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For investors looking at mining stocks, one of the most important questions is also one of the simplest: where is the company actually up to?
A junior explorer drilling its first targets carries a very different risk profile to a company building a mine, while a producer has already crossed some of the biggest hurdles in the mining life cycle.
In the latest Wiser Wealth segment, we break down the six key stages a mining project can progress through — from exploration through to production.
It is important to remember that the process isn’t always perfectly linear. Resource definition, studies, permitting, financing and other activities can overlap, while projects can also stall or fail at any stage.
Where is the project in the mining life cycle? An explorer, developer and producer may all be mining companies — but the risks facing each can be very different.
THE SIX STAGES
EXPLORATION
Finding out what’s in the ground
A company acquires or holds exploration tenements and searches for evidence of mineralisation through techniques such as geological mapping, soil sampling, geophysical surveys and drilling.
This is one of the highest-risk stages, with many exploration projects never progressing beyond this point.
RESOURCE DEFINITION
Working out how much might be there
If early exploration produces encouraging results, the company begins drilling more systematically to establish the size and characteristics of the mineralisation.
The results can ultimately feed into a Mineral Resource Estimate (MRE), giving investors an indication of how much of a commodity may be present.
STUDIES
Can it actually make money?
Mining companies can progress through increasingly detailed studies, beginning with a Scoping Study, followed by a Pre-Feasibility Study (PFS) and potentially a Definitive Feasibility Study (DFS).
These examine factors including mine design, processing, capital costs, operating costs and infrastructure.
FINANCING & DEVELOPMENT
How will the project be funded?
Even a technically viable project still needs to be funded.
Developers may use a combination of equity, debt, offtake agreements, strategic partnerships or other funding arrangements to finance development.
CONSTRUCTION
Turning the project into a mine
This is where the project moves from plans to physical development.
Infrastructure can include processing facilities, roads, power, water, accommodation and other supporting infrastructure required to operate the mine.
PRODUCTION
Generating revenue from the asset
Finally, the mine starts operating and the company begins producing and selling its commodity.
For investors, this marks a major transition as the company is now generating revenue from an operating asset.
An explorer is largely betting on what might be in the ground. A developer is trying to prove it can be mined economically. A producer is operating an asset and selling the commodity.
THE RISK DOESN’T DISAPPEAR
The mining life cycle isn’t a straight line, and reaching one stage doesn’t guarantee reaching the next.
Projects can face poor drilling results, technical problems, uneconomic feasibility studies, permitting issues, funding difficulties, construction delays or changes in commodity prices.
Where a project is located can also add another layer of risk. Companies operating in some countries may face more challenging permitting processes, infrastructure constraints, political or regulatory uncertainty, security issues or difficulties accessing capital and equipment.
That is why understanding which stage a mining company is at — and where that project is being developed — is critical when assessing both risk and potential reward.
