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TABLE OF CONTENTS Dec 10 - 16, 2012 Volume 98 Number 43 - 0 comments

Commentary: Miners could save billions on capital projects

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The following is a condensed version of a summary by Accenture of its latest research into capital spending.

Faced with delays and budget overruns — which can add billions to total project costs — mining and metals companies could reduce the cost of large capital projects by improving planning and addressing workforce shortages, according to Accenture research on capital projects delivery in mining and metal industries.

Our research was based on 31 interviews between February and May 2012 with mining and metal executives responsible for capital projects around the world. Less than a third (30%) of the respondents report staying within 25% of approved budgets for all projects, and less than a fifth (17%) said they completed all projects within a 10% budget range.

The tremendous scale and complexity of mining projects — which are often multi-billion dollar investments — mean that budget overruns and delays in completion are not unusual. Among the contributing factors are infrastructure needs such as roads, ports and electrical power in less-developed regions; a lack of talent and skilled workforces; and environmental and regulatory requirements in developed regions.

When asked what typically causes delays in project schedules, survey respondents cited the availability of talent (57%), new or unconsidered regulatory requirements (45%) and insufficient detail during the planning stage (42%). Metal companies tend to have fewer delays and smaller budget overruns due to the reduced size and complexity of plants as opposed to mining projects.

Accenture research estimates that metal and mining expenditures for capital projects will reach more than US$140 billion in 2012, and between US$1 trillion and US$1.5 trillion during the period from 2011 to 2025.

Even with the current downturn in commodity prices, long-term demand for minerals and metals, driven by economic growth and social development throughout the world, is spurring investment in mining and metals. With US$100 billion to $200 billion in annual spending, the impact of project delivery overruns on individual companies and the industry as a whole is enormous.

The potential savings and returns through effective management and delivery of a capital project investment can be huge, says Jose J. Suarez, managing director for Accenture’s North American mining industry group and the research lead. He argues that keeping on budget and within planned timelines across a portfolio of multi-year projects can save millions for a company.

More than two-thirds of the survey respondents indicated that their portfolio of projects would grow larger, and 81% said their complexity would increase. When asked about their top priorities in optimizing capital project management in response to the expected growth in project size and complexity, the executives cited ensuring the availability of the right leaders and talent for project delivery (72%), improving front-end planning and scheduling (52%), improving readiness for start-up and a more effective transition from planning to operations (43%), and effective stakeholder engagement (39%).

Based on the research findings and Accenture’s experience working with mining and metal companies, Accenture has identified five major areas for improvement in project delivery:

1. Establish strong project governance and risk management capabilities. Multi-year capital projects have many variables, making strong governance and managing risks essential requirements.

2. Proactively manage stakeholders’ increasing expectations for sustainability. The already broad range of environmental issues, including biodiversity, is growing, and concern for sustainability is becoming a major barrier to moving forward with capital projects.

3. Optimize scarce talent through portfolio management, organizational flexibility, selective outsourcing and training. Since talent in a range of areas will be in high demand for many years to come, companies should find the best ways to leverage resources, develop a strategic talent plan to identify and train the next generation of workforces and improve productivity and safety with better training, especially with new hires who have little or no mining and construction experience.

4. Integrate information systems among capital project players. A project’s progress cannot be measured if proper data standards are not established at the beginning and integration between the information systems of functional areas and service providers is not promoted throughout the project’s life.

5. Accelerate operational readiness. A well-planned and managed handover process — from a completed project to operational readiness — can help companies avoid rework and delays and support high production levels from the initial operation of the mine or plant.

Suarez commented that while it is difficult to anticipate all of the changes that can arise from a multi-year project, companies can improve their project management delivery, reduce risks and boost returns on investment by looking beyond aspects of engineering and procurement. To be leading performers, he concludes, companies will need to focus on governance, human capital strategy and integrating information systems with business suppliers and operations.

— Accenture is a global management consulting, technology services and outsourcing company, with 257,000 people serving clients in more than 120 countries. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012. Please visit for more.

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