also gives the overall facility a more natural, daylight appearance, rather than a dark, orange glow.
  • Reduced maintenance – HPS and fluorescent bulbs and fixtures fail frequently in the high-vibration environment of mining operations, and are easily damaged by contact with debris and machinery. This demands frequent replacement, which puts workers at risk of an accident. LED fixtures are much more tolerant of vibration and shock, greatly reducing the risk of fixture failure and the need for replacement. Less maintenance means less risk of an accident, which protects employees and the company.

Ramirez summarized by noting that upgrading to industrial LED lighting for mining operations can substantially reduce the risk of injury and improve worker safety on the job. When replacing failed or inefficient fixtures, choosing high-performance, long-life industrial LED fixtures is a worthwhile investment in both more efficient operations and in the safety and well-being of staff, as well as in improving the public perception of the industry.