Part 1 in series: Development of Mining Projects from Scoping Study to Commissioning successfully for the benefit of your shareholders
Sten Soderstrom
Available on mobile MINING NED, CHAIR, PROJECT DEVELOPMENT & TRANSFORMATIONAL MANAGEMENT EXPERT, ENTHALPHY Associate, >30 YEARS' INTERNATIONAL EXPERIENCE . MAusIMM, Fellow Chartered Professional Engineer, FAICD.
Pursuing opportunities in mining
A mining project always starts out with one basic belief. The belief is that, if an ore deposit contains a sufficient quantity and quality of a mineral which could potentially be extracted and treated to generate a good return, then it should be pursued as an opportunity.
For example, new greenfield projects need a particular environment in which strategic value can be created. The investment required to realise this potential includes all the costs associated with the asset and its development. However, exactly what this investment involves and how it manifests are not always understood. This lack of understanding leads to all kinds of problems.
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The plain and simple fact of the matter is this:
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* including prospective projects that go through scoping or feasibility studies
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Let’s stop for a moment and think about what those facts mean. More than half of all projects never get built because the project sponsors (the owners) worked out that they were not going to be able to generate the return on investment needed to attract investors.
Half of the projects that do get built still fail to meet investor hurdle rates. This leaves us with 25% of all projects that actually meet investor hurdle rates. Of those, half run over schedule, meaning that just 12.5% of all projects actually meet investor hurdle returns and get finished on time!
If you are responsible for creating strategic value in your company, which group do you want to be in? The 12.5% group that meets investor returns and finishes on time? Or the 87.5% group?
Of course, nobody wants to be the 87.5% group, so why do so many people end up there? Quite simply, avoiding failure is an essential part of ensuring success. This means avoiding some of the most common reasons for failure.
The purpose of this series of articles is to guide you through the obstacle course of achieving success in creating strategic value from your projects. In order to do that, I have defined what the obstacles are, giving real examples, quotes and case studies. Thus, it has been necessary to highlight consequences of “negative” conditions that do not lead to achieving success and contrasting those with essential conditions.
In most cases, unfortunately, cost overruns and schedule overruns are something that companies only become aware of towards the end of the project. By this stage, the only option is to complete what has been started.
But it doesn’t need to be this way. In my view, the outcome of any project can be determined with a reasonable level of confidence at a relatively early construction stage, when as little as 25% of the estimated cost has been committed and corrective action can be taken.
This comes back to the basic principles of project management in the mining industry. You’re managing thousands of work elements which are all related to each other and are therefore completely dependent on one another for the overall success of the project.
These elements require resources, including people, expenditure, and equipment. If you have a dedicated project schedule, then you have an awareness of who, what, why, where and when you need all of these different elements, so that you can accurately track where you are and where you need to be.
Unfortunately, the majority of companies don’t adhere to these principles of project management. If you don’t do all of these things, then you don’t give yourself the best chance of having a successful outcome.
To find out how I can help your organisation, drop me a line or call. I am based in Perth, Western Australia.
Sten Soderstrom (FAICD, FEngAus, CPEng, MAusIMM)
0418918310