the world’s leading sustainability consultancy project value erosion due to non technical causes...
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The world’s leading sustainability consultancy
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
2
Concept Feasibility Execution Operation Closure
Option 1
Option 2
Option 3
Option 4
Prefeasibility
NP
V
Theoretical NPV
NPV including risks
The world’s leading sustainability consultancy
Length of delay
(months)
Oil and Gas Mining
2 - 6
7- 12
13 – 24
24+
Delayed extractive projects with CAPEX greater than $500m
3Source: ERM Analysis
The world’s leading sustainability consultancy
No details available
Technical challenges
Revenue sharing
Commercial issues
Adverse weather
Health & Safety
Land Access
Permitting issues
Environmental concerns
Lack of social acceptance
6%
3%
6%
35%
3%
6%
6%
23%
35%
42%
Causes of delay*
Extreme weather
Less than a third of mining projects were delivered on schedule
6
Mining project delays (2008 – 2012)
*Does not sum to 100% due to multiple causes of delays
Non technical causes
Delivered on schedule
No delay reported, project in progress
Delayed
0% 20% 40% 60%
30%
24%
46%
Other causes
Source: ERM Analysis
The world’s leading sustainability consultancy
Projects with non-technical causes had longer delays
7
81% of delayed projects had one or more non-technical cause
2-6 7-12 13-24 24+0
1
2
3
4
5
6
7
8
9
4
5
8 8
1
2
1
2
Length of delays where causes were identified
Non-technical causes identified
Only technical and commercial causes
Delay in months
Num
ber
of p
roje
cts
Source: ERM Analysis
The world’s leading sustainability consultancy
8
Greenfield projects suffered greater delays than expansions
64% of greenfield projects were delayed compared to 29% of
brownfield expansions
Greenfield Brownfield0
5
10
15
20
25
30
35
40
4 4
17
6
12
24 No delayNon-technical causesOnly technical and commercial causes
Greenfield versus brownfield project delays
Num
ber
of p
roje
cts
Source: ERM Analysis
The world’s leading sustainability consultancy
9
Understanding external stakeholders is key to project success
NPV erosion Loss of access to future
resources Loss of shareholder trust Careers limited
Consequences
Social impacts
Environmental impacts
Water reduction / pollution
Visual impacts Biodiversity loss etc.
Physical displacement Economic displacement Change in quality / way
of life etc.
Stakeholder
expectations and
perceptions
Mining projects have a number of impacts
Which create risks when stakeholder acceptance is not obtained
The world’s leading sustainability consultancy
10
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?