One of the biggest challenges facing the mining industry in the currrent climate is achieving project viability. Our practical experience in the field, and our analysis of mineral exploration trends tell us that viability is proving more and more difficult, and that this will continue.

Across the world, “easy” deposits have mostly already been found and largely depleted. New resource bodies increasingly display challenging characteristics. They are smaller, deeper, of lower grade, chemically and geometrically more complex and often more geographically remote. Add to this increased political risks, sustainability expectations and environmental compliance requirements, and achieving project viability is placed under significant pressure. “Dripping roast” projects – where profitability is sustained at low levels of operating costs – are increasingly rare.

Since resource characteristics cannot be changed, and sustainability and environmental compliance concerns are non-negotiable, the only viable alternative is a focus on the venture’s value proposition. If a project’s value is defined by its function (the processes that define and support it) over cost, it follows that value is increased by improving function or decreasing cost, or by decreasing function and decreasing cost proportionately.
The view that value automatically decreases when function is decreased is misguided, and PPM, a resource-focused comprehensive project management business, believes that decreasing function often provides the biggest opportunity for substantially reducing both capex and opex costs and drastically improving the venture’s value. Keeping function constant, by contrast, yields limited success.

PPM advocates an obsessive focus on improving the dollar-per-hour of product value output from the mine as a key metric. This ensures that efforts are made to enhance this value throughout the complete mine unit process chain – from mineral resource estimating, to mining, treatment plants, associated infrastructure, human resources, safety and health, the environment, and corporate management – and invariably simplifies superfluous processes, people, and systems.

An example of this is the improved value that was achieved by PPM on a recent diamond mining project in Botswana. A robust and critical review of all functional processes, including a change in metallurgical technology, yielded a 60% decrease in the capital requirement, while the business objectives and drivers remained unchanged. The value-engineering component of this work regarding engineering and estimating efficiencies contributed a mere 6%.

Traditionally, and over time, over-elaboration and conservatism has crept into every facet of project delivery processes, negatively affecting their value contribution. Interestingly, there is significant resistance to this innovative function-decrease approach from mining companies – even some juniors. This may be because they have their roots in the large corporate world where an obsession with high levels of redundancy, risk aversion and reputation paradigms result in over-elaboration and, consequently, higher costs.

PPM contends that reputation should not be linked to the grandeur of the structures concerned (which contribute unnecessarily to the pressure on project viability), but should rather be linked exclusively to the realisation of cost-effective, efficient and profitable mining operations, where employee satisfaction, sustainability and environmental compliance are primary pursuits. This is best served by adopting a value management approach where the contributions to value by all the venture’s functional elements are robustly interrogated. This delivers a “stripped down” solution adequately responding to the geo-political and technical resource challenges – inevitably improving viability. PPM applies this through a process called strategic value management, which utilises classic and well-established value management practices but is unique in its application to maximising value.

In order to adequately respond to the increasing challenges associated with project viability, PPM encourages a return to a mind-set where innovation rules, and where preconceived ideas of how “things should be done based on how they have always been done” are challenged and changed. We advocate the development of an environment where there is an obsession to see the obstacles of a challenging resource overcome and a thriving, profitable mine established, thus benefitting owners and shareholders and the community within which the mine is embedded.

Louis Meijer is the Managing Director of Paradigm Project Management, a comprehensive project management business with specialist skills and experience in capital projects, specifically within the mining industry.