Learning from the past to build successful projects

The mining boom at the start of the decade was a period of growth not previously seen in the industry.

Companies around the world committed to multi-billion-dollar mega projects to develop the mines that are driving the production of all major commodities today.

As Deloitte’s 2019 Tracking the Trends report explains, a downside of the rapid development was common stories of project cost blowouts, sub-par returns and impairment charges.

Undeterred by these setbacks, mining companies commonly moved on with a development-at-all-costs mentality to capitalise on the surging commodity prices of the time.

Then the mining downturn arrived… and with that, companies adopted a more cautious approach that avoided the risks of capital projects.

They instead introduced leaner business models, with a focus on lowering their cost base and improving productivity at existing operations.

As a result, global mining capital expenditure declined from a peak of more than $US80 billion ($117 billion) in 2012 to below $US30 billion in 2016.

Since that low, market conditions have improved and companies have launched a new wave of projects in an effort to meet emerging supply shortages.

By 2020, it is expected that capital project expenditure will again be above $US40 billion.

Australia has been a leader in the resurgence, with the Pilbara iron ore industry a standout example of an area where project activity has returned.

Over the space of six months in 2018, Fortescue Metals Group (Eliwana), BHP (South Flank) and Rio Tinto (Koodaideri) approved major new developments in the region.

The iron ore majors, joined by companies across a vast range of commodities, have committed to projects with a focus on learning from the mistakes made during the boom.

Deloitte consulting partner Lewis Stewart says the fundamentals of capital projects to manage and optimise performance, time and money haven’t changed.

However, he believes companies are now rethinking how they strategise the scope for these projects.

“The reality is that if you start off with something that’s over optimistic from a scope point of view, that in itself, is the beginning of the end as far as its ability to succeed,” Stewart tells Australian Mining.

“One of the most typical things we see is this natural optimism bias that comes into the estimation process before the project reaches the final investment decision and moves into construction.

“People will want to make a billion dollar project look like something that will only cost $500 million if that’s the hurdles rate to investment approval.”

Stewart says an appetite to take risks in order capitalise on high commodity prices has led to some junior and mid-tier companies pushing projects through the exploration stage into construction quickly.

“There is an up and downside to that. The reality is that whilst some companies will succeed, there is a downside where companies have fast tracked through discovery and studying the asset too quickly to end up with a situation where the geology of the rock is not as plentiful or as easy to extract as first thought,” Stewart says.

“They end up with a different project as a result and to get some value out of it have to invest more capital.”

The mining industry has, however, changed since the mining boom, particularly from a technology perspective and how it partners, to avoid past mistakes.

Mining now has an arsenal of digital tools that can be used to enhance the planning and modelling of capital projects. Projects are no longer hampered by siloed information systems that restrict efforts to share data across the supply chain.

Instead, mining companies, often the majors, are adopting systems that efficiently distribute data across the supply chain, enabling consistent reporting and predictive analytics.

“There is an increased expectation and demand for digital capital projects, which ultimately digitise all of the information that sits at different levels across the project,” Stewart says.

“Companies can provide that information and key insights to the people that have to make decisions at the execution stage – whether that is the guy running an area on the site or someone who takes more strategic decisions at a steering committee level.”

Mining has followed industries such as property and oil and gas by adopting technologies like building information modelling (BIM), a solution that provides a 3D model of a project in development.

The value of BIM goes beyond the project and commissioning stages, Stewart adds.

“Ultimately you have a digitised engineering data library that can be handed over to operations to support maintenance of the physical asset and provide a digital asset which can form the foundation to build digital twins,” Stewart says.

“That digital asset is becoming quite prevalent in speeding up engineering design and handover from construction to operations.”

The digital element of capital projects continues to develop as companies explore more uses for the advanced analytics solutions they have introduced.

For example, machine learning and artificial intelligence are showing potential to play a key role in ensuring project success, Stewart continues.

“The use of machine learning and artificial intelligence are starting to enable operations to continuously monitor assets and either augment operating parameters or provide key decision support to operators, in order to enable higher availability and reliability of productive assets,” Stewart says.

“If you can break the paradigm of how available and reliable an asset is then you can potentially look at building a smaller asset and still get the same production throughput, which then gives upside to the total CAPEX for some processing assets.”

Mining companies are also rethinking how they partner with contractors and suppliers on their capital projects.

In the past, they often took a traditional EPCM (engineering, procurement, construction management) approach to deliver projects. Now, companies are considering alternative strategies, according to Stewart.

“I think people are trying to understand, both on the contractor and supply side as well as the buyer side, what the right mix is to get the best out of a project,” he says.

“That could mean a big partnership or a more discrete partnership where they are working in an integrated way, side by side with common goals.”

These new strategies, and more, are changing how capital projects are designed and developed, creating an industry that wants to be better prepared for both ends of the mining cycle.

This article also appears in the September edition of Australian Mining.

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