Getting back to basics can guarantee profitability of mining capital projects
Many South African mining companies contending with rising input costs, softening prices and squeezed margins are also facing the reality of profitable ore bodies reaching the end of their lifespan and having to focus on effectively bringing new resources to fruition, says professional services firm Deloitte.
The challenge, says Julia Johnson, Strategy & Innovation Mining Solutions Lead at Deloitte, is that as accessible ore bodies are mined out, capital projects become increasingly complex and costly because miners are forced to turn to more remote areas and inaccessible ore bodies to continue production.
“Unfortunately, even though new capital projects are being brought on stream, project execution is often poor with delays and cost escalations being common. When it is considered that new undertakings often involve mining for lower grade commodities, delivering a project on time and within budget becomes a matter of survival,” explains Johnson.
“All too often, significant capital projects that look good on paper ultimately yield little or no return on investment as delays and cost over-runs take their toll,” she adds.
In an environment of tight capital availability and increased demand from investors for return on capital employed, it is vital that mining companies pay attention to three basic components before a project is begun. These are: project scheduling, contractor readiness and monitoring and tracking of projects.
Instead of being purely a ‘task focused’ planning tool, project scheduling should be used as a management tool that allows project managers to accurately plan work against available resources (time, labour, cash flow and equipment) and also identify the key risk areas in achieving the scheduled project completion date.
“Some risks to be considered are low levels of dependency management, unrealistic task planning and not performing a risk analysis on the final integrated schedule,” says Johnson.
Large capital projects require interdisciplinary teams focusing on different aspects of a project. Often, however, they create isolated plans with little focus on the integration points and dependencies between disciplines until the very end of the planning phase. This leaves little time for the project manager to mitigate any potential schedule risks before the project starts. Regular integration sessions are therefore necessary to coordinate the execution of a project.
Unrealistic task planning can be remedied by developing a schedule to allocate and use resources as accurately as possible, so the likely completion date can be determined. This prevents unforeseen overspending occurring during the late stages of a project so completion milestones can be met.
The critical path of a project, which dictates the focus area of the project management team, can leave a team vulnerable if non-focus areas are delayed and become the new critical path when executing a project.
Performing a probabilistic analysis on a schedule allows the most probable completion date of the project to be determined, and also to identify what items carry a high risk of changing the critical path of the project. Mitigation strategies can then be put in place for non-critical path activities.
The final consideration is contractor readiness. As contractors often work on packages that are critical to the project success, the contractor must commit to assigning a strong and experienced management team to the project during the contract negotiation phase.
“Projects often lose significant value early on due to late or slow start-ups and substandard delivery of project works. Building and managing readiness for project execution prior to the start date is critical to launching and maintaining on target project delivery. While responsibility for this resides with the business and the contractor, a lack of contractor preparedness is most likely to catch the business offguard,” says Johnson.
This risk is best managed through a ‘contractor readiness framework’ which manages what must be in place for the contractor to execute the project plan.
“Detailed planning should be undertaken to ensure readiness prior to the project start date. The resulting plans should be aligned, monitored and tracked by a contractor readiness team comprised of both contractor and business representatives,” says Johnson.
Monitoring and tracking the progress of a capital project is essential, as it assists with managing internal team members and work packages and managing work performed by different contractors working on the same project.
An established monitoring and tracking framework should:
“Building execution readiness increases a project’s chance of success. The elements must be actively managed and integrated into the project management framework. Successfully doing so will provide the project team with the tools to manage the project proactively and with foresight, and also establish a powerful mechanism for aligning all stakeholders,” says Johnson.