A bankable feasibility study is an in-depth analysis to determine if a proposed project is economically viable and worthy of investment. This comprehensive report provides potential lenders and investors with enough information to decide if funding should be provided to the project.
While every bankable feasibility study is unique, some standard components should be included to paint a full picture of the potential risks and rewards. Let’s explore the key elements of a bankable feasibility study and why each section matters.
What Exactly is a Bankable Feasibility Study?
A bankable feasibility study is a detailed assessment of a proposed project to determine if it can be successfully completed as planned. It considers all relevant factors including technical, economic, legal, and scheduling issues to ascertain the likelihood of success.
The goal is to provide potential funders with sufficient information to make an informed decision about financing the project. The depth of analysis should mitigate concerns over the project’s viability and ability to generate returns.
The “bankable” designation means the study is detailed enough for banks, investors, and other funding sources to consider it a reliable evaluation. A bankable feasibility study should demonstrate that the project can be financed based on its expected cash flow and risk level.
Proving a project is bankable is key to obtaining financing, hence the importance of a robust feasibility study.
Why Conduct a Bankable Feasibility Study?
There are several important reasons to conduct a comprehensive bankable feasibility study:
- Reduce risk – A well-researched study helps identify potential issues and challenges early when they can still be addressed. This reduces risk for all stakeholders.
- Attract financing – By demonstrating that a project is viable, a bankable study helps secure investors and financing. Banks want proof of profit potential.
- Inform decisions – The analysis provides key data to help stakeholders decide if the project should proceed and how it should be structured.
- Optimize plans – Identifying weaknesses in the project plan allows opportunities to enhance elements like the budget, timeline and resource needs before moving forward.
- Compare options – When evaluating multiple projects or approaches, feasibility studies allowapples-to-apples comparisons to select the best option.
In summary, bankable feasibility studies give stakeholders confidence in a project’s ability to generate returns on investment and guide smart decision making.
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What Should Be Included in a Bankable Feasibility Study?
While individual studies will vary based on the project, certain sections are typical in a thorough bankable feasibility study:
Executive Summary
- High-level overview of key findings and recommendations
Project Background
- Description of project objectives, scope, location, milestones
- Discussion of market opportunity, demand drivers, and competitive landscape
Market Analysis
- Analysis of target market, industry trends, pricing factors
- Competitor evaluation
- Forecast of projected revenues and market share
Technical Analysis
- Review of proposed technology, systems, equipment and specifications
- Assessment of resources and infrastructure needed for development
- Evaluation of technical feasibility and risks
Management Analysis
- Overview of management team qualifications and experience
- Assessment of their ability to execute the project
- Staffing requirements and plans
Financial Analysis
- Breakdown of project costs including CAPEX and OPEX
- Projected income statement, balance sheet, and cash flows
- Analysis of key financial ratios, ROI benchmarks, breakeven points
- Discussion of financing options
Implementation Plan
- Project schedule covering development, testing, launch, and ramp-up phases
- Assessment of execution risks and mitigation strategies
- Outline of operations, supply chain, and other logistics
Legal Analysis
- Overview of permits, licensing, regulations and other legal requirements
- Discussion of health, safety and environmental factors
- Review of intellectual property, royalties, and other contractual issues
Risk Analysis
- Identification of technical, operational, financial, and external risk factors
- Assessment of the likelihood and potential impact of key risks
- Outline of risk mitigation strategies
Conclusions & Recommendations
- Summary of feasibility determination and suggested next steps
- Overview of options, tradeoffs, and alternatives considered
This covers the typical contents included in a robust bankable feasibility study. The level of detail will vary by project size and complexity. Lenders and investors may also request additional information during their due diligence process.
Bankable Feasibility Study for a Mining Project Example
To better understand the components of a bankable feasibility study, let’s look at an example for a proposed mining project.
Executive Summary
The executive summary would provide a high-level overview of the project objectives, findings, risks, financial returns, and recommendations. It highlights key points from the full report.
