The purpose of any feasibility study is to determine whether a particular investment or management program will enhance shareholder wealth by, for example, producing an economic return in excess of the cost of equity capital.The threshold rate of return conventionally used in gold feasibility studies is higher than the cost of equity capital, meaning that some viable projects are wrongly described as being sub-economic with their development deferred.Is the industry failing to fully realise its potential? Aside from important technical considerations that determine the cost of exploiting inground inventories, feasibility studies need to incorporate expectations about future gold prices, exchange rates, interest rates and tax rates.Rather than revert to speculation, insights from capital markets give a rigorous framework in which these parameters can be determined for feasibility purposes. Separate questions sometimes, and then inadequately, addressed by feasibility studies include:_x000D_
Is it optimum? Many projects are expanded soon after project commissioning - what does this say about the quality of the initial feasibility study? Moreover, does the rate of extraction really matter?_x000D_
What is it worth? Although feasibility studies are designed to address viability rather than valuation, such studies are never- theless used by the industry as further evidence that the equity markets have got it wrong again! More likely the problem is with the financial slide rule being used._x000D_
Can it be debt financed? The bankable feasibility study has entered the vocabulary of the gold mining industry but what does it mean? Does it matter anyway how the project is to be Financed?