Transcript Cover title - Metallurgy

Project value erosion due to non
technical causes
SME: Current Trends in Mining Finance
Andy Churr and Jennifer Collins
The world’s leading sustainability consultancy
Environmental and social risks can materially affect NPV
Concept
Prefeasibility
Feasibility
Execution
Operation
Closure
Theoretical
NPV
NPV
Option 1
Option 2
Option 3
Option 4
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NPV
including
risks
Delayed extractive projects with CAPEX greater than $500m
Length of
delay
(months)
Oil
and
Gas
Mining
2-6
7- 12
13 – 24
24+
3
The world’s leading sustainability consultancy
Source: ERM Analysis
Less than a third of mining projects were delivered on schedule
Mining project delays (2008 – 2012)
Causes of delay*
46%
Delayed
Lack of social acceptance
42%
Environmental concerns
35%
Permitting issues
No delay
reported,
project in
progress
24%
Land Access
6%
Health & Safety
6%
Extreme weather
Adverse
3%
Commercial issues
Revenue sharing
Delivered on
schedule
30%
Technical challenges
No details available
0%
50%
35%
6%
3%
Other
causes
6%
*Does not sum to 100% due to multiple causes of delays
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Non
technical
causes
23%
Source: ERM Analysis
Projects with non-technical causes had longer delays
Length of delays where causes were identified
9
8
Number of projects
8
8
7
6
5
4
4
3
2
1
Non-technical
causes identified
5
2
1
2
Only technical and
commercial causes
1
0
2-6
7-12
13-24
24+
Delay in months
81% of delayed projects had one or more non-technical cause
7
The world’s leading sustainability consultancy
Source: ERM Analysis
Greenfield projects suffered greater delays than expansions
Greenfield versus brownfield project delays
40
Number of projects
35
30
12
25
No delay
24
20
15
Only technical and
commercial causes
17
10
Non-technical causes
6
5
4
4
Greenfield
Brownfield
0
64% of greenfield projects were delayed compared to 29% of
brownfield expansions
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The world’s leading sustainability consultancy
Source: ERM Analysis
Understanding external stakeholders is key to project success
Mining projects have a
number of impacts
Environmental impacts
Which create risks when
stakeholder acceptance is
not obtained
 Water reduction /
pollution
 Visual impacts
 Biodiversity loss
 etc.
Social impacts
 Physical displacement
 Economic displacement
 Change in quality / way
of life
 etc.
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Consequences
Stakeholder
expectations
and
perceptions
 NPV erosion
 Loss of access to future
resources
 Loss of shareholder trust
 Careers limited
Key questions to consider
 How well are stakeholders understood and how do they perceive
the project?
 Is there a compelling external value proposition for key
stakeholders?
 How effective are the mechanisms that identify and review the key
risks that could arise over the project’s lifecycle?
 Are the financial and other consequences of these risks well
understood by all?
 Are the controls that have been identified adequate to reduce
these risks to an acceptable level, and are they understood by the
organisation?
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