Project Background
This section would describe details like:
- The objectives and scope of the proposed open-pit copper mine
- Location of the ore deposit and existing infrastructure
- Mining claims, licenses, and other access rights
- Timeline for completing studies, permitting, facility development and commercial production
Market Analysis
The market analysis would cover:
- Copper supply/demand fundamentals and pricing trends
- Target markets and downstream applications for the copper
- Competitor mines in the region and their production capacity
- Forecasted production quantities and revenues based on expected copper prices
Technical Analysis
The technical review might assess:
- Proposed mining methods, equipment, and processing technologies
- Resource grade and geotechnical factors from drilling assays
- Metallurgical testing results and expected recoveries
- Infrastructure plans including power, water, and transportation
- Waste rock and tailings storage facilities and reclamation planning
Management Analysis
This provides background on:
- Management’s track record developing and operating mines
- Key staff needed for the feasibility study, permitting, development, operations, and closure
- Experience managing projects and budgets on schedule and within scope
Financial Analysis
The financials would evaluate:
- Capital and operating costs estimates over the life of the mine
- Cash flow projections including mine development, production, reclamation
- Returns metrics like NPV, IRR, and payback period
- Analysis of commodity price volatility and options like hedging
- Financing options including debt, equity, bonds, stream financing
Implementation Plan
The implementation plan outlines activities like:
- Completing permitting, final engineering designs, and sourcing contractors
- Developing the site including clearing, infrastructure, and facilities
- Procurement, construction, installation, and testing of mining equipment
- Recruiting and training the workforce
- Commissioning and ramping up to full production
Legal Analysis
This section would summarize:
- Applicable regulations and permit requirements
- Plans for engagement with local communities and indigenous groups
- Environmental approval processes and impact mitigation strategies
- Intellectual property considerations related to processes or technology
Risk Analysis
Key risks could include:
- Fluctuations in copper market prices
- Delays or issues obtaining permits and regulatory approvals
- Construction cost overruns or delays
- Underperformance of mining methods or recovery rates
- Water supply shortages or environmental incidents
Conclusions & Recommendations
In summary, the study would determine if the project is feasible, outline any critical success factors, and provide recommendations on how to proceed.
Frequently Asked Questions
What is the difference between a feasibility study and a bankable feasibility study?
The main difference is the level of detail and analysis. A feasibility study provides a basic evaluation of whether a project can succeed. A bankable feasibility study does a much deeper dive into all aspects of the project to prove its viability and ability to repay investors.
What level of confidence does a bankable feasibility study provide?
A robust bankable feasibility study demonstrating strong technical, economic, and financial viability can provide reasonably high confidence in the project’s ability to be successfully executed. Most uncertainties and risks should be identified and mitigated. There are still no guarantees of success, but the level of due diligence exceeds most other stages of project development.
Who prepares a bankable feasibility study?
Bankable feasibility studies are usually prepared by third-party engineering and consulting firms who specialize in assessing proposed projects. They conduct independent analysis across all technical, financial, market, operational, and other domains. Their credibility helps validate findings for stakeholders.
What role does a project’s NPV and IRR play in determining if it is bankable?
Net Present Value (NPV) and Internal Rate of Return (IRR) calculated in the financial modeling are key metrics assessing project viability. A positive NPV and sufficiently high IRR relative to the project’s risks and financing costs help demonstrate whether the project is economically feasible and bankable.
How much do bankable feasibility studies cost?
Costs vary substantially based on the project size, location, complexity, and length of study. But feasibility studies often cost from hundreds of thousands to multiple millions of dollars. The investment aims to thoroughly vet opportunities and avoid costly missteps down the road.
Last Words
Preparing a detailed bankable feasibility study requires a significant investment of time and resources. But the potential benefits outweigh the costs. A rigorous analysis reduces risks, attracts financing, informs stakeholder decisions, and identifies opportunities to optimize plans. For project developers seeking funding, undertaking a proper feasibility study is a crucial step in demonstrating viability to potential investors and lenders.
While not a guarantee of success, a comprehensive bankable feasibility study provides critical data to determine if a proposed project has the technical, operational, financial, and economic merits to warrant moving forward. Given the major capital requirements of most large projects, conducting appropriate due diligence through a feasibility study is essential for setting them up for success.